The Economic Survey 2017-18 notes that India could face a ‘late converger stall’ when it comes to economic growth.
Economic convergence is the process of developing economies catching up with developed economies. India, the Survey states, is lower-middle income country, aiming for middle income status in the current growth period following the global financial crisis of 2008. The early convergers include countries like Japan and Korea .“If per capita income in India grows at 6.5% per year, India would reach upper-middle income status by the mid-to-late 2020s,” the survey states.
However, the survey identifies certain risks that could stall the growth rate of a late converger in the current environment. “These headwinds include: the backlash against globalization which reduces exporting opportunities, the difficulties of transferring resources from low productivity to higher productivity sectors (structural transformation), the challenge of upgrading human capital to the demands of a technology-intensive workplace, and coping with climate change-induced agricultural stress,” says the Survey.
Rejection of globalisation
The Survey argues that developing countries which began their upward mobility later than others face the backlash against globalisation with more severity than those ahead of them.
“This means that the trading opportunities available to the early convergers, specifically the ability to export at double digit rates of growth for three to four decades consistently, may no longer be available,” states the paper.
Premature de-industrialisation
Another worry is that in late convergers, manufacturing tends to peak earlier than expected. The Survey classifies this as ‘good’ growth, i.e. necessary structural transformation, and ‘less good’ growth, i.e. transformation in other areas, like services sector.
In comparison with China, from 2008 to 2010, the share of India’s good growth has fallen to 32% from 37%, and China’s has risen to 53%.
Technology-based human resources
When India began on its course to become a developed nation, human capital was by and large employed in the manufacturing sector, seeing how it was the first need to fulfil.
But technological advancement has made it so that unskilled human resources are no longer the need of the hour. “Technology will increasingly favor skilled human capital, where the requisite skills will include adaptability and the ability to learn continually,” the Survey remarks.
Climate change and agriculture
The Survey says that India’s agricultural productivity growth has remained stagnant over the last three decades. Being heavily dependent on rainfall for irrigation, the Indian farm sector is also intensely affected by increasing temperatures and climate change.
Add to this migration towards urban centres, and the agriculture sector faces its worst challenge. Late convergers will have to shore up agricultural productivity to fight off climate change and water scarcity.
