India has recently overtaken China as the world’s fastest growing major economy but can India continue this growth for the next few decades and can it also become the largest economy of the world? What are the challenges that India will be facing and what are India’s strengths? Let’s discover the untold story of the Indian economy, something that the international mainstream media hardly talks about.
In the world of today, India has re-emerged as an economic powerhouse and this re-emergence of India can easily be the most sensational success story of our times. Indian economy started to gain some real momentum a few years ago when the top international companies started to move their manufacturing facilities to India and not just that, they also started to outsource all sorts of jobs to India whether they were related to marketing, management or customer service. The most lucrative part of this international co-operation was that these global companies also got a chance to sell their products within India as the rise of the Indian consumer market was massive. This trend has continued for several years now and hence the overall economic growth is clearly visible. India is a land which is full of diversity and its vibrant democracy has encouraged its people to involve and participate in this growth.
India’s GDP in PPP terms
It is important to know that Since 2011, over 65% of Indian GDP has come from the domestic consumption, unlike China where domestic consumption averaged around 40% of its GDP. Today, at a massive 9 trillion USD, India is the third largest economy of the world in purchasing power parity terms and only China and the USA are ahead of India. If some of you don’t know what it means, let me explain this for you. There are mainly two ways in which countries GDP is looked at. Purchasing power terms and nominal terms. It is widely believed by the economists that Purchasing power parity is a more accurate and realistic way to understand the real economic condition of a country as it takes the costs of living into account. The mainstream international media largely ignores the fact that India is already the third largest economy of the world in PPP terms. I have also noticed that the western countries still prefer to compare their economies in the nominal terms as their GDP tend to appear bigger by this way of calculation. In the nominal terms of calculating GDP, currencies of all countries are converted into US Dollar which is not considered very fair by many top economists.
The economic power is going back to the east and that is why many international financial institutions are starting to take interest in India’s growth even though the mainstream international media still does not give enough coverage to the development stories of India.
Future of the economy of India
To start with, HSBC published a report in 2011 predicting India to be a top 3 economy in nominal terms over the coming decades. In 2015, another study was done by the US Department of Agriculture which predicted very similar results.
On the other hand, in PPP terms, PricewaterhouseCoopers predicts India to overtake the USA in 2050 as a 42 trillion economy.
The same institution also predicted India to be the top 3 economy in 2030 and very close to the USA in 2050 when it becomes a massive 28 trillion economy in nominal terms.
Citigroup predicts India to be the second largest economy in 2050 and according to them, in 2030 it will already be the third largest.
Other institutions like Standard Chartered are also very positive about the future of Indian economy and so is the CEBR which predicts India to be the largest economy of the planet in the future.
My personal assessment is that in PPP terms, India’s GDP should easily overtake the GDP of USA before 2030. A successful implementation of GST (Goods and service tax) is going to give the GDP a good boost. It has to be noted that the recent demonetization did not bring the GDP down as predicted by many experts and it has actually encouraged people to do more cashless transactions and I believe that in the long run, it should be positively affecting the GDP of India as well. Also, In my opinion, India should overtake China in the long run. To start with, the statistics coming out of China can never be fully trusted as they are a communist country which is known to over-invoice and artificially inflate their data. Since the ancient times, China has largely been a land of imitation and this old habit of Chinese continues even today. On the other hand, the passion to innovate is big among the Indian youth, unlike the Chinese. India is also going to have a young population for years to come in comparison to China where the non-working population is going to be on the rise. Being a democracy, India does slow down a bit in decision making, but in the long run, this is India’s real strength. It is because of its democracy that India is powered by 1.3 billion brains but China as a communist country is driven only by a few hundred brains.
Another massive advantage that India has is that it is developing in times when the technology is digital. In the tiniest of Indian villages, thousands of new innovations and experiments are taking place every day as the information which used to be available in the libraries or universities is now available in a smartphone. It also has to be noted that India has to import crude oil to meet its energy needs and the fall in Global crude oil prices are in India’s favor as well.
Is India’s economy underestimated?
All of this sounds really great but there is something more. And that is the fact that India’s economic activity is very underestimated. For example, a big part of India’s economic activity is not on any kind of record and it doesn’t have anything to do even with the cashless or cash transactions. It is because many economic activities in India are totally undetected. To give you an example, in many houses of India, people have their own cows. Their requirement of butter, milk or cheese is fulfilled by their own cow at home. The cow can simply eat grass or other low-cost food. On the other hand, even in the villages of the western countries, the cow’s milk is sold to the companies which pack them, put a price tag on them and sell it back to villagers giving birth to so many economic transactions rising the GDP of their countries. Indian cows milk reach to the mouth of many Indians without going through any kind of trade whether it is in cash or is cashless. So, one can easily see that in India, in many cases, there is production, there is consumption but there is no trade. On the other hand, western countries have managed to count their last penny available and commercialized everything that they could which inflates their GDP a lot.
