Why fifth-largest economy status is a job half done for India

By Hilary Schmidtinternational banker

IIt’s a decidedly mixed picture for the economies of India and the UK in recent years. The UK is facing a massive cost of living crisis based on double-digit inflation; it is poised to face a deep recession that could well last all of next year as consumers battle sky-high energy prices, and the country suffers from a vulnerable economy that continues to underperform after its decision to leave the European Union (EU). In contrast, India has consistently been among the fastest growing major economies in the world over the past decade. And although the virus has weighed on the South Asian heavyweight’s economic progress, annual gross domestic product (GDP) growth figures of 20.1%, 8.4%, 5.4%, 4.1% and 13.5% over the past five quarters to the second quarter of 2022 show that it has once again resumed its high growth trajectory.

As such, the International Monetary Fund (IMF) noted that according to quarterly GDP figures in current dollars for the period ending in December 2021, India overtook the United Kingdom and then increased its lead during of the quarter ending in March. On an annual basis, India’s economy will reach $3.47 trillion in the financial year 2022-23, while that of the UK will reach $3.2 trillion. Over the past decade, India’s economy has risen to the top of the global rankings, rising from 11e up to 5ewhile its share of global GDP over the past eight years has fallen from 2.6% to around 3.5% today.

The response to this achievementyou of India itself was largely jubilant. “Recently, India achieved the feat of becoming the fifth largest economy in the world. This achievement has given us confidence to work harder and achieve greater goals in this Amrit Kaal,” Prime Minister Narendra Modi said. “This is no ordinary progress. It fills the heart of every Indian with pride. We have to maintain this enthusiasm. It has also not gone unnoticed that India – a former British colony – overtook the UK in its 75e year of independence.

But how really a significant achievement is this recent entry into the Top 5 for India? After all, with nearly 1.4 billion people, the country is behind only China in terms of total population; at its current growth rate, it is almost certain to become the most populous country in the world within the next two years. This means that, on a per capita basis, India continues to languish at the bottom end of the global rankings; according to the World Bank, GDP per capita was only $2,277 in 2021. In contrast, China’s GDP per capita was $12,556 and the UK’s was $47,334.

India is still among the poorest countries in the world and remains officially classified as a lower-middle-income economy. It is home to the largest number of poor people in the world, and as a result it continues to invite well-justified criticism of the kind of growth that has occurred – growth that has dramatically increased inequality and has not done enough to engage the whole country.

As such, tackling this inequality is arguably the greatest economic challenge facing India today. According to the “Global Inequality Report 2022”, while the top 10% and top 1% hold 57% and 22% of total national income respectively, the share of the bottom 50% has fallen to just 13%. And from a wealth perspective, last year the richest 10% and 1% of the population held 65% and 33% of total household wealth, respectively (all financial and non-financial assets, minus debt), while the bottom 50 percent owned just 6 percent of the total, meaning that India stands out as “a poor and highly unequal country with a wealthy elite,” the report noted.

Of course, it is clear to most today that solid progress in reducing extreme poverty has been made over the past decade. The “Global Multidimensional Poverty Index Report 2022”, recently released by the UNDP (United Nations Development Programme) Human Development Report Office (HDRO) and the Oxford Poverty Initiative and Human Development (OPHI), revealed that India’s progress in poverty reduction has both outpaced countries around the world and contributed to the overall decline in poverty in South Asia. The report used a Multidimensional Poverty Index (MPI) to produce a more comprehensive measure of poverty, measuring 10 indicators across (i) health: nutrition and child mortality; (ii) education: years of schooling and school attendance; and (iii) standard of living: access to drinking water, sanitation, cooking gas, electricity, housing and goods.

“The reduction in the value of the Multidimensional Poverty Index (MPI) in India has been rapid over the two most recent periods,” the report notes. “MPI estimates based on the recently released 2019-2021 Demographic and Health Survey for the country show that 415 million people moved out of poverty between 2005-2006 and 2019/2021 – including about 140 million since 2015 -2016 – and that the country’s MPI value and poverty incidence have been reduced by more than half.

