Integrated framework

India needs a medium-term economic strategy

The government has made it clear that its plan is to create a “Viksit Bharat” — a developed India. Various dates have been suggested for the realisation of this ambition, though the one most often cited is 2047, the hundredth anniversary of India’s independence. It is only right that such ambitions be set. However, the implications in terms of growth requirements for such a target are quite onerous. A growth rate of at least 8 per cent will be required, year after year, for decades to reach even the current cut-off for high-income countries of $14,000 nominal gross domestic product per capita. This level has been achieved by about 60 or so countries. But such growth is possible. The People’s Republic of China, after years of fast growth, will likely achieve the $14,000 level in the next few years — even though its economic momentum has shown distinct signs of slippage in recent times. Many countries in eastern Europe and East Asia have also maintained high growth on these time scales.
 

However, for a country with the complexity of India, it is clear that high and sustained growth does not come automatically. This is particularly the case in the current scenario. Unlike the “golden period” of the 1990s and 2000s, the global economic environment today is a source of stiff headwinds for ambitious developing economies. There are multiple reasons for this. First, the trading system has become far more closed, as countries engage in industrial policies that include domestic subsidies and tariff walls. Second, the brewing cold war between the US and China has split value chains and complicated investment strategies. Third, technological changes have made it harder for development strategies based around arbitraging labour costs to work effectively. To these trends must be added other macro-trends, including the effects of climate change and the implications of the green transition. The need to address carbon emission reduces the ability of countries, including India, to rely on domestic reserves of coal as a source of cheap energy. It raises the costs of industrialisation, as higher-cost techniques become necessary for intermediate goods. And new resources and commodities — such as nickel — become additional drains for foreign exchange and chokepoints in global supply chains, not to mention possible geopolitical flashpoints.
 

It would be far too optimistic to assume this complex global and economic environment can be easily negotiated by multiple Union ministries creating reactive policies, each in its own silo. Such an approach might keep India’s head above water in terms of economic growth but it is extremely unlikely to provide the kind of sustained growth required for Viksit Bharat. Thus, there is no alternative to creating a more coherent medium-term strategy that integrates the requirements of various sectors relevant to growth and development, as well as taking into account the myriad forces and trends listed above. Such medium-term strategies need not have the prescriptive or statutory force of Five-Year Plans in days gone by. But they can serve as important guides to policy making in various ministries that are otherwise short of capacity for long- and medium-term planning. The correct location for this work would of course be the NITI Aayog. The government’s internal think tank could have its intellectual capacity deepened, and could be assigned this work of bringing out a medium-term road map for growth, which can be adjusted periodically to account for internal and external developments.