Goldman Sachs expects India’s economy to grow to $50 trillion by 2075, that is, in a little over 50 years from now. But former chief economic adviser to the Narendra Modi government, Krishnamurthy Subramanian (2018-2021), in a new book, India@100: Envisioning Tomorrow’s Economic Powerhouse, believes that India has the potential to do far better and that it could possibly become even a $55 trillion economy in less than 25 years when India celebrates its 100th Independence day in 2047.
To achieve this feat, it might seem like India, which was a $3.25 trillion economy in 2023, will have to double the size of its economy every 5.6 years, or grow at a mind-boggling 12.5% per year. But the author notes that India may actually need to grow at only around 8% per year in real terms for about 25 years. That’s because if India’s real GDP grows at 8% and the Reserve Bank of India manages to keep inflation around its 4% target against the country’s historical average of 7%, the Indian rupee could depreciate at a far slower pace of around 0.45% per year going forward against the U.S. dollar compared to the 3.5% to 4.5% depreciation witnessed between 1990 and 2020, helping boost India’s GDP in U.S. dollar terms to $55 trillion by 2047. Indian living standards, of course, would be much lower if we grow at 8% rather than at 12.5% in real terms till 2047, but at least technically India would be a $55 trillion economy.
Krishnamurthy Subramanian | Photo Credit: PTI
The reforms route
The policy prescriptions that the author lays out in the book to achieve the goal of 8% growth are largely sound. He emphasises, often with strong empirical evidence, the need for agricultural and industrial reforms; the importance of focusing primarily on economic growth rather than on redistribution to improve living standards; the economic logic of allowing free competition and creative destruction to boost economic growth; and how reforming the judiciary and the civil services can give a huge boost to the economy. He also introduces the reader to some interesting heterodox thinking regarding how banks create money and how it is not savings that actually drive bank lending and investment, at least in the modern economy.
But the broad merits of the book are offset to an extent by its glaring flaws. The most obvious is the repetition of the misleading right-wing narrative about India’s dominant contribution to world GDP prior to the Mughal and British invasions. The author fails to explain to the reader that it was India’s population that once made it a huge contributor to world GDP or that average per capita income levels in India back then were not very different from those in the rest of the world. Further, the author’s recommendation for a protectionist trade policy saying that even the developed countries were protectionist in the past and his support for rapid credit expansion by banks without a proper analysis of the risk of credit bubbles come across as disingenuous and incomplete, respectively. Many readers may also be left wondering, particularly when the author praises the Centre for its reforms track record, if he sets the bar too low. This is most glaring in his reform prescriptions for the healthcare and education sectors, which are meek and do not address the major structural barriers that have limited the supply of these services.
India@100: Envisioning Tomorrow’s Economic Powerhouse; Krishnamurthy Subramanian, Rupa, ₹995.
prashanthperumal.j@thehindu.co.in
Published - August 30, 2024 09:00 am IST
