How bright is India's future in 2039?

Business Times - 22 Jul 2009

By YOGI AGGARWAL

FOR anyone living in India and witnessing the heady economic growth of the past five years, a niggling doubt remains about the sustainability of the current spurt.

We have plodded too long at the 3.5 per cent 'Hindu rate of growth', and watched many countries pass us by on the road to prosperity, not to be sceptical about the present upsurge. And while much has changed in the country, much has not. Though we would like to believe that our children or grandchildren would grow up in a very different India, we fear that the promised future would not materialise.

Now, as if to reassure us, the Asian Development Bank (ADB) has commissioned a study whose very title says it all: India 2039: An affluent society in one generation.

This study says that India could be a US$36 trillion economy by 2039 with a per capita gross domestic product (GDP) of US$22,000, up from a US$1 trillion dollar economy in 2007 with a per capita GDP of US$940.

This is no rose-tinted look at the future but a cautionary tale that warns of the risks ahead of falling into a 'middle-income trap' 15 years from now with a US$5,500 per capita GDP, about the same as Brazil or Mexico, 'unable to compete with low income, low wage economies in manufacturing exports and unable to compete with advanced economies in high skill innovations'.

To sustain growth of near 10 per cent over 30 years, India must be a 'marathoner' rather than a sprinter and must 'understand the world it is operating in and the changing shape of its economic footprint'.

Further, it contends, marathoners are distinct in the 'single-minded pursuit of their economic and social objectives spanning the terms of several governments', adding: 'The marathoners did this by creating the institutional capabilities to develop and periodically re-evaluate long-term strategies, set targets, monitor achievements.'

The report sees seven challenges ahead, of which five seem critical, and many of which are being addressed as part of the agenda of the Indian government with varying degrees of success. These include a need to eliminate infrastructure bottlenecks; create functioning cities for sustaining growth; make improvements to the education system; a need to tackle disparities in income and opportunity; and spread its prosperity in South Asia to help make it a stable region.

For this, better governance is needed as well a political culture that that is focused around economic issues and not the present identity politics of religion and caste.

While there is little in this paper that has not been said before, its main advantage is that it argues its view in a sustained manner in the context of development. One criticism against it is that it does not sufficiently realise the enormity of the social changes involved, nor say much about how new challenges that arise can be met.

In its enumeration of the present challenges, it goes further than most such reports in recognising that 'there is a risk that India will evolve towards a condition of oligarchic capitalism, in which the market and political power of major corporations will become a drag on long-term growth and a source of distortion in policy design'.

It warns that not only is this model not sustainable, 'it is potentially disastrous, as it could bring into disrepute the entire system and launch a popular backlash that will be difficult to contain'. Equally important is the need for an honest bureaucracy capable of meeting the needs of a complex economy.

Some changes are beginning to take shape: recent actions of the government such as the Right to Information Act have brought some transparency in the system and have made corruption more difficult to conceal.

The study is equally perceptive about the inequalities that run through the social fabric. These include not only the deprived scheduled castes and tribes but religious minorities. All of them lack sufficient opportunity and, the study warns, if 'inequalities are not addressed, the project of economic prosperity might come under serious political strain'.

This has been recognised in the affirmative action programmes for scheduled castes and tribes over several decades and in recent programmes such as the National Rural Employment Guarantee Act (NREGA) which is helping to reduce rural poverty.

India 2039 recognises that the country is, in one sense, unique: 'The first country to experiment with universal franchise before an industrial revolution could even be visualised as a near possibility.'

Though the challenge is immense, meeting it would only restore India's historic position. Before 1700, India produced 25 per cent of the world's output. With the fall of the Mughals, the British conquest of India and post-colonial socialism, the country's share of global output gradually fell until it reached one per cent in 1992.

A lot of things have to go well if India is to regain its former position in the world.

The writer is a Mumbai-based journalist who contributes regularly to BT