Is India the Next Economic Superpower?
Following Prime Minister Narendra Modi election, the world’s attention shifted towards India hoping that it would leave its bureaucratic shell and achieve its potential. Narendra Modi is a man with a proven track record of doubling State of Gujarat’s economy during his tenure as the Chief Minister from 2001 to 2014. Gujarat being a state with only 6% of India’s population today accounts to 22% of its export. He came into power on promise of much needed development to India. His look east policy specifically towards Japan as a source of inspiration and investment may result in a yield soon. Japan has maintained close ties with Modi during his chief minister stint and has helped develop Gujarat when western countries distanced themselves from him.
Today India is a country with a population of 1.2 billion (2nd) and a GDP of $2.4 trillion (7th) and has an annual growth rate of almost 8% a year. It has most of the key attributes of an ideal economy where about 55% of the GDP is backed by service sector while about 30% on industry and approximately 15% on primary sector such as agriculture but it is still held back by its colonial past. India that acts as the global outsource centre for the ICT industry is another promising sign that she is destined to become a superpower. Indian Information Technology industry is divided to two main components, IT services and Business Process Outsourcing (BPO). Together these two add up to about 7.5% of India’s GDP. Most of the big names in the IT industry have a branch in India mainly in Bangalore, the Silicon Valley of India. Prime Minister Modi’s Digital India initiative is shows that the government understands and has placed due importance on the IT sector to economic growth.
Why would India be the next global superpower? Primarily due to its young workforce compared to other large economies like Japan and China that are suffering with an aging workforce. Its dependency ratio—the proportion of children and old people to working-age adults—is one of the best in the world and will remain so for a generation. A young population or workforce has many advantages for a country like India. In terms of tax revenue, there is a workforce larger than the retired, this allows a large income tax collection to fund the pension plan for the retired and also provide funding towards healthcare system than the elderly needs. In countries like Japan that has an ageing population tend to spend relatively a lot more of its tax revenue on pension and healthcare.
In addition to a young population, India has the world’s largest English speaking/understanding population and second only to United States in terms of ‘fluent speakers’. Equipped with this, India has started paying more attention to R&D and is experiencing a revolution in science and technology. A good example would be India’s Mars Orbiter Mission, it made India the fourth nation or space agency to reach Mars when it entered orbit above Mars on 24th September 2014. To date it is the cheapest Mars mission with a total cost of US$73million, fraction of cost compared to other space missions. The main credit should go to home-grown technologies used for the mission. The success from the Mars Orbiter has boosted India’s thirst for knowledge.
The main obstacle India faces is its enormous bureaucracy armed with red tape. India is ranked 130 out of 189 countries in the Ease of Doing Business Index in 2016 where Singapore has been maintaining the top position back to back for many years. It reflects the obstacles entrepreneurs has to go through in order to start up a business. Under Prime Minister Modi’s leadership, a lot of the archaic laws and procedures has been put away with, but a lot more has to be done to achieve considerable progress.
This anti liberalisation measures could be traced back to 1950s with the introduction of Licence Raj. After independence, India followed a closed door protectionist approach towards economics with strong prominence towards imports substitution and many other central planning oriented methods. A firm had to meet criteria set by dozens of agencies before setting up business and only four or five licences were awarded for basic utilities such as electrical power and communication which led to inefficient monopolies. This caused the Indian economy to stagnate with minimal growth of about 3.5% compared to other Asian peers which grew at over 5%. 1991 was the year that India finally accepted the need for economic liberalisation as previous attempts had to be stopped due to pressure from conservative groups. With the imminent balance of payment crisis, Indian government had to bow to International Monetary Fund (IMF) pressure to open up the economy and cut down on bureaucratic obstacles towards new firms. The free market oriented decisions post 1990s have started to bear fruit as GDP growth rate has stood well over 7% for the past few years.
Another problem that is holding India back is the institutionalised corruption that is embedded into Indian government system which is partly due to the planned economy nature of governance it adopted from 1950s-1980s. In my opinion the main cause of the large scale corruption is the close relationship between the politicians, mafia and government officials. This relationship has caused bad policy decisions that did not help the masses or develop the country. According to a study carried out by Transparency International in 2005, more than 62% of Indians have given some form of bribery to get a job done.
Lack of infrastructure to support the GDP growth would also be disastrous in the near future. In order to maintain high GDP growth rate, a country would need a sufficient infrastructure system capable of supporting it. Top priority should be given to improving transport system within India in order to create a better movement of goods and labour. This would also indirectly increase Foreign Direct Investments (FDI) flowing into India as it plays a role boosting investor confidence. Indian power grid is insufficient to meet demand and is under high stress due to this. Daily power failure is a common occurrence even in the more developed parts of India. Most businesses depend on diesel generators for power at times like this. This is just one of many examples that shows the dire need for infrastructure development within India.
In conclusion, for India to be the next global superpower it has to address these key issues urgently through policy reforms and sheer will power of policy makers. The government has to prioritize on the urgent development related activities such as the infrastructure development as it acts as the backbone of economic growth. Without an adequate transport system and supply of energy, the growth rate will start to cripple sooner or later as it would not be able to withstand the demand. Statistics point towards a prosperous India but only time will tell.
Download the Report and Infographic Here:
Statisticstimes.com. (2016). Economy of Gujarat – StatisticsTimes.com. [online] Economist.com. (2016). The Gujarat model | The Economist. [online] Available at: http://www.economist.com/news/finance-and-economics/21638147-how-modinomics- Cia.gov. (2016). The World Factbook — Central Intelligence Agency. [online] Available at: https://www.cia.gov/library/publications/the-worldfactbook/geos/in.html [Accessed 14 Sep. 2016]. The Economist. (2010). India’s surprising economic miracle. [online] Available at: http://www.economist.com/node/17147648 [Accessed 20 Sep. 2016]. News.bbc.co.uk. (1998). BBC NEWS | World | South Asia | India: the economy. [online] Available at: http://news.bbc.co.uk/2/hi/south_asia/55427.stm [Accessed 20 Sep. 2016].
Available at: http://statisticstimes.com/economy/economy-of-gujarat.php [Accessed 3 Sep. 2016].
was-forged-one-indias-most-business-friendly-states [Accessed 3 Sep. 2016].
Statisticstimes.com. (2016). Economy of Gujarat – StatisticsTimes.com. [online]
Economist.com. (2016). The Gujarat model | The Economist. [online] Available at: http://www.economist.com/news/finance-and-economics/21638147-how-modinomics-
Cia.gov. (2016). The World Factbook — Central Intelligence Agency. [online] Available at: https://www.cia.gov/library/publications/the-worldfactbook/geos/in.html [Accessed 14 Sep. 2016].
The Economist. (2010). India’s surprising economic miracle. [online] Available at: http://www.economist.com/node/17147648 [Accessed 20 Sep. 2016].
News.bbc.co.uk. (1998). BBC NEWS | World | South Asia | India: the economy. [online] Available at: http://news.bbc.co.uk/2/hi/south_asia/55427.stm [Accessed 20 Sep. 2016].
Prepared by H.P. Chamode Anjana