India’s GDP forecast of 6.S per cent is an impressive number but sadly not enough
The most remarkable achievement in terms of economic progress of the past quarter-century has been China. The People’s Republic of China cast of years of Mao’s diosyncratic policies and opened up. As a result of this, not only has China become a global economic powerhouse, but it has successfully managed to raise hundreds of millions of people out of poverty and deprivation. One could argue that Chinese economic growth is not equitable, much of the profit has been taken by those who know the importance of ‘guanxi’, what one would call ‘networking’ in business lingo. Yet there can be no doubt that the reason the Communist Party of China is still in power in that country is because they made an unspoken covenant with the people and promised economic progress. For years, China grew at an unprecedented pace, numbers topping 10-12 per cent annually, year after year. India was left far behind, mired in red tape and intractable levels of corruption. It was not as if there was no corruption in China, but if you spoke to people who did business in both countries, even Indians, they would tell you that in China, corruption brought results.
India, as a result, grew, but at a much more sanguine pace – a pace that was impressive but nowhere near China’s. Unfortunately, it may not be enough to keep growing at seven to eight per cent, and 6.5 per cent growth is a problem because India has a job and employment problem. Unlike China, India did not impose population control. So, while China’s population will peak at current levels, India will keep growing even with lower fertility levels, some estimates put India with a population exceeding 1.5 billion people by 2050. And economic growth in India has been even more inequitable than in China, primarily because it has not grown fast enough. India’s prime consuming class is just around 20 million households and unless domestic consumption grows, the economy cannot grow because arbitrage opportunities in manufacturing and services industries are declining and there has been a renewed sense of economic nationalism in developed economies, such as the US. At the same time, India’s economic fortunes still revolve around an annual weather event, the monsoons, a couple of poor monsoons and there are no print- able adjectives to describe the fortunes of the economy.
The fact is that every year, for the next few years, India will need to find formal employment for 1.5 million people. And for that to happen, in times where mechanical and software automation is on the rise, there will be a challenge and we will need in excess of eight per cent growth. There is no doubt that the Narendra Modi Government has laid the foundations for growth, but there have also been a few questionable decisions, such as a needlessly complicated Goods and Services Tax (GST) compliance. Sure, the Government has also taken steps, such as the GST,to imposed cess on fuel to improve tax collection, funds that should be used to supercharge the Indian economy through home-grown infrastructure and manufacturing projects. However, the question is whether electoral compulsions might force the Finance Ministry to dole out sops in the forthcoming Union Budget. However, the best sops that the Government could dole out are more jobs and fairer growth.It is also important that in a democracy, the Opposition aids in this growth and comes up with some good ideas of their own, instead of stalling. India has no options, the country has to grow economically or forever remain in limbo.