India marked 75 years of independence by overtaking former imperial power Britain as the world’s fifth-largest economy. According to figures released last week by the International Monetary Fund and based on US dollar calculations, India’s economy overtook that of the UK in the last quarter of 2021 and extended its lead in the first quarter of 2022.
With a projected growth rate well above that of Britain – including 7.4% growth this year, the highest of any major economy – its GDP is expected to be a fifth larger than ours within five years. . It is also quite possible that within the next decade, India will overtake Germany and Japan to become the world’s third largest economy (after the United States and China).
So, is it going well for the Indian economy?
Pretty good. At independence, India was an impoverished nation with a GDP of around $20 billion and a life expectancy of only 37 years for men and 36 years for women. Only 12% of people were literate.
Today, India is an economy of nearly $3 billion. Average life expectancy has almost doubled to 70 years, and the literacy rate is 82% for men and 65% for women. The World Bank upgraded India from a low-income country to a middle-income country, meaning a gross national income per capita of between $1,036 and $12,535.
The country has a thriving IT sector and more than 140 billionaires, more than anywhere else except the United States and China. It has around 100 unicorns (unlisted start-ups worth over $1 billion), which ranks third behind the United States and China.
But all of this paints a rather misleading picture of a country where only 20% of women are formally employed (half the average level of comparable economies), youth unemployment is estimated at 40% and the average income per capita is not than $2,200. India is no richer, compared to the rest of the world, than it was at independence.
But he was held back by socialism?
In 1947, India was the sixth largest economy in the world, but an extremely poor country, with an average income of 18% of the world average. By the early 1990s it had become the world’s 12th largest economy and was even poorer compared to the rest of the world – but since then it has risen to 18%.
This “distressing V-shaped development path is a legacy of India’s original choices” and the dominance of socialist planning in the decades following independence, Ruchir Sharma says in the Financial Times. In other developing countries in Asia, the state has often granted economic freedoms first, followed by political freedoms. “In India, the state first granted political freedom to a poor nation, but in a socialist economy that never fully embraced economic freedom.”
What changed in the 1990s?
A sharp debt crisis and runaway inflation have forced a rethink of the socialist model of protectionism and state intervention, Rhea Mogul says on CNN. Economic reforms introduced by Prime Minister PV Narasimha Rao and his Finance Minister Manmohan Singh have opened the country to foreign investment, helping to “boost” direct investment by American, Japanese and Southeast Asian companies in major cities like Mumbai, Chennai and Hyderabad.
Over the past three decades, India has climbed the rankings of the Heritage Foundation’s “economic freedom” list. But even now it remains in the bottom 30%. And even though India has seen its GDP increase tenfold since 1990 to $3.2 billion and its per capita income more than quintuple, it has been overtaken by China on both counts. In 1990, the two countries were roughly comparable on both measures; now China is five times bigger and richer.
What did Modi do?
In 2014, when Narendra Modi became Prime Minister, India was the world’s tenth-largest economy, and the years since have seen steady expansion, with 40% growth over the next seven years. This growth was the second behind China, among the major economies, with 53% over the same period. Modi and his political party, the BJP, have thrived electorally by “deftly blending Hindu nationalist identity politics with the welfare of the poor and a pro-business platform,” Benjamin Parker told the Financial Times.
But it was far from simple. A botched demonetization policy in 2016 caused chaos. Agricultural reforms were shelved last year after fierce, sometimes violent, opposition from farmers. Even before the coronavirus pandemic and India’s particularly chaotic lockdown plunged the economy into a historic recession in 2020, its growth rate had halved, from over 8% in 2016 to just 4% in 2019.
What is the situation in India now?
India is recovering reasonably strongly from the pandemic thanks to the resilience of key sectors such as construction, mining, power and manufacturing, as well as hospitality, leisure and transport. However, inflation and the global slowdown are major concerns.
As the pandemic recedes, there are “four pillars” that will support growth over the next decade, according to The Economist: creating a single national market in a vast country with stark regional differences; an expansion of industry; continued pre-eminence in computing; and a high-tech social safety net (“tech stack”) for the hundreds of millions left behind by it all. But there are also considerable risks.
What are the risks ?
Modi’s government is very much right, but its “abhorrent hostility” to India’s large Muslim minority, its desire for linguistic and cultural conformity in a highly diverse country, and its “sinister tendency to undermine rival sources of power”, for example by intimidating the press and the courts – all of which risk stoking political and economic instability and even fostering secessionist pressures in wealthier states.
Meanwhile, the BJP’s ambivalence towards foreign capital means its ‘campaign for national rejuvenation risks regressing towards protectionism’. There is a risk that over the next decade Modi’s rule will “turn into autocracy”. The “Rockefellers and Indian tech stars hope the country’s economic modernization and unification will outlast its politics of division.”