Also, one has to remember that a country in which people cure themselves from the home remedies and Yoga are going to contribute lesser to the GDP in comparison to those countries which are known to make a commercial industry out of everything even when it is against human welfare.
For example, more people practice Yoga in India than anywhere else in the world. Yoga is known as the greatest gift by Indians to the world. But, the USA has the biggest chunk of around 27 billion USD in the 80 billion USD global industry of Yoga and India stands almost nowhere. So, even though more Indians practice Yoga in India, Yoga helps the GDP of America more than it helps India’s and it is all because traditionally, Indians are known to share their knowledge, and the west is known to sell any knowledge that they get their hands on.
The informal economy of India
Apart from this India also has a big informal economy and even in the formal economy people tend to under invoice a lot. Also, there are so many cash transactions which do not go on record and thus many foreign institutions end up over-estimating India’s poverty and they do not show the ground reality at all. The government of India has recently tried to merge India’s informal economy into its mainstream economy by demonetization encouraging people to do cashless transactions.
Size of an economy
. Here, I want to remind the world citizens that on the global scale, the over all size of a country’s economy matters a lot more than per capita statistics and that is why, Brunei, Qatar, Norway which are richer than the US are not known as superpowers. It is because a big overall size of GDP increases a country’s influence in the world’s economy. With due respect to all these smaller countries which may have a better per capita/per person statistics of GDP, the fact is that they hardly have any influence in the global financial world and nobody is going to suffer if they were to face a recession. On the other hand, China, India and the US are known as the big players because of the massive size of their national GDP. You will be shocked to know that with in India, there are many states which have similar GDP to the GDP of some of the European countries. For example, Maharastra’s GDP is pretty similar to the GDP of Norway(in Nominal terms).. and Tamil Nadu’s GDP is equivalent to the GDP of Portugal.(Nominal terms).
Now you must be wondering that these states of India have a lot more population than these two European countries and that is exactly what I want you to notice. It actually shows that India has already become such a large economy even though there is so much room left for the improvement in per capita terms. It means that India’s GDP can afford to grow at a very high percentage for the next many decades or even for a century before a saturation is reached like it did in Europe.
Big MAC Index
Further, we should not forget the fact that the cost of living is different in every country. For instance, 2 USD may sound too less in the USA but in India, it is good enough to buy three meals. So, all the comparisons which are done in USD do not show the actual reality of a country’s economic status at all. And that is why the big MAC index becomes very important. The big MAC index actually indicates if the currencies are at their ”correct” level. Swiss Francs are the most inflated currencies in the world and the USA is not far behind. On the other hand, Indian Rupee is one of the most undervalued currency in the world. But, still world bank continues to measure the poverty line in US dollars and to make the matters even worse and it also continues to overlook the informal economy of India. Further, it has absolutely no idea how much gold is owned in India by many of those who live in slums and are living below the so-called poverty line.
Gini coefficient and income disparity
On the other hand, it is also important that a country is not suffering from something that we know as income inequality. And this is when GinCoefficientnt comes into play. 0 indicates equality and 1 indicates inequality. It has to be noted that some poor countries can sometimes have better income equality than the rich countries. It is because in a given country if all are poor, it also means that all are equal in some way. So one should be very careful while comparing the Gini coefficient of different countries.
You will be surprised to know that on one hand, USA continues to lecture the whole world on the income inequality, but on the other hand, its own condition continues to get worse. It’s a well-known fact that the USA which has long been the so-called superpower of the world has a terrible distribution of income and wealth in their own backyard. Top 1% of the people in the US own a massive wealth that is worth 34.7 trillion USD and the bottom 40% of households own only 249 billion USD and still the so-called intellectuals from the US continue to blindly calculate the wealth in their country in per capita statistics dividing the whole GDP of their country with their population as if every citizen of the US was earning and owning the same wealth. The ugly reality of the US economy is that most of its wealth is controlled only by a few.
On the other hand, in India, 45% of the wealth is owned by its millionaires according to the report by ”New World Wealth”. But one must remember that in India, the wealth inequality statistics do not show the true picture at all. It is because a majority of Indians do not declare their actual wealth or income honestly and they are also known for keeping a big stock of household gold which in most cases stay undeclared. Let me shock the world citizens by the fact that Indian housewives own a massive stock of gold that is estimated somewhere around 25000 tons or even more and as expected, this is never told to you by any international institution which loves to discuss the so called over estimated poverty statistics from India and by the way this 25000 tonnes of gold is very much evenly distributed and not held by the top 1%.
Apart from this, there are more pieces of evidence which show clearly that poverty and wealth inequality in India is over estimated.
