Can India become next economic powerhouse?

By Deepak Parvatiyar

September 24, 2014

It was in December 2012, at a time when Indian economy faced a declining curve that the US intelligence predicted India’s emergence as an economic superpower by the year 2030 by riding high on its large working-age population.
Recently eminent journalist, Farid Zakaria, after interviewing Prime Minister Narendra Modi, too triggered a fresh debate on the lasting repercussions of Modi’s elevation as PM on India’s economy.

Indian Economy: Strengths and Weaknesses

Before we evaluate the probable scenario, it is a fact that India is already the world’s fourth largest economy.
Still we grapple with the problems of holistic development. We are not yet a developed country in the sense the world perceives a developed nation to be.

An accepted definition of an economic superpower is a nation with robust financial powers and resources, whose economy could influence the economies of other countries. India with a beaming neo middle-class has indeed emerged as a huge market for other economies. In that sense, it does today influence other nations.

Obviously, the opening up of the Indian Economy in 1991 spurred the growth of the country as the end of the license raj opened up markets and encouraged private participation. This did spur economic growth by creating more employment avenues.

Factors Impeding India’s Emergence as Economic Superpower

Yet, the lack of adequate checks and a systematic erosion of market intervention mechanisms to curb monopolistic inclinations of crony capitalists have created imbalances in the growth.

Over two decades of liberalisation indeed created a large middle class with an increased purchasing power, but it also created a huge chasm too in the society as liberalisation surreptitiously  encouraged certain oligopolistic trends because of a corrupt connivance of politicians, bureaucrats, law enforcing agencies and crony capitalists. Time and again such unholy nexuses have left the government coffers bleeding and the level of corruption in recent years has increased by leaps and bound.

Decline in Industrial Production

A true indicator of a robust economy is its production capabilities, whether industrial or agricultural or both. But our industrial production has shown a slump in recent times and the measures to pump it up have proved ineffective. Global recession is one of the major reasons for the industrial  slowdown.

Can Modi’s ‘Make in India’ call arrest such slump is to be seen. But even such a measure demands a conducive manufacturing environment and requires a huge investment for infrastructure development, besides a transparent policy to check corrupt practices!

Agricultural economy; Lack of Social Security

Even our agrarian economy is dependent on monsoon and even this year the country reels under the vagaries of a truant monsoon. Can such a scenario ever lead us to become an economic superpower?

A larger issue though is that despite our progress in the last two decades, our economic prowess has not really translated into improving the quality of living of the common citizen desirable of an economic superpower. We lack social security coverage for our citizens. A random National Rural Employment Guarantee Act to create rural employment has failed to fetch desirable result. The much touted Prime Minister’s Jan Dhan Yojana to create bank account for the poor and provide them an insurance cover, seems to be a good initiative but its efficacy is yet to be gauged.

Millions living in Abject Poverty

Much has been said about the ridiculously unrealistic figures of the poor that were prepared by the Planning Commission during the regime of the previous United Progressive Alliance regime. Now a committee under former Reserve Bank of India Governor C. Rangrajan estimates that at least 29.5% of the 1.2 billion people living in India are poor. This makes 363 million people living in abject poverty and their daily income is not even Rs 50 per person. Compare this with the National Floor Level of Minimum Wage of Rs 115 per day (Roughly $2.05 per day)!

The minimum wage for the workers in the unorganised sector in India cannot be compared with that of an economic superpower. France pays $10.85 per hour and the US $7.25 per hour to its workers as minimum wage !

Indeed it is an indicator of lopsided economic development that has created a huge gap between the rich and the poor. Yet, those earning a partly $ 2 per day are not considered poor but a part of our growing middle-class because the Asian Development Bank considers a middleclass to consume on average $2- $20 a day. Consider the census the 2011that shows that only 4.6 per cent of India’s population has ownership of all four assets – television, computer/laptop, scooter/car and telephone/ mobile phone.

So can we say that our middle-class theory is a myth in the absence of people-centric planning in our country that necessitated the government to explore the possibilities of replacing the Planning Commission of India with some other more appropriate body?

Can India become an Economic Powerhouse in Future?

We do need to address issues of people-centric planning to emerge as an economic superpower that could influence the world economy in the real sense and not just in a notional, inflated term.

The present government’s thrust on skill development in this context is a good idea and should spur economic activities. Besides, there are many factors that make the country optimistic of emerging as an economic superpower. One such big reason to sound optimistic is that India is already the second-most-preferred destination for foreign investment. Besides, it has the largest number of working age population which continues to grow until 2045. It is also being pointed out that India’s dependency ratio (ratio of dependent population to working age population) will decline from 60% currently to 48% by 2025. And hence its savings rate will rise from 24% of GDP currently to 37% by 2025.

These all, coupled with the American prediction, bode well for India’s prospects as an economic superpower. What it requires is the political will and transparent policies to accelerate growth.