Can India Emerge As The Second Largest Economy Of The World In 2047?

Finance Minister Nirmala Sitharaman has reeled-out statistics on what the Indian economy would be in 2047. The projections she gave at the Global Fintech festival in Mumbai recently are quite interesting. She quoted a SBI research to say that India’s per capita income is to increase 7.5 times from Rs two lakh annually in 2023 to Rs 14.9 lakh annually by 2047. In dollar terms, it would increase to $12,400 in 2047 from $2,500 in 2023. India’s workforce is expected to increase by 19.5 crore to 72.5 crore in 2047-48 from 53 crore in 2023-24. Workforce share in population will increase from 37.9 per cent in FY 2023 to 45 per cent in FY 2047. Workforce eligible to pay Income taxes to increase to 85.3 percent from the present 22.4 per cent. That is there would be 48.2 crore IT filers in 2047 from 7 core at present, which means seven times more.

These figures are certainly mind-boggling, if it comes true and that there will be no poverty in India if the per capita income increases to such a high level by 2047. Of course, inflation and macro-economic instability can play a spoilsport. Strangely she avoided saying what Prime Minister Narendra Modi repeatedly asserts that India would be the third largest economy in terms of GDP in the next few years or for that matter second largest economy by 2047. Perhaps Modi’s promise to make India a $5 trillion economy by 2023-24 did not materialize, she chose not to talk about GDP or economic growth.

There has also been criticism from opposition especially from former finance minister P Chidambaram, that being the fifth largest economy or for that matter becoming third largest economy in next few years makes no sense unless 16 crore people still living below poverty line that is having an income of less than 2 dollars a day, are uplifted. While growth is necessary and that India should aim to grow at 8-10 per cent annually, it is not sufficient if poverty is not eradicated and the inequality is narrowed substantially. Top one percent of the Indian population account for about 50 per cent of the country’s income.

Statistics is something one can always quarrel with but the rapid economic strides that India is making since opening up in 1991, is an undeniable fact. It is therefore quite possible that India would become an economic superpower in the near future. When many countries are tottering after Covid, India is among a handful of countries that have been growing at a reasonably high level and seems to be resilient to shocks notwithstanding economic gloom all over in the World.

A Harvard business review points out that not just enthusiasts within the country, but a chorus of global analysts have declared India as the next great economic power: Goldman Sachs has predicted India will become the World’s second largest economy by 2075 and FT’s Martin Wolf suggests that by 2050, its purchasing power will by 30 per cent larger than that of the U.S.

There are several positive trends converging, from different sides of the Indian business ecosystem-wide facilitating factors; in combination they can transcend economic cycles, macro shocks, and policy reversals. Some are new, and older ones are reaching critical mass and they can finally reinforce each other to create a growth flywheel, the review says.

At the same time the review rings warning bells. It is better not to be over-optimistic about India’s growth story. It is better to be cautious and mindful of some of the pitfalls or shocks that may come in the way. “But as with all flywheels, it is important to remain vigilant about rattling noises and burning smells, and in India’s case, these exist in abundance. It’s essential for both business and government leaders to pay attention and act before the flywheel breaks,” the review cautions.

The review highlighted several positives in the Indian economy that could enable the Indian economy to achieve this but listed some negatives that could derail it as well.

The review indicated there are three forces on the demand side that could fuel India’s economic growth. They are consumer boom, appropriate innovation and aspirational consuming class and green transition. On the supply side there are several positive forces like demographic dividend, access to finance, infrastructure upgrades, both physical and digital. On top of these forces, there are several system-wide facilitators, many regulatory and policy reforms. There is also a geopolitical sweet spot for India. Besides there is a diaspora dividend.

While these factors reinforce each other, the review says many barriers remain implying negatives that they could cause the multiplier effect to stall. The three major bumps in the road that could derail the growth process is the unbalanced growth. Despite impressive growth numbers at the national level, the economic benefits have been highly unequal. The top ten percent of Indians hold 77 per cent of the national wealth. Almost 2 people every second are pushed into poverty because of health care costs alone.

Linguistic fault-lines, regional imbalances and new inter-regional tensions as some of the issues that will require deft handling, besides management of the political economy. There are other imbalances, which are growing due to divisive politics. An increasingly assertive form of Hindutva ideology is overshadowing core issues such as job creation, enhancing productivity and shared economic benefits.

Affirmative actions since independence without a sunset clause have created new challenges of exclusion and identity politics. There is also discontent over minority appeasement. All these have not helped and as a result India’s position in the World Press Freedom index has declined. Consequently, potentially, bottled up sentiments in large sections of the disaffected and minority segments of the population can explode, triggering a downward spiral. Such developments can undermine objectives of shared prosperity, the review warned.

Overall, India’s economy is certainly on a bright spot to become an economic powerhouse in a decade or two, but there are pitfalls, which needs to be handled deftly to ensure the growth process is not derailed on the way. It required some great political and intellectual sagacity. (IPA Service)