Dream Big, Realise Small: India Chases $7 Tn Economy When $5 Tn Remains Elusive
For India, rising government debt is a pain point and experts note that it must be resolved by converting central and state PSUs to listed entities
In the scorching blaze of a late May afternoon in 2024, during one of the world's biggest elections, Kunwar Singh Pal, a 62-year-old man, was sitting at the roadside indulging in an intense conversation with his friends about their daily hardships. The air was thick with the cacophony of political fervour as an endless procession of vehicles, flashing banners and blaring slogans, passed through every corner of his neighbourhood.
Pal, who lives in Ghazipur, a village near the Delhi-Uttar Pradesh border close to Ghaziabad, expressed to BW Businessworld, "I sell spices here in the evenings. If I had had a job in my early years, I wouldn't have to do this."
He added that everything is dependent on inflation; one has to live on food and drink. For Pal, who has finished a BA degree, unemployment is another major issue apart from inflation. In a disappointed tone, he told BW, "I have also done a Bachelor of Arts (BA). If I did not get any job, then what would my children get?"
With a family of five, Pal has been living in Ghazipur village since 1988. "There are five people in our family. I have two boys and one girl. One of my boys has done engineering, another has done CA, and the girl has finished her B.Ed, but no one has got a job."
In a dramatic development, the International Labour Organisation (ILO) in its recent report stated that the unemployment rate of Indian youth is higher than that of adults and has been rising over the past several decades—from 5.6 per cent in 2000 to 6.2 per cent in 2012, then increasing threefold to nearly 18 per cent in 2018, and reaching around 15.1 per cent in 2020.
The report, which caused a political uproar in India, added that unemployment among educated youth is particularly high and has exceeded global averages by 2018. Indian youth are attaining high levels of education, but not enough employment opportunities are created for them, as reflected by the declining participation in the labour force and workforce.
The challenge of educated youth unemployment is increasing and becoming significant in India, with immense implications for societal balance and peace, according to the report. A periodic Labour Force survey done by the government showed it further rose to 20.8 per cent in April-June 2020 during the Covid-19 pandemic before dropping to 3.2 per cent in 2022-23—nearly half of the 2017-18 levels.
Moreover, the informal sector, which forms the backbone of India's economy, has been particularly hard-hit, with many workers struggling to secure stable and decent-paying jobs.
Earlier, confident of a major electoral victory in India's general election, Prime Minister Narendra Modi established another humongous target of roughly doubling the country's economy and exports in this decade. According to a document seen by news agency Reuters, PM Modi asked government officials to create plans by around May 2024 to expand the economy to USD 6.69 trillion in nominal terms by 2030, from around USD 3.51 trillion currently.
While citing information from the document, Reuters reported that for the next six years, PM Modi's goal is to increase the per capita income of India to USD 4,418 from approximately USD 2,500.
Discussing the possible hurdles to achieving this target, Rahul Ahluwalia, Co-founder of the Foundation for Economic Development, said, "Removing cost disabilities and overhauling our cumbersome regulatory ecosystem for industries won’t be easy, as a lot of these changes, such as reducing tax and tariff rates, and making labour laws flexible and environmental clearances seamless, might be politically difficult to bring about."
India, endowed with a youthful population, holds a significant demographic dividend that can be maximised through improved access to healthcare, education, and skill development.
"Addressing disparities in healthcare accessibility, particularly in underserved states, and expanding resources for high-quality medical education are crucial steps. Education and skill development are paramount to harnessing this demographic advantage. The focus should be on ensuring schools within a one km radius, colleges within a 10 km radius, and universities within a 25 km radius in the next five years," said Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry (PHDCCI).
During the past decade from 2014 to 2024, nominal gross domestic product (GDP) has enlarged from USD 1,857 billion to USD 3,559 billion, registering a growth of 192 per cent and 6.72 per cent on a compound annual growth rate (CAGR) basis. "Considering the present Indian scenario and geopolitical tension, during 2024-30, nominal GDP in USD terms might grow at 6.2 to 6.5 per cent on a CAGR basis and reach about USD 5.10-5.20 trillion. To meet the USD 7.0 trillion target by March 2030, India needs growth at 12 per cent on a CAGR basis," said RP Gupta, Economist and Author.
For India, rising government debt is a pain point, and experts noted that it must be resolved by converting central and state public sector entities (PSUs) to listed entities and partly shifting the burden of infrastructure spending to these listed entities.
During the decade 2002-12, the growth of nominal GDP in dollar terms was 376 per cent and 14.15 per cent on a CAGR basis, and during 2004-14, it was 306 per cent and 11.82 per cent. Gupta added, "This reveals that India has the latent potential to deliver amazing results. However, the benefits of the 1991 structural reforms were almost over by 2012. Now India needs radical structural reforms exceeding those of 1991 for attaining faster, consistent, and inclusive growth."
