It is imperative for India to become an industrial power in order to be a global power, Nisha Biswal, president of the US-India Business Council (USIBC) at the US Chamber of Commerce recently said.
No nation can become a global power without contributing at least 5% or more to global GDP. The United States of America, with a GDP of about $21 trillion, has almost a quarter of global GDP. China, with a GDP of about $15 trillion, has 15% share of global GDP. Japan, with a population of less than 10% of India’s population, contributes 6% to global GDP. Germany’s share in global GDP is 4.56% while its population is only 1% of global population.
India shares just 2% of world’s land and 3% of global GDP, but is home to 16% of world population. India has posted a GDP of $2.94 trillion in 2019 and the same is expected to shrink by about 10% in 2020, thanks to the pandemic and lockdowns.
Prime Minister Narendra Modi called for making India a $5 trillion economy by 2024, soon after he resumed his second term in May 2019. Even if India achieves a $5 trillion GDP by 2024, its share in global GDP will still remain at about 4 to 5%.
For India to become a $5 trillion economy, Amitabh Kant, CEO, Niti Aayog, says that “the economy needs to grow (at) 8%-plus year after year, to nearly double from its current $2.9 trillion”. India was growing at 5% even during the pre-Covid period. After the pandemic, GDP contracted by 23.9% in Q1 and by 7.5% in Q2. India has now technically entered a recession.
India’s growth pattern is also skewed with benefits being distributed disproportionately among the population. Oxfam reports suggest that during last year, “wealth of top 1% in India increased by 39% whereas the wealth of the bottom 50% increased at a dismal 3%”.
Due to the non-inclusive growth pattern, the growth in the per capita incomes of lower and lower-middle class people may be well below the national average GDP growth rate.
Rather than having an ambition of $5 trillion economy (which seems impossible by 2024), it is important to build back the economy and take it out from the situation that it is in.
Atmanirbhar Bharat provides a vision of India’s plans to become a $5 trillion economy by promoting ‘Make in India - Make for World’ and this will happen through an integration with the global economy, a senior official of the Ministry of External Affairs, MEA Secretary (CPV&OIA) Sanjay Bhattacharyya, recently said in his address to the Indian Chamber of Commerce (ICC) at India e-biz Expo 2020.
The phrase ‘Aatmanirbhar Bharat Abhiyan’ was first coined by the Prime Minister Narendra Modi in his national address on May 12, 2020. By now its scope and meaning has expanded so far and wide, that it subsumes every economic policy, reform and stimulus package in it.
The Centre announced an Aatmanirbhar Bharat Abhiyan package (1.0) in mid-May, which amounted to 10.3% of GDP, to stimulate the economy. While the direct fiscal stimulus component was less than 1.3% of the GDP, more than 7.8% of GDP was about providing easy credit to the Micro, Small and Medium Enterprises (MSMEs), traders, farmers etc and liquidity infusion measures by the Reserve Bank of India (RBI). If the aggregate demand for credit does not rise, clearly, 75% of the Aatmanirbhar Bharat Abhiyan package would simply fail to stimulate the economy.
The RBI has now released Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks (SCBs) on November 25. Bank credit growth (Year-on-Year) decelerated to 5.8% in September 2020 from 8.9% a year ago.
The aggregate demand for credit would increase only if the aggregate investment demand rises, which in turn, depends on the consumption demand.
Consumption demand
The aggregate consumption demand for goods and services again is dependent on the income and purchasing power of people, which has come down drastically, due to the Covid-19 lockdown and the resultant unemployment and under-employment. ‘Make in India - Make for World’ has also not taken-off in any significant manner.
Economist Amartya Sen once said that India can’t become a global economic power with an uneducated, unhealthy workforce. A quantum jump in investment in the education and health sectors are needed to lay foundations for a high-productive economy. Skilling of the youth is a must if India has to really reap the demographic dividend.
China no longer considers India as a competitor, because its economy and military capabilities lag far behind China’s. But Beijing does see India as a possible future rival.
Therefore, it wants to create hurdles for India’s evolution as a future competitor, say 30 years from now, a story published by Asia Times says. So, China wants India to stray from its economic priorities and hence forced India into a long-haul border stand-off.
India will have to defend the border by pouring enormous financial resources into the Himalayas. China wants to prevent India from setting priorities for economic growth and wants to divert India’s national energies and effort.
Hopefully, India will focus its energies on economic growth, employment, health and education and defeat China’s game plans diplomatically.
(The writer is an alumnus of IIM, Ahmedabad and a retired corporate professional)