India is on course to becoming the world's third-largest economy by 2030-31, with an expected annual growth rate of 6.7% this fiscal year, according to an S&P Global report. The report highlighted that reforms are key to sustaining this momentum, with an anticipated 8.2% growth in FY2024. These reforms aim to enhance business transactions, improve logistics, attract private-sector investment, and reduce dependency on public capital. But what does this mean for an average Indian? Do we all enjoy the wealth?
Infrastructure and trade boom
To maximize trade benefits, India must develop infrastructure and geopolitical strategies, particularly regarding its extensive coastline, as nearly 90% of India's trade is seaborne. This means that we need robust port infrastructure to manage increasing exports and bulk commodity imports. However, there’s a bigger problem looming over this growth trajectory.
Growth rate and global contribution
India's growth seems like a hamster on a wheel that can't stop. It has been among the fastest-growing emerging economies for some time now and is a key growth engine contributing 16% to global growth in 2023, according to the International Monetary Fund (IMF). Its growth rate of 7.2% in FY23 was the second-highest among the G20 countries and almost twice the average for emerging market economies.
Despite these promising figures, former RBI Governor D. Subbarao warns that there is little reason for celebration; India will likely remain a poor country. The 2023 Multidimensional Poverty Index Report finds that over a third of all poor people in the world live in South Asia - around 389 million people - with India contributing significantly to this number, accounting for almost 70% of the increase in extreme poverty.
The poor and the homeless
Research by the SBI, released in February 2024 indicates that the poverty rate in India fell to 4.5-5% in 2022-23, attributed to government programs initiated for the bottom of the pyramid. Household consumption expenditure survey data suggests that rural poverty decreased to 7.2% from 25.7% in 2011-12, while urban poverty is down to 4.6% from a decade ago.
However, India ranks 111 out of 125 countries in the Global Hunger Index (GHI) 2023, highlighting persistent issues despite economic growth. Subbarao emphasized that India’s large economy does not equate to wealth; with a per capita income of USD 2,600, India ranks 139th globally and is the poorest among BRICS and G-20 nations.
Modi’s Viksit Bharat 2047
Prime Minister Modi's message this year was "Viksit Bharat 2047," promising to make India a developed nation by 2047. His administration has focused on digitalization and infrastructure development, and yes, it certainly achieved it.
- Digitalization: Indians can now buy daily goods without cash using QR codes; up to March 2021, this saved about 1.1% of GDP.
- Infrastructure: Over $100 billion annually has been spent on infrastructure over the past three years, with nearly 54,000 km (33,554 miles) of national highways built between 2014 and 2024 - twice the length of the preceding decade.
So, what are the challenges ahead?
Modi's plans have disrupted existing systems. The difficult lockdowns during the pandemic, lingering effects from a cash ban in 2016, and faulty implementation of GST have led to structural consequences on India's economy. The vast unorganized sector - small enterprises that form the backbone of this country, continues to struggle under these policies.
Private investment as a proportion of GDP has dropped from 27.5% in 2007-08 to barely 19.6% in 2020-21, indicating investor hesitance amid ongoing challenges. Unemployment remains a pressing issue even though educated youth among all unemployed increased from 54.2% in 2000 to 65.7% in 2022, according to the International Labour Organization.
Make in India initiative
Launched shortly after Modi's victory in 2014, the ambitious Make In India campaign also aimed to turn India into the world's factory. In 2020 alone, his government allocated $25 billion in incentives across sectors like semiconductors and mobile electronics to enhance manufacturing capabilities; however, results have been mixed.
Private consumption expenditure growth has slowed to just 3%, marking the slowest pace in two decades. While India's economic growth post-pandemic has been uneven - characterized as "K-shaped" where the rich thrive while the poor struggle - the country ranks only 140th per capita globally, despite being the fifth-largest economy overall.
So, that says a lot.
Inequality has reached a hundred-year high according to research from the World Inequality Database. For example, extravagant displays like the Ambani wedding clearly show disparities where wealth concentration among only the wealthy elites has grown at the expense of smaller firms.
Experts argue that while India has advantages such as a young demographic and geopolitical shift favouring it over China, there is an urgent need to focus on "human capital." Dr. Raghuram Rajan stresses that Indian children are not learning adequately for future challenges; a quarter of those aged 14 to 18 cannot even read simple text fluently.
All in all, while India's trajectory toward becoming a major global economy appears promising on paper, significant challenges remain regarding poverty alleviation, inequality reduction, and sustainable economic growth that benefits all citizens - not just a select few.
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