An Unequal World
A study by the World Inequality Lab revealed that India’s income and wealth inequality have become among the highest in the world, worse than in Brazil, South Africa, and the US. The research showed that India’s top 1 per cent holds more income today than it did under the British.
According to a paper released by the Niti Aayog, multidimensional poverty (MDI) has declined from 29.17 per cent in 2013-14 to 11.28 per cent in 2022-23, and 24.82 crore people have "escaped" from multidimensional poverty during these nine years.
The report also claimed that various government initiatives such as Poshan Abhiyan, Anaemia Mukt Bharat, and Ujjwala Yojana have played a major role in mitigating different forms of deprivation.
However, several economists have argued that the impact of Covid-19 on poverty is missing in the report’s findings. Observers stated that the traditional method of estimating poverty globally, which considers the number and share of the population below the consumption poverty line, is absent.
"Human capital development is critical. The main issue today is that we have access to education, but very poor quality. Approaches to improving quality must focus on high-quality measurement that can sidestep the low state capacity in India, for example, by encouraging global certification agencies and standards to certify skills in India," stated Ahluwalia.
Last year, the government extended the Pradhan Mantri Garib Kalyan Anna Yojana to provide free food grains to about 81.35 crore beneficiaries for five years. To which, the Congress party asked the Centre why, if the poverty level has come down, the government is providing free ration to 80 crore people.
Talking about the government's ration shops, Pal said, "We do not have a ration card now. We applied for it, but it has not been processed yet. We have been living here all this time, started the process in between, but somehow it stopped midway."
He mentioned how local authorities have been unable to help them resolve their issues. An angry Pal said, "What will they do [local administration]? If assistance comes from the centre, then they will be able to help us. When the central government supports us and provides us with ration cards, only then will it happen."
Pal accused Delhi's Lieutenant Governor Vinai Kumar Saxena, appointed by PM Modi-led central government, of obstructing these schemes from reaching the public. "What will happen in other parts of India if the public is not provided with any facilities even in the national capital?" he questioned.
In 2023, India was ranked 111th out of 125 countries in the Global Hunger Index (GHI) 2023. The Modi government, however, rejected the index, citing flawed methodology.
"Redistribution of income to the poor class is an interim solution. For a long-term solution, India must generate job opportunities and expand the actual labour participation rate (LPR), excluding unpaid family workers. In the developing phase of any nation, MSMEs and the farm sector need full support; they provide about 85 per cent of jobs," Gupta asserted.
What Is Next?
According to experts, India’s growth model should be investment and export-led. The current manufacturing share in gross value added (GVA) must increase from 14 per cent to 25 per cent in the decade 2024-2034, and the country must achieve a trade surplus in goods and services. The share of commercial infrastructure spending must exceed 12 per cent of GDP.
"To boost exports, the economic efficiency of India must improve by reducing the cost of basic inputs such as capital, energy, logistics, and minerals through various policy tools. This will stabilise or appreciate the rupee and attract global capital to meet India's investment needs. During the decade 2002-2012, exports increased by 734 per cent in dollar terms, and rupee depreciation was minimal," stated Gupta.
Notably, the industry body PHDCCI believes that the economy is growing rapidly, with growth rates of 9.1 per cent in 2021-22, 7 per cent in 2022-23, and 8.2 per cent in 2023-24. The economy is expected to surpass 8 per cent growth in 2024-25, and India is projected to become a USD 4 trillion economy by FY 2024-25, USD 5 trillion by FY 2026-27, a USD 7 trillion economy by 2030, and more than USD 34 trillion by 2047.
"India must focus on key sectors to achieve a USD 7 trillion economy by 2030, including the automobile sector, FMCG sector, fintech, IT sector, and pharmaceutical industry. Inflation and fiscal management may prove to be challenging. It is highly appreciable that the government and the RBI are addressing inflation through effective policy measures, leading to a softening inflation trajectory and maintaining inflation within the RBI target band of 2 to 6 per cent," said Agrawal.
Agrawal added that to achieve its economic targets with inclusive growth, India needs pivotal policy reforms. These include a National Employment Policy focusing on job creation through enhanced university-industry linkages and R&D across sectors such as MSMEs, large companies, startups, NGOs, and government.
Shedding light on how global economic trends and geopolitical shifts impact India's ability to reach the USD 7 trillion target, Ahluwalia stated that today, China’s strategic rivalry with the West and global manufacturers adopting a China Plus One strategy means some tailwinds could attract significant foreign investment to India.
"India should look to create a more conducive environment for industry to thrive. This would involve overhauling our regulatory ecosystem to complement ongoing infrastructure improvements, making India competitive with countries such as Bangladesh and Vietnam," Ahluwalia added.
