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What is it that makes India unstoppable?
Dr Arvind Panagariya: India is on the way to becoming a leading power. First of all, it is a rare example of a developing country which has sustained democracy for more than 75 years now. It is difficult if you think about it, perhaps Costa Rica, perhaps Jamaica, but very few countries which became independent after the Second World War and were developing countries have sustained democracy for that long.
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It is important because in democracy, consensus building takes time, but once consensus has been built up, it also sustains, unlike authoritarian regimes where change of leaders can really create upheavals as, for example, we are witnessing currently in China.
Second, we have now sustained economic reforms for about 32-33 years. So, a lot of the reforms that were required and required consensus building are now in place. And there is also largely consensus in place for some of the outstanding reforms. But the road for those reforms is perhaps cleaner and clearer than it was 30 years ago.
The third factor I would point out is that timing from India’s point of view is absolutely fantastic. Now, among the major economies, there are no competitors because the US and Europe are mature economies which probably would grow 2%, 3% at the most. China, which would have been the major competitor, has done its major innings. If you look at the record of the countries that have grown rapidly, like South Korea, Taiwan, Singapore in the past, at the end of the day generally this kind of very rapid growth happens for three decades.
After four decades, from 8% to 10% you come down to 6%, 5%. And then in the fifth decade, you are 3% or 4%. So not only the fact that somehow the leadership in China has taken a very different turn, which is not very growth-friendly, but also in terms of its own evolution, it has now arrived at a place where its growth rate is bound to decline. So, it really leaves India as the only major economy.I suppose I should add a fourth factor which is that today India’s base with about $3.6 trillion is large enough. For a while, for us, the base was so small that even a growth of 7%, 8%, 9% really added not enough, but now it can. So, all these factors are really working for India, not to mention the fact that there is very able leadership at the Centre and in many of the states as well. All this is adding up to make India really unstoppable.Are you saying that as far as growth possibilities are concerned, China has already peaked out because the general belief about India is that India’s Amrit Kaal has just begun and the next two to three decades are going to drive a huge amount of momentum towards making India a developed nation by 2047. Is it in sync that China is slowing down and India is picking up pace just at the right time?
Dr Arvind Panagariya: Yes, that was the gist of what I said. Another way to look at it is that in terms of per capita income, we are still below $3,000, around $2,500. That means that the gap between our per capita income and what other countries have achieved is extremely large. And this is what says that even with the existing technologies, as we accumulate more capital over time, we can raise the productivity levels, the average worker productivity levels to significantly higher levels. I mean, you can compare with China where per capita income is somewhere between $13,000 and $14,000 or compare with South Korea which is $32,000-$33,000. So, that is a very large gap. But we know that this gap is bridgeable with existing technologies. This kind of gap put sus in a great place. Perhaps even larger gaps existed in the 50s, 60s, and 70s, and even 80s but then the economic reforms were not in place. The economic activity was so incredibly restricted through all sorts of licensing systems. Investment was subject to licensing, imports were subject to licensing, everything was controlled. So, the entrepreneurs really did not have free play.
Today, the entrepreneurs have free play. Our economy is open, investment is coming in, technology can flow in. Everybody has to compete with the best in the world and that also actually brings the best out of you. So, all these factors I think add up for us for the next two to three decades, perhaps even longer to sustain a very rapid growth.
We are currently growing in real rupees about 7% or so per year but certainly with a few more reforms in the next five years, we can realistically push it to somewhere close to 9%, certainly somewhere between 8% and 9% and that can be sustained easily for a couple of decades and then when the growth rate does decline, as it has happened in the case of all the other countries, we will still be maintaining possibly at 6% or 7%.
Why is there a constant question mark about India’s growth potential from some of the experts, some Indian as well as some global? Some people call India’s GDP numbers mystifying, some people say that they are not able to decipher India’s growth prospects and the growth data which we are presenting and projecting. What is your view on that?
Dr Arvind Panagariya: Well, if you are mystified, first you have to check whether the mist is on your own glasses you are wearing or somewhere else. I see no reason as the data comes from a very professional class of statisticians which is the agency tasked with measuring GDP.
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