Largest and fastest growing economy in the world

India is one-sixth of the world’s and is today the third largest economy in terms of purchasing power parity. India is also the 6th largest economy when measured by nominal dollar exchange rate. It has grown at an average annual rate of 7% over the past 40 years, from her $189 billion in 1980 to her nearly $3 trillion today.

Although this growth rate is about 2% lower than China’s growth rate during the same period, it shows a high rate of return when compared to the investment rate of GDP.

Until the year of the COVID-19 pandemic, India had not had a year of economic contraction or negative growth since 1980.

It has been growing continuously, with a peak rate of 9% to 10% during that time. As we celebrate the 76th Independence Day, it’s worth remembering that the nascent country was very poor thanks to centuries of colonial exploitation. Heavily dependent on foreign aid for food and foreign exchange, the average life expectancy was only 32 years. Illiteracy was very high.

The scale of economic change from the lower leagues to the upper leagues in this country is staggering. India today is not only self-sufficient but also a food exporter. That’s a far cry from having to beg for his IMF, which holds her fifth-largest foreign exchange stake, is a net lender to the International Monetary Fund, and is on the brink of foreign exchange bankruptcy in 1991. .

confident foreign investor

Foreign investors have poured a cumulative $5 trillion into India over the past 30 years after the economy opened up. This reflects their confidence in their growth potential. India is a rare country in Asia with a persistent current account deficit, as imports always outstrip exports. Yet foreign investors, unhindered by the trade deficit, pour investment dollars into factories, businesses and even the capital markets, keeping India’s balance of payments consistently in surplus.

Foreign investors are confident that even with the twin deficits (fiscal deficit and external deficit), economic growth driven by demographics and dynamism can make up for the deficit. Thanks to consistent economic growth, extreme poverty rates have plummeted from nearly 50% to perhaps his single digits, and life expectancy has more than doubled since 1947.

Politically, India’s robust democracy stands in contrast to the dictatorships of its wealthier northern neighbors. As a democratic republic, India is the only newly independent country from the last century, and from the beginning she set out for ordinary adult suffrage, giving one person her vote. Surviving for 70 years and thriving all at once is a small miracle in itself, despite the immeasurable diversity of religion, race, language, culture, cuisine, and every other dimension imaginable. . Many great powers, such as the USSR, split into smaller schisms. I am not saying that Indian democracy is perfect. Nevertheless, since the first national elections, the country has witnessed her 16 almost bloodless and peaceful transfers of power. This is only the envy of other ex-colonial developing countries.

A military coup is unthinkable and unthinkable. And this is not just a South Asian feature. See what happened to our twins born on the same day. This trait is built into resilience, endurance, political malleability, and the sanctity of our founding principles and constitutions. Export pessimism generated by capital, a low tax base, and perhaps suspicion of colonial rule.

India was more inward-looking and influenced, if not enthralled, by the Soviet model of planning and development. In hindsight, it can be argued that it should have been abandoned much earlier than when we actually did. , supported by low-wage commodities (i.e. food prices), necessitated agricultural input subsidies, yielding benefits in terms of infrastructure and the green revolution. Stayed longer than necessary. India also missed the bus, capitalizing on labor-intensive export-driven growth unlike its East Asian neighbors. But after the 1991 shock, the economy opened up dramatically.

India’s GDP ratio is an indicator of its openness and is higher than that of the United States. Today, it is the world’s leading exporter of software and a driving force for outsourcing.

Indian workers send nearly $100 billion in inbound remittances, strengthening the Indian economy. Indirectly, it’s like India’s labor export earnings.

The economy has great domestic momentum and can grow only after per capita income exceeds $3,000 or $4,000. Other signs of strength include the proliferation of unicorns (which are appreciated by equity investors), exponential growth in e-commerce and digital payments, and an expanding industrial base.

Agriculture is less dependent on the whims of the weather and diversification into more climate-, soil- and market-friendly crops is evident, as is a huge growth in the livestock and dairy sectors. In particular, we are meeting our very ambitious targets for solar energy ahead of schedule. The merging of cheap solar power and a large-scale hydrogen economy holds the promise of an energy surplus, not a scarcity, and an import-dependent economy.

negative side

The economic glass is more than half full, but the negative aspects cannot be ignored. Unemployment remains a major challenge and young people are still vying for government jobs. The government recently revealed to parliament that in the past seven years he has 220 million Indians applied for government jobs for just over 7 million.

Moreover, female labor force participation is surprisingly low. Job creation is a top priority, even though nearly 70% of industrial jobs are threatened with extinction thanks to automation and robotics. Despite running the world’s largest and longest-running food grain free distribution program, India’s ranking in the Global Hunger Index is abysmal, indicating a skewed distribution of economic growth. Inequalities in wealth, access to quality education and health care facilities have increased to unacceptable levels.

Therefore, there is a trend toward more welfare spending, increasing fiscal pressure. Creating 10 million jobs a year would require the creation of hundreds of thousands of new businesses. This requires making business easier, especially in areas such as dispute resolution and contract enforcement. But the judiciary is stuck with his nearly 50 million cases. Justice reform is as urgent as job creation. India is the fastest growing large economy and is proud of its democratic foundations, but much work needs to be done in the coming decades.Happy Independence Day!

Ajit Ranade is a Pune-based economist.

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