- If the Indian leadership determinedly wishes to be counted amongst the top most nation in the world, the economy must grow at a higher rate than the one projected presently. It may sound unpalatable and fiscally imprudent right now, but the fact of the matter is projecting GDP growth of 6-7% is not going to position the aspirational Indian society anywhere, least of all at par with the developed nations. One of the biggest advantages that we as a country possess is the demographic dividend most capable of pushing ahead with the consumption patterns. Undeniably, the 1.45 billion population should be put to good use by emphasizing to development of the local manufacturing sector without having to rely too much on imports.
- Let’s see how our giant neighbour fares in the face of several challenges. Note how China’s annual session of the National People’s Congress saw an unusual prognosis on its economic trajectory. The government targeted an annual economic growth rate of 5% in 2023, the lowest in over 25 years. Incredibly, it’s also lower than IMF’s 5.2% forecast. If IMF seems to veer toward optimism, consider its five-year forecast. China’s growth rate is expected to steadily decelerate and fall to a little over 3% by 2028. The country’s scorching growth phase is over. Nonetheless, China will be a colossus on the global economic stage with its 2022 nominal GDP at $19.2 trillion. However, a slowdown in China’s growth rate will make it harder to catch up with the US.
- China’s economic challenge will be all the more acute because it’s also turned a demographic corner. In 2022, its population shrank for the first time in 60 years because of declining fertility. China’s big challenge is that it’s growing old before getting rich. Moreover, unlike the US, it’s not a magnet for skilled migrants. In a nutshell, China’s experience has some takeaways for India, which has a GDP about one-fifth that of China. The Economic Survey estimated that India’s potential output can rise to 7-8% in the medium term. Most forecasts place the likely GDP growth for 2023-24 below the medium-term potential. Admittedly, the global economic scenario is not rosy but neither have the worst-case scenarios shown up as anticipated.
- Therefore, it makes economic sense to locate India’s potential output needs in the context of its demographic transition. UN projections show that the largest segment of the population is between the 15-19 age group at around 120 million. In contrast, China’s bulge comes in the 30-34 age group. Thus, the Indian economic policy should steer the focus to enhancing the growth rate in crucial sectors such as manufacturing, services, and agriculture. Heavily depending on imports as a substitute for domestic consumption would not help the cause. Domestic consumption spearheaded by local manufacturing would be ideal. As such, the Make in India campaign should scale up with even more product-linked incentives to achieve the stated goals.