Will Indian economy reach $55-trillion mark by 2047? It looks like an overhype

However, it’s a good thing that the economy has become an integral part of the election narrative in India in recent years. It was welfarism that dominated the poll discourse in the past. The current dispensation at the Centre changed that and succeeded in shifting focus to development and economy

There is a limit to optimism. If that limit is crossed, we slip into the world of make-believe.

Recently, Krishnamurthy Venkata Subramanian, Executive Director-India, International Monetary Fund (IMF), ambitiously forecast that the Indian economy would transform into a gigantic $55-trillion behemoth in the next 23 years. If this amount is converted into Indian rupees, it will translate to a staggering Rs. 4,586 lakh crore. It’s so huge that it will put to shade even the US economy.

The size of the Indian economy currently stands at $3.5 trillion. If it has to cross the $55-trillion mark, as projected by the economist, it has to grow 15 times from the current level, that too in a span of a mere 23 years when India celebrates its 100th year of Independence in 2047.

Speaking at an event, Subramanian, who earlier worked as the country’s Chief Economic Advisor (CEA) and Professor at Indian School of Business (ISB), explained that India, which clocked 8.4 per cent economic upswing in the December quarter of the current fiscal year, would continue to grow by over eight per cent for the next 25 years if the Modi government redoubles the policies it implemented in the last 10 years and accelerates reforms.

In its January report, Ernst & Young Global Limited, a global professional services major popular as EY, forecast that India would become a $26-trillion economy by 2047, thereby achieving the developed nation status. It also estimated that its per capita income would see a six-fold jump to $15,000 during this period. It cited eight key factors that would drive the growth story. The factors include technology, digitalisation, low private debt, entrepreneurship, demographic dividend, manufacturing, infrastructure and transition to sustainable energy.

Given the current levels of the country’s GDP, EY’s projections appeared too optimistic. Ironically, Subramanian’s projections are double of what EY has forecast. The former CEA based his projections on the assumption that India would go through a prolonged period of low inflation and lower depreciation in rupee against the US dollar. But these assumptions are unlikely to come true if we take ground realities into consideration.

Meanwhile, Subramanian is not alone in this aspect. Another economist Arvind Panagariya, Chairman of the 16th Finance Commission and former vice-chairman of Niti Aayog, said that India could push its GDP growth closer to nine per cent if it brings in a few more reforms. Panagariya is far more optimistic on India’s growth story! But it is a tall order for the Indian economy to reach $56 trillion in the next two and a half decades.

On that count, the projection is clearly unrealistic at the juncture. In the past, the Narendra Modi government announced that India would be a $5-trillion economy by FY25. That’s unlikely to happen now. The same will happen to the latest projections about a $55-trillion economy.

But these overly unrealistic projections clearly show that some economists, who are aligned with the Modi government, are creating overhype about the economy as the three-month long process to elect a new government at the Centre is currently underway.

However, there are some counter narratives as well. Raghuram Govind Rajan, former governor of Reserve Bank of India (RBI), said that there was a clear hype around India’s strong economic growth. He pointed out some significant structural challenges India is currently facing. According to him, the biggest challenge is the poor quality of education apart from lack of skills in the workforce. He underlined the need for fixing these key gaps for India to realise its true potential in the coming decades. Rajan, who is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago's Booth School of Business, is spot on when it comes to the country’s education sector. Education is the best way to reduce poverty. But sadly, India’s education sector is in dire straits and needs a thorough structural revamp. The governments should initiate concerted efforts to make quality education accessible to all. That’s not happening now as private education has become very expensive. The poor will also have access to quality education if efforts are made to improve government-run schools and colleges.

Rajan, who is known for his proximity to Congress leader Rahul Gandhi, also criticised the Modi government’s decision to offer huge subsidies for chip manufacturers in the country and maintained that this expensive initiative would not help the country in any way. But I don’t think encouraging the chip industry is a bad idea as the manufacturing sector creates a large number of jobs.

Anyway, I said this earlier and am repeating it now. It’s a good thing that the economy has become an integral part of the election narrative in India.

It was welfarism that dominated any poll discourse in the past. The current dispensation at the Centre changed that and succeeded in shifting focus to development and economy. It will do a lot of good for India if this continues till India actually joins the developed nations club. In hindsight, overhype will hurt the country.

Nevertheless, apart from the economic growth, I have another yardstick for India to be considered as a developed nation. Currently, chaos reigns on the Indian roads, especially in cities.

In my view, India will be a developed nation when we have orderly traffic on the roads, a speed lane, free left turns and adequate parking space. Above all, roads should be devoid of roadside vendors. That’s the time when India will be considered as a developed nation. The fact of the matter is that India can’t emerge as a developed nation unless it brings discipline on its roads. Hope this yardstick resonates well with all.