India in 2047

Policy adjustments can enable higher growth

The NITI Aayog, the Union government’s think tank, is in the process of preparing a 25-year vision for the Indian economy. As reported by this newspaper on Monday, it will target making India about a $30 trillion economy by 2047. According to the road map, India would be expected to attain a size of $6.69 trillion by 2030, $16.13 trillion by 2040, and $29.02 trillion in current dollars by 2047. According to the International Monetary Fund data, the size of the Indian economy will be about $3.73 trillion this year. Attaining the stated target thus would require an annual growth rate of about 9 per cent in dollar terms till 2047. Although the details of the plan will be known once the vision document is made public, the target clearly is ambitious.

To be fair, there is nothing wrong with setting slightly ambitious targets. In fact, they can help drive policy changes in the right direction. It would be interesting to see the policy path the NITI Aayog suggests. It is working with other government departments, and would presumably take inputs from independent and private-sector economists. Given that India has grown a little over 7 per cent in current dollar terms over the last decade, pushing up the growth rate by another couple of percentage points or more over the next 25 years would not be easy. India will face a number of challenges and the vision document would do well to clearly highlight them, which would enable the government to adjust policies in the right direction. For instance, global growth is likely to remain below par in the foreseeable future. Some economists are also of the view that global interest rates, particularly in the US, are expected to remain higher for much longer, owing to structural factors. In such conditions, increasing the growth rate over a longer period would be inherently difficult.

The government has increased capital expenditure significantly after the pandemic, and that is helping improve the state of infrastructure. However, this has delayed fiscal consolidation. Sustained higher Budget deficits and public debt can constrain the government’s ability to intervene when needed and increase financial-stability risks. Besides, to attain higher long-term growth, India will need to significantly boost manufacturing output. Despite various attempts in the past, India has not been able to push manufacturing output to the levels desired. This has also been the biggest impediment in creating quality jobs at scale, which, in turn, can boost consumption demand and sustain growth for a longer period.

Shortfalls in manufacturing have also affected India’s exports, which can be a big driver of growth. In terms of trade, it would again be worth watching what the vision document suggests. India has adopted a strategy of higher tariffs with fiscal incentives to large producers, which may not work in the long run. Notably, the reported numbers show a trade deficit of over $3 trillion in 2047, which may be difficult to finance. Furthermore, to attain higher growth, India will need to spend a lot more on education and health. Only a skilled workforce will be able to drive growth over a long period. It would also need significantly higher investment in renewable energy, both to reduce import dependence and make economic growth more sustainable. Since the Indian economy will face a number of growth challenges, it would be vital for policymakers to review the performance periodically and make necessary adjustments.