But while efforts are clearly being made to reduce poverty across India, the MPI report also showed that there remain lingering issues that need to be addressed, especially with worrying statistics such as two-thirds of people vulnerable to poverty “live in a household in which at least one person is nutritionally deprived” and that, based on 2020 population data, “it has by far the largest number of poor people in the world (228.9 million), followed by Nigeria (96.7 million projected in 2020).” Much of this vulnerable population is concentrated in rural areas, where the percentage of poor people is 21.2%, compared to only 5 .5% in urban areas “Rural areas account for nearly 90% of the poor: 205 million of the estimated 229 million poor live in rural areas, making this a clear priority. Only 23 countries covered have a proportion higher number of poor living in rural areas,” the report adds.

It should also be observed that in terms of civilizational states, China and India have historically represented the world’s two largest economies for longer periods of time than any of the others. It is also interesting to note that modern incarnations of their sovereign and independent states began around the same time in the late 1940s. China seems almost certain to reclaim its global economic primacy once again, and long before the end of this decade.

Can India follow in the footsteps of its neighbor and regain such dizzying heights? That certainly seems to be the goal, with Prime Minister Modi confirming in August his goal of making India a developed nation within 25 years. “Hundreds of years of colonialism have restricted our feelings, distorted our thoughts. When we see even the smallest thing related to colonialism in us or around us, we have to get rid of it,” Modi added, noting that India should crush the “termite” of corruption and nepotism and follow a mantra “India first” and furthermore, India’s independence “is the responsibility of every citizen, every government, every unit of society”.

From a historical point of view, therefore, becoming the fifth economy should only be a stepping stone – albeit a welcome one – on the way to realizing much higher ambitions. Exactly where it will be in, say, 10 or 20 years from now should perhaps not be as relevant as ensuring that it can build a robust economy that works for all of its vast population and thus incentivizes its hundreds of millions of poor citizens to escape poverty. This will not only improve the quality of economic growth generated by India in the coming years, but will also provide a dividend to the economy to maximize its unlimited potential.

For some analysts, it is a question of avoiding the pitfalls of neoliberalism, to which many Western economies – and many non-Western ones – have succumbed, only increasing inequalities to extreme degrees while policies favoring Accumulation of private wealth above all was adopted from the start. 1980s. “We now know that…the Reagan-Thatcher revolution…was the starting point for a staggering increase in inequality within countries that continues to this day,” observes the “World Inequality Report 2022”. “When state control was (successfully) relaxed in countries like China and India to allow for private sector-led growth, the same ideology was invoked to justify not caring about inequality. , with the result that India is now one of the most unequal countries in the world. world (based on this report) and China is likely to get there soon.

Nonetheless, given the marvelous feats China has done in recent years to lift hundreds of millions of its own citizens out of poverty, many believe India should try to replicate some of the policies its Asian superpower has adopted. According to a recent World Bank report, China lifted 765 million people out of extreme poverty between 1978 and 2019; he said he eradicated extreme poverty in 2019; his life expectancy at birth has increased from 66 years in 1978 to 77 years in 2019; and its infant mortality rate fell from 52 per thousand children in 1978 to just 6.8 in 2019 and 2018; it’s about 2 million people [20 million] lifted out of abject poverty every year for four decades,” an October 11 article from the news publication The Indian Express declared.

India may not have the structural flexibility or indeed the political appetite to attempt to replicate China’s measures, which have led to phenomenal economic transformation over the past 40 years. But it can always divert more resources to turn its millions of poverty-stricken citizens into a crucial combined engine of growth. To India’s credit, such policies are being pursued. Modi recently noted that as many as 30 million houses “have been built by the government across the country for the poor over the past eight years”. But it seems increasingly clear that deep political changes are needed to prevent India from succumbing to the pressure to prioritize the market economy at the expense of its people.

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