On India’s 75th anniversary of independence, Prime Minister Narendra Modi sounded a bugle for making India a developed nation by 2047. Two days later the chief minister of Delhi, Arvind Kejriwal, issued his clarion call for India to become the 'Country No. 1'.
Development jingoism is in the air.
What exactly makes a country a developed nation? What does being the 'Number One' country mean?
Where India Stands Today
At the moment, global GDP is about USD 90 trillion. India is only a USD 3 trillion economy. Really advanced countries have average per capita income exceeding USD 50,000. Global average per capita GDP exceed USD 10000. India’s per capita GDP is only about USD 2000. India’s population is 1/6th of the world population but the share of global GDP only a little more than 3%. India’s per capita income is not even 20% of the global average.
Post independence, India got classified as one of the 'least developed countries' (LDCs) in the UN system of classification of countries. We were also categorised as a 'low income country' (LIC) in World Bank’s classification of countries in low, middle and upper income countries.
It took India more than fifty years to move out of the class of the LICs to become a middle income country, albeit only a lower middle income country.
So, what can now be a 'developed country' definition for India when there's no globally accepted definition of the same?
Is GDP a Reliable Marker of Development?
India has become the fifth largest economy in terms of GDP. We will certainly overtake Germany and Japan in next few years to become world's third largest economy. But does that make India a developed nation? Even when India becomes the third largest economy, we will barely be in the first hundred nations of the world in terms of per capita income.
Some people see the largest economy tag as their flag-post. They even take refuge in purchase power parity (PPP) methodology of the World Bank for hurrying up to 'number one' tag. PPP is quite a flawed concept. It was designed for and works basically to identify the poor. And this, too, gets done by an artificially lowered threshold. You don’t pay for oil or computers or for that matter anything in PPP dollars. PPP weighted GDP is an imaginary GDP. It should simply be junked.
A high income country (HIC) can be a good indicator of a developed country. Current World Bank threshold for an HIC is per capita income in excess of USD13,000.
China could raise its GDP five times to USD16 trillion in 40 years and is on the verge of getting into the HIC club. For India to make this grade, our per capita income needs to grow more than six/seven times. This clearly looks improbable within the next 25 years.
Let us set our development ambition a little more modestly. How about the goal of making India a USD10 trillion economy by the middle of 2030s or a USD25 trillion economy by 2050? Or, perhaps, more appropriately, increasing per capita income to USD10000?
Whatever goal we adopt will require immense hard work. Many tough policy choices will also need to be made. Mere wishes and pledges will take us nowhere.
Here is a suggested reform agenda.
Agriculture Needs an Overhaul
India did well to adopt the Green Revolution technologies in mid-1960s. This made us pivot from being a food-aid beneficiary to a food exporting country. Today, we export USD60 billion and import USD30 billion worth of agriculture products. India is truly self-reliant in agriculture.
However, the opiatic cocktail of minimum support prices, input subsidies (fertiliser, power, loans, seeds etc) and guaranteed low wage employment under MGNREGA keeps 20 crore of our farmers and landless workers trapped below the poverty line income and consumption. We need another major pivot to raise their income manifold.
Farmers need to be freed from innumerable controls, restrictions and constraints. They cannot lease their lands, cannot freely convert their land into non-agricultural lands, tribal and Dalit/ST farmers cannot sell their lands outside their community, farmers have to sell their produce in regulated mandis and not anywhere. They cannot even enter into production/sales contracts freely. These controls need to be junked.
Additionally, India needs to move a great majority of farmers and landless agriculture workers to industrial and service sector occupations for their incomes to rise manifold. If India can ensure not more than 10% of India’s workers in 2047 in agriculture producing 10% of GDP, it will truly signal farmers’ prosperity.
Bring Real Industrialisation, Free Private Sector
Second, we took a very wrong turn while planning to industrialise India in the era of socialist pattern of society. We banked too much on public sector. Private industry was caged in licence-permit-quota raj in the small space left for them. India's policy produced capital guzzling inefficient public sector and crony capitalist private sector. India did not really industrialise. Owing a lot to this, the manufacturing sector has remained stalled at around 15% of GDP despite loosening many controls in 1991.