In the assesment year 2014-2015, it was revealed that there were only 2.4 million tax payers in India who declared their annual income over 15thousands USD but still almost 2.5 million cars continued to be sold annually. Out of these cars, around 35000 were luxury cars which continue to be sold every year as well and shockingly only around 48000 people reported their income of more than 150 thousands USD per annum. And this is only about the new cars. Second-hand cars are also purchased every year which are not even involved here. You will be shocked to know that in India only around 36 million people out of 1.3 billion file the tax returns. It is absolutely clear that Indians purposely show lesser incomes to avoid taxes and a majority does not even file any income tax returns. In such condition, how can you expect the world bank to provide you clear figure of poor or unemployed people in India? All of this clearly proves Indian economy is extremely underestimated. The fact is that Indian tax authorities are not very strict yet and many citizens are taking advantage of that.
Now here is a chart that shows the unemployment rates in different countries and as you can see, the unemployment in the western world is pretty alarming. Even though the percentage of the unemployed people is lesser in India than these western countries, it still does not show the actual figure. It is because there are so many Indians who are employed by the informal economy and stay invisible to the international financial institutions. To give you an example, many of these stall owners in India can easily be officially unemployed and perhaps many of them do not even have a tax number (PAN CARD). Those who have a tax number are mostly not declaring their true incomes. And the international financial institutions have no idea that many of these so-called unemployed or poor are earning more than 800 USD per month which is a pretty big amount in India considering the low cost of living.
Factors important to assess the power of a country’s economy
Apart from a country’s GDP , income inequality and wealth inequality there are other factors that play a crucial role too, such as external debt, net international investment position (NIIP) ,fiscal deficit, current account deficit, foreign reserves, gold reserves of the government and also the gold reserves of the common households or in India’s case even the Gold reserves of its temples. The health of a country’s financial institutions, the size of the informal economy, health of its stock exchanges, the proportion of foreign investment in the private and public entities are important as well. There are also some other parameters like HDI (Human development index) and life expectancy. Life expectancy also gets greatly affected by natural disasters, child mortality, wars and by terrorist attacks and it does not just reflect the health of a nation as assumed by many.
Let me also talk about some other aspects of India that will play an important role to make it the largest economy of the world. India needs political and internal stability and the current government of India has a huge majority in the lower house and is now looking to get stronger in the upper house or Rajyasabha as well. This is going to ease the way to pass the necessary bills. In the recent state and central elections that were held in India, the people have largely shown that they want to vote for development. Even though India has been growing so fast over the last many years, it could not reach its full potential due to the high-level corruption which in the last few years has significantly gone down and that is a good news for India.
India must find an alternative fuel of the future so that it does not have to rely on other countries for crude oil. India should also avoid any full-fledged wars, however, after a decade of high growth, if absolutely required, India can even afford limited wars without having much effect on its economy.
India must ensure that its own brands grow in their stature worldwide. This can not be achieved until Indians start to support their own indigenous brands and companies. India has to have its own luxurious brands which get admired and desired all over the world. Actually, something similar is also said by my husband. He says- ”I want to encourage the people of my country who are passionate about designing to create and establish our own luxury brands and not be inspired or influenced by anyone. Start your own trends, don’t compromise on the quality and the Indian premium consumer market will prefer you over the Italians and the French. After all, we are the land of Maharajas. Who knows luxury and art better than us?”
Apart from growing its own research and development sector, India should also be more focused on acquiring the latest technologies from around the world. At some stage, it should completely stop importing the ready to use defense equipment until there is an offer of complete technology transfer.
As India will grow, its requirement of clean water will grow too. If India stays pro-active and makes smart policies in time, it is able to handle that situation too.
India’s foreign policy
India is also getting more pro-active in its foreign policy. India is building a port in Chabahar in Iran which is said to be an answer to the port at Gwadar which is being built by China. India also enjoys a good relationship with the countries in South China sea and its strategic partnership with countries like Vietnam is seen as something that is intended to encounter China on its strategy of strings of pearls. India and Japan also enjoy multi-dimensional relationships and hence it can easily be noticed that India is doing what is needed to attain a balance of power with China to attain the stability it needs in order to continue its massive growth.
The rise of India should see the rise of its status as a country that sets the trends in the world of technology and also in the world of luxury. The rise of India should see multi-billion startups originating from India which will saturate the world of startups. The rise of India should see India emerging with its own global social media platforms and also its own institutions that give the world’s most prestigious awards to the filmmakers and also to the authors and journalists. The rise of India should see India emerging with its own institutions which set their own parameters to measure the statistics of all kinds around the world. The rise of India will not be complete until it has its own global media house which plays its role to form the opinions of the world citizens, the rise of India will not be complete until it has its own mega global banks, its own versions of S&P and Moodys which will downgrade or upgrade the ratings of the countries at their will controlling the global sentiment of investors and controlling the money flow. The rise of India should see India attaining self-dependency in its fuel and energy needs. The rise of India should also see India having a permanent seat on the United Nations security council influencing the international policy making and global affairs.