India is currently a $2.8 trillion economy, and for it to become a $5 trillion economy, it will have to grow well above the rate of 12% in terms of nominal growth in dollar terms. In the run-up to the annual budget on 5 July, India’s New finance minister Nirmala Sitharaman faced three main demands from Indian industry and analysts.
- Loosening the fiscal purse strings to boost growth and arrest the domestic slowdown.
- Making public borrowings and deficit figures transparent to make the fiscal math more credible.
- Announcing big-bang reforms to revive the animal spirits of the Indian industry.
So, what are the pre-requisites for India to become an upper-middle-income economy with a thriving and prosperous middle class and achieve the kind of growth which has transformed other Asian economies?
- Supportive Markets for Land & Labour
- Further emphasis on Energy Supply and Infrastructure, which has improved a lot during the last 5 years, but it needs to go a long way to make India a world-class manufacturing destination.
- Modern India needs to be reskilled both on the education skills front and the vocational skills front.
India’s rise in Global Exports?
Given the volatility of the International Trade right now with trade wars, India is the only major Asian economy with growth in its export share and the one with the fewest trade links to China.
India’s share of world exports rose to 1.71% in Q1 of 2019 from 1.58% in Q4 of 2017, data compiled by Bloomberg show. The share of every other economy among Asia’s 10 biggest exporting nations fell in the same period. Part of the reason for India’s outperformance is that it’s not as integrated into global manufacturing supply chains as peers, which means exporters are cushioned from rising trade tensions in the region.
China is the biggest buyer of goods from South Korea and Japan, whose share of world exports has fallen the most in Asia. For India, China is the third-largest market, after the U.S. and the U.A.E.
India’s exports to the U.S. grew at the fastest pace in six years in the year ended March 2018, while exports to China surged 31%, the second-highest annual pace of growth in more than a decade, data from India’s Ministry of Commerce show.
How will the world deal with a country that has the aggregate size, and the aspirations, of a putative superpower is to be seen? It will not be easy for India. Other countries have graduated, one way or another, from developing-country status. What happens when India becomes one of the three or four largest economies in the world in dollar terms but retains the attitudes and requirements of a developing country.
Crucial reforms will allow India to become a Productive International Player and to start taking leadership roles rather than following other nations footsteps, Prime Minister’s Modi’s ambition of high growth is to be seen by the world.