The first and the only rule of political economic forecasting is to come up with a big round number which catches the attention of people. Take the case of the recent forecast made by Petroleum and Natural Gas Minister Hardeep Singh Puri, who said that the Indian economy will reach $10 trillion in size in 2030.
Somehow, forecasts about the size of the Indian economy sound sexier in US dollar terms. If he had said that India’s GDP would hit Rs 800 lakh crore (assuming a dollar continues to stay at around Rs 80 in the years to come), it would sound like quite a lot, but it still doesn’t have the same ring as a “10 trillion-dollar economy”.
Politicians understand this better than others, which explains why every forecast on the size of the Indian economy, be it 5 trillion, 10 trillion or 30 trillion for that matter, is in dollar terms and not spoken of in rupees.
Let’s dig a little deeper into the $10 trillion number, though. Puri did not specify whether this forecast was in real terms, i.e., adjusted for inflation, or in nominal terms, i.e., not adjusted for inflation. Nonetheless, let’s consider this in real terms, adjusted for inflation. Inflation is the rate of price rise. The growth rate over and above the rate of inflation is the real rate of growth and actually helps improve the economic situation of people and pulls many out of poverty.
In real terms, the size of the Indian economy last year had stood at $2.7 trillion (GDP at constant 2015 US dollar rate). For it to reach a size of $10 trillion in 2030 would imply growing at 15.7% per year on average until 2030. India has never seen this kind of economic growth in the past. The best economic growth was during the period 2002 and 2010, when the size of the economy went from $871 billion to $1.5 trillion, growing at an average of 7.3% per year. Puri’s forecast envisages a growth rate of more than double the fastest rate seen!
Now, let’s compare this to the Chinese growth rate over the last four decades. The size of the Chinese economy in 1981 was a little over $444 billion. In 2021, it stood at $15.8 trillion, implying an economic growth of 9.3% per year.
What this tells us is that over the next nine years, Puri expects the Indian economy to grow at a significantly faster rate than the Chinese economy has grown in the past four decades. But then who said political economic forecasts need to be logical. Their main aim is to catch attention, which a $10 trillion forecast by 2030, definitely does.
In fact, Puri’s colleague Piyush Goyal, who is the Commerce and Industry Minister, had made a forecast in June -- the size of the Indian economy would touch $30 trillion in the next 30 years. For this to happen, the economy has to grow at around 8% per year consistently for the next 30 years.
Goyal’s forecast can be seen as more realistic than Puri’s, given that China grew at a 9% clip over the last three or four decades. But then China is the only country to have grown at such a fast pace in the modern era. In fact, there is a great churn in the top 10 growing economies of the world every decade.
As Ruchir Sharma wrote in The 10 Rules of Successful Nations: Three of the 10 fastest growing economies from the 1950s repeated the feat in the ’60s, but none from the 1960s repeated it in the ’70s. Only one from the 1970s, South Korea, returned to the top 10 list in the ’80s. Just two from the 1980s—South Korea and China—made the top 10 in the ’90s. And one from the ’90s, China, returned the following decade.”
Indeed, even maintaining an economic growth of 5% per year over the decades has been very difficult. As Sharma wrote in Breakout Nations: Just six countries (Malaysia, Singapore, South Korea, Taiwan, Thailand, and Hong Kong) have maintained this rate of growth for four decades, and two (South Korea and Taiwan) have done so for five decades.” This book was first published in 2013, and since then, China has joined the list.
What history tells us is that economic growth should not be taken for granted. Our politicians tend to do just that. In fact, even before the $5 trillion prediction has come true, we are talking about $10 trillion and $30 trillion. But then that’s what political economic forecasting is all about. It is profitable to constantly keep throwing big round numbers in American dollars at people.
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