Ease of doing business might have improved in the last few years, but the cost of doing business has not. India remains globally non-competitive in most industrial products. The announcement and implementation of Make in India, Phased-In Manufacturing, Production Linked Incentive, high tariff protection etc—in the absence of real technological edge and innovation—have resulted in what is seen in the case of the most successful PLI. Over 95% of mobile handsets are being manufactured by five Chinese companies.
We have to truly free up India's private sector instead of supporting them with the PLI crutches, expose them to the rigour of global competition and allow them to freely import technologies. The cost of doing business in India needs to become real competitive with power, land, loans and taxes for industry priced at their economic costs, not excessively for misplaced cross-subsidisation and other considerations.
Indian Government Needs to Exit Certain Businesses
Third, it is time for the Indian government to walk the talk on privatisation. The government has to sell the public sector lock, stock and barrel instead of wasting public funds in sustaining sick and bankrupt BSNLs and MTNLs. The public sector in India would wither away in the next 25 years as it is unable to make investments in new technologies and adopt productive governance practices. The difference between proactive privatisation and slow-burning self-disappearance is that the government would be able to recover a good deal of investment by privatising but would end up sinking in billions of dollars more if it goes the haemorrhage path.
Fourth, financial sector is the key for rapid and productive investments. Instead of being a weak and inefficient owner-participant in the financial markets, the government and RBI need to focus on managing internal and external stability of currency and adopt practical approaches for new-age fintech, digital banking, venture capital, and currencies.
Indian government needs to get out of the business of running banks, insurance companies, and infrastructure financing institutions like IIFCL and NaBFID. Value creation will happen by shifting to infrastructure, digital economy and environmental economy from the traditional agriculture and industrial economy. These sectors are tougher businesses and not for the risk-avoiding traditional public sector banks.
India Needs to Invest in Infrastructure Immediately
Fifth, India needs to make up its massive infrastructure deficit—physical and digital—fast. Current policies and investment framework are not quite conducive for constructing this infrastructure, barring in a few sectors. Government will have to plan a big infrastructure agenda—building 10,000 kilometres of high speed railways, 25,000 kilometres of 6/8 lane expressways, 50-60% power generation in renewable mode, first rate schools/hospitals and other social infrastructure, national water grid, and so on. Let this all be constructed by the private sector with Indian government providing extensive viability gap funding.
Sixth, the digital economy is the future of economic advancement for India and its people. Of the four key parts of the digital economy—chips, code, networks and services—we have been good at only the services. Almost 100% of chips we use are imported. We are non-existent in semi-conductors fabrication. We have only recently started gaining ground in software/code.
Our policies thwart building of national and global scale digital networks. The social media, the future of communication, is consequently all in foreign control. We need to get our data polices and e-commerce policies right and adopt a very open attitude towards digital technology import and investment, if we want to build a strong digital economy. Otherwise, like the result of our import substitution policies of 1950s-1980s, India will become only a reluctant adaptor rather than a leader in digital economy.
After All, It's About the 'Quality of Life'
Seventh, besides higher income, we must also aim at securing better quality of life. Today, pollution of air, water and land has made the quality of our lives relatively quite poor. If Delhi remains the most polluted city of the world with PM 2.5 mg being 22 times of the safe limit, India cannot be a healthy and prosperous country. We need to think big on pollution and carbon control. Pollution control should become the most important public policy and service objective of the Indian government.
In place of public works departments to construct roads, it is time to create engineering capacity in the government to make our cities, villages, rivers, lakes and other water bodies clean and pollution free. It is time to shift to industries which make non-polluting products and use waste productively to build a circular economy. It is time to shift to wind, solar and other non-fossil fuel industries to generate the power to run our homes and machines. This shift will also help in India making its due contribution to control of the global carbon footprint.
Dreams are important. Pledges are important. But, to realise dreams and to redeem pledges, a lot of hard work is needed and a lot of hard choices have to be made.
(Subhash Chandra Garg is Chief Policy Advisor, SUBHANJALI, author of The $10 Trillion Dream, and former Finance and Economic Affairs Secretary, Government of India. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)