India’s Growth Rate More Than US: Should We Really Be Celebrating?
Moving way below the 8 percent mark means even abandoning the idea of becoming a $ 5 trillion economy.
Imagine a scenario when you get an annual increment of 4 percent and end up getting a hike of Rs 4 a month. Your colleague, however, gets an even more modest hike of 3 percent and yet begins to draw Rs 93 more every month henceforth. Will you still have the guts to go to town claiming, ‘but I got more than him’?
These are the perils of comparing apples with oranges. But people are still doing it.
After the sharp plunge in India’s GDP growth in the quarter gone by, to a six-and-a-half year low of 5 percent, a section is advancing an argument that there is no cause for alarm just yet as our growth rate is a good 2 percentage points more than that of the US, and much higher than other developed western economies.
Can anything be as absurd as this one?
Can We Compare a $2.8 Trillion Economy to a $21 Trillion Economy?
In terms of size, the US economy is nearly 7.5 times that of India. What this means is that India has to grow at a rate of nearly 23 percent to match the size of annual addition in output of the US, if the latter grows at a modest rate of 3 percent.
If we consider the per capita income differential, the income of an average American is nearly 31 times more than that of an average Indian.
A GDP growth rate of 5 percent in India means nearly 4 percent growth (because of continuing population growth at the rate of 1.1 percent per annum) in per capita income.
Our per capita income will have to grow nearly 100 percent in a year to match the net annual addition in income of an average American.
Can we still say that we need not be despondent as our growth rate is faster than the US and other western countries with comparable per capita income? There cannot be a bigger joke than that.
Some reality check is, therefore, required to put things into perspective. According to a reliable estimate, if we continue to grow consistently at the rate of 7 percent every year for the next 40 years, our per capita income will touch $20,000 by 2060.
That will still be less than one-third the current per capita level in the US! A growth rate above 7 percent improves our chances of hitting the milestone faster than that. However, any rate below that takes us further away from the goal.
Should We Aim to Catch up with Developed Countries or Compete with the Least Developed Ones?
However, if we drop below the annual GDP growth rate of 6 percent, we may barely cross the per capita income level of $10,000 in the next 40 years.
Incidentally, China’s current per capita income is close to $9,000. And global average per capita income is three times higher than India’s.
Who are we kidding then with absurd boastful claims, like India continues to be one of the world’s fastest growing large economies?
There is no substitute for consistently higher growth rates year after year, if we have any realistic chance of catching up with the rest of the world. The flip side is scary. Sample some:
- A decline in GDP growth by one percentage point means reduction in per capita income growth by Rs 1,260 a year. If that is the case, how can we catch up with the rest of the world if we continue with growth recession?
- Reduction in GDP growth means subdued income growth and tepid performance of companies, impacting government’s tax collection. On the back of consistently higher growth rates, government’s revenue almost tripled between 1993 to 2011. Less money with government means reduction in expenditure on social welfare schemes. How can we then improve our already dismal socio-economic indicators?
- An Institute of Economic Growth paper argues that “growth is indeed the most crucial element in the fight against poverty by creating increased output and government revenues, increased employment, and higher wages. Government social expenditure on education, health, and welfare, etc, also helps in reducing poverty, but even a well-meaning and pro-poor government can increase social expenditure only with the help of increased tax revenue generated by high growth rates. Thus, in the final analysis, growth should be the paramount concern of government.” Faltering growth, therefore, means giving up fight against poverty. Can we afford that?
- The supporters of ‘but India is still faster than western economies’ should also read a quote from the recently released economic survey, which says that, “to achieve the objective of becoming a $5 trillion economy by 2024-25, India needs to sustain a real GDP growth rate of 8 percent.” Moving way below the 8 percent mark means even abandoning the idea of becoming a $5 trillion economy in the next few years.
Still in a mood to celebrate the dismal 5 percent growth in the country’s GDP? We can just pity you for celebrating India’s continuing tryst with wretchedness. We cannot even say: ‘Dil ko behlane ka Ghalib ye khayal achcha hai.’
Subscribe To Our Daily Newsletter And Get News Delivered Straight To Your Inbox.