A ghamasan—my apology for using a Hindi word, but I couldn’t find an equivalent English adjective that captures the nettlesome turbulence, the violent verbiage that ghamasan graphically portrays—has broken out over India’s three sweeping, but contradictory, macro-economic moves in a single breath.
We declared a scorching real GDP growth of 8.2 percent; the rupee plummeted to a psychologically searing 90-to-the-dollar mark; and then we cut interest rates by 25 basis points. This tri-policy action triggered a tsunami among the commentariat.
Ghamasan_1: Is this GDP print real or cooked up? After all, nominal GDP growth has fallen to a six-quarter low, while real GDP growth is soaring! Is that even probable, or just a statistical illusion created by an artificially low inflation deflator of 0.5 percent? if we were to deflate by the more scientific “core inflation rate” of 4 percent, the real GDP growth would be an anaemic 3 odd percent. So, what are we celebrating?
Ghamasan_2: If growth is leaping, inflation is near zero, and the real interest rate is at a peak, the rupee should be rapidly strengthening, not falling off a cliff! Where’s the fudge, ask the sceptics.
Ghamasan_3: By cutting interest rates when growth is strong, aren’t you colliding with a hundred-year-old policy truism, ie that interest rates should be cut only to stimulate weak growth? So, are you playing with fire, by igniting “unabsorbable” growth, which in turn could re-kindle inflation?
As you’ve guessed by now, these ghamasans are academic calisthenics that economists, politicians, and hacks love to jostle around. Frankly, they mean little in the real world.
Why? Because the core variable exciting all these debates is GDP (gross domestic product), which is a highly approximate, hard-to-accurately-measure and questionable estimate. I mean, if five times more people had died in Covid-19, our GDP would have risen smartly. Ouch!
India’s Economy is Neither Jumping With Joy, Nor Slumping In Despair
So, when we pump up with pride that our GDP is going to cross Japan’s, we are dancing with red herrings. And when we slump in dread that our per capita GDP is still a lowly 140 out of 193 countries, we are getting scared of shadows. The truth is not at these extremes of joy and despair.
But then, what is the real strength of our economy in the current era? To answer that question let’s examine hard, modern data points—not estimates—that will create EVMs in the 21st century.
EVMs? Yes, Economically Viksit (ie, Development-oriented) Muscles. EVMs!
First, let’s disabuse ourselves of the notion that we are in the same league—or about to get into it by 2047—as America and China. No sir, those two are SuperEconomies. I will give you just one critical, contemporary measure to show how relatively puny we are compared to the G2 (thank you, Mr President, for coining that term!).
America’s investments in AI infrastructure are at half a trillion dollars. China is pursuing swiftly with nearly $ 115 bn. We, India as in Bharat, are at a paltry $ 11 bn—of course, this will change once the giant AI data centres announced by Google and Microsoft get erected. But by then, America and China are likely to have bounded ahead.
India’s Cohort is “Quasi, Tier-2 SuperEconomies”
Now let’s come to the cohort that we can legitimately claim to be “at the threshold of”. We must celebrate “vanquishing” the GDP of our erstwhile colonial masters, the UK—after they had plundered and left us penniless in 1947. We’ve also become bigger than Germany and are tangential with Japan. Let me throw in South Korea to complete the mix.
That’s our cohort—Japan, Germany, UK, Korea, and India. Let’s figure out how we rank within this matrix of “quasi, tier-2 SuperEconomies”? Who is doing what to bulk up on EVMs, ie creating Economically Viksit (Development-oriented) Muscles?
AI Investments: Our $ 11 bn compares honourably with Germany’s $ 13 bn and South Korea’s $ 9 bn; but the UK is in the lead with $ 28 bn.
Number of Industrial Robots per Ten Thousand Workers: South Korea’s streaking ahead with over a thousand (more than China and America!). Germany is at 415, Japan is at 397. Both UK and India are not in the Top 10 spots.
Number of Data Centres: Germany, UK, and Japan make the Top 10, but India and South Korea don’t. Again, with the planned thrust by Google and Microsoft, India could get a leg-up soon.
Largest Shipping Ports: Busan in South Korea makes the cut, but none of the others do. Here too, India is building some big ports, and should get in the game in the not too distant future.
Steel Production: Attaboy India! At 150 million metric tons, we are 15 percent of China, but the second largest producer in the world. And we are rapidly moving ahead of the others in the pack.
Global Equity Markets: Japan’s $ 7.5 trillion is good, but India’s $ 5 trillion+ is not a trifling quantity either. Except for the UK with about $ 3 trillion, the others don’t make the Top 10.
Stock Exchanges: Attaboy India, again! Our National Stock Exchange (NSE) comes in at Number 8, trailing Japan and London exchanges, but poised to grow much faster. Germany and South Korea are unable to be in the Top 10.
Largest Global Companies Outside the US: SAP gets Germany in the ring; Samsung, Toyota, and AstraZeneca do it for South Korea, Japan, and UK respectively. India draws a blank in the Top 10.
So, what’s the inference we can draw from the above data points of randomly selected EVMs (Economically Viksit Muscles)?
Clearly, India is getting into the game, but any triumphal assertion of having beaten Japan, Germany, UK, and Korea—merely because our GDP has become larger—would be premature and self-defeating. We need to invest, clean up regulations, and nurture/incentivise the best talent in all the emerging EVMs of the 21st century. Only then can we build the muscles to top the cohort of “quasi, tier-2 SuperEconomies” by 2047.