On January 20, the International Monetary Fund revised downward its global economic growth projections by 0.1 percentage points for 2020 and 0.2 percentage points for 2021. What set dovecotes in India all aflutter was IMF Chief Economist Gita Gopinath’s statement that 80% of the revision was because of the underperforming Indian economy.
The irony that this was the first month of 2020 was not lost on many. 2020 is the year in which India was expected to become the fourth-largest economy. That was the tantalising prospect set out in a 2002 report commissioned by the erstwhile Planning Commission -- India Vision 2020. It spoke about “a nation bustling with energy, entrepreneurship and innovation” and of the people of India becoming “more numerous, better educated, healthier and more prosperous than at any time in our long history.” It was a bit short on specifics – there were no targets to be attained, but a belief that certain goals could be achieved given India’s many strengths.
But that was the time that the India story was exciting global interest. A 2003 Goldman Sachs paper, Dreaming with BRICs: The Path to 2050 said the Indian economy could overtake Italy and France by 2020 and become the third largest economy after the US and China a few years later.
Were they all wrong? Not quite.
India may not be among the top four world economies (it has also lost its ‘fastest-growing economy’ tag), but with a $2.7 trillion economy, it has moved up from eleventh position to seventh, comfortably ahead of Brazil, Russia and South Africa. It is certainly on a much stronger macro-economic foundation, current underperformance notwithstanding. Poverty has not been eliminated but India has made significant gains in reducing it. The global Multidimensional Poverty Index 2019 showed 271 million people were pulled out of poverty between 2006 and 2016, said to be among the fastest reductions in poverty. The Indian information technology sector has made a mark for itself across the world; entrepreneurship is flourishing and there are close to 50 companies that are potential unicorns.
And yet, there is no denying that the Indian economy hasn’t lived up to its potential. The Vision 2020 document spoke about an annual average growth rate of 8.5-9%. In the first decade of the 2000s, the average annual growth rate was 7.21% and in the second decade, 6.7%. India has reached the lower middle-income tier, but it doesn’t look like it is going to join the upper middle-income club soon.
How can it, when agriculture, with a share of just 16% in the economy, still supports over 50% of the workforce? And when manufacturing, which should be pulling people out of agriculture, languishes at a 15% share? When around 40% of highways are still unsurfaced? When adequate and reliable power supply still eludes domestic and industrial consumers?
The infrastructure deficit is one reason why Indian industry is still not globally competitive. India slipped 10 places to the 68th rank in the Global Competitiveness Index 2019. No wonder then that India is not the globally integrated economy, trading confidently with the world, that it was envisaged to be. Its share in world merchandise exports is not even 2% and protectionist tendencies lurk just below the surface. Far from taking advantage of global value chains to grow its manufacturing, India is shutting itself from the world: witness the exit from the Regional Comprehensive Economic Partnership.
India’s much-touted demographic dividend is turning into a disaster. If unemployment is still high, it is for the most part due to the unemployability of the Indian workforce because of the poor quality of education and vocational training, which are out of sync with what the market requires. Health indicators are also worrying – the percentage of children who are stunted, underweight or wasted is still on the higher side, which does not bode well for the future workforce.
Agriculture is still shackled by State control. Nearly half of Indian agriculture continues to depend on the vagaries of rainfall. The few reforms that have been implemented have been half-hearted at best, as a result of which farm sizes continue to be unviable and farmers are not free to leverage the power of the market.
How have we come to this pass? The vision document had itself cautioned that it was neither a definitive prediction of what would happen by 2020 nor a wish list of “desirable but unattainable ends.” Everything depended on how India harnessed its resources to try and realise the vision, instead of waiting for everything to fall into its lap. The Goldman Sachs report had also made the same point. But clearly, that harnessing of resources never happened and the actions that needed to be taken were never taken.
In 2005, the UPA government set up a National Manufacturing Competitiveness Council and drafted a National Manufacturing Policy to push the share of manufacturing to 25%. But it did little to implement the slew of reforms the policy set out. The agricultural reform agenda is well known as are reforms in the factor market – land and labour. No government at the Centre or the states will aggressively pursue these, even as they continue to meddle with the day-to-day running of businesses.
In December 2018, NITI Aayog unveiled, with much fanfare, a Strategy for New India @75. It set out the strategy for 2022-23 (75 years after independence) across 41 areas. The idea, according to the foreword by Prime Minister Narendra Modi, was “to create an ecosystem which enables every India to reach his or her full potential.”
Will the vision set out by NITI’s predecessor be realised in the next two years? For the sake of India’s future, let us hope it is.
(Seetha is a senior journalist and author)