Economy India
Artha Desh

What would it take for India to become a developed country by 2047?

What would it take for India to
become a developed country by
2047?

Martin Wolf, Chief Economics Commentator, Financial Times

13th CUTS 40th Anniversary Lecture

Indian International Centre 5th July 2024

India’s economic prospects

“I have an unwavering belief that in 2047, when
the country celebrates 100 years of
independence, my country will be a developed
India.” Narendra Modi, prime minister of India,
Red Fort, August 2023

05/07/2024

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India’s economic prospects

Mr Modi’s aspiration

Global economic slowdown

“Deglobalisation” or “slowbalisation”?

Global economic prospects

India’s options

Conclusion

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1. Mr Modi’s aspiration

Is Mr Modi’s goal of making India a high-income country by
2047 plausible, or even feasible?

Probably not. But India is still likely to become a superpower
by the middle of the century.

Size matters!

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1. Mr Modi’s
aspiration

The Indian prime minister has set out the
objective of turning India into a “developed
country” by 2047. What would that require?

Greece is the IMF’s poorest advanced
country. But, at present, India’s GDP per
head (at PPP) is only a quarter of that of
Greece. If India’s GDP per head grew at its
1990-2029 trend rate (using IMF forecasts)
and Greece’s GDP per head did the same,
India’s GDP per head (at PPP) would be
about 60 per cent of that of Greece in 2047.

To catch up, India’s trend rate of growth of
GDP per head would need to reach 7.5 per
cent a year, up from 4.8 per cent. That
would match China’s rate of growth.

Is that likely?

No.

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1. Mr Modi’s
aspiration

Yet if India’s economy were to grow at
6.5 per cent a year until 2047, against 4
per cent in China, 3 per cent in the world
economy and 2.3 per cent in the US (in
line with 1990-2029 trends, except for
China), India would become the second
largest economy (at purchasing power
parity) by 2047, ahead of the US.

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2. Global economic slowdown

Global growth in living standards

Causes of the slowdown

Reasons for optimism and pessimism

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2. Global economic
slowdown

In advanced countries, ten-year average
growth in GDP per head fell by a
percentage point in the decade after the
financial crisis of 2007-09, from just over
2 per cent, and is forecast to remain well
below pre-financial-crisis levels
throughout the 2020s. For emerging and
developing countries the decline in
average growth of GDP per head from
its pre-2012 peak has been by two
percentage points. For Asian emerging
and developing countries the fall is
forecast to be even more dramatic, from
an average of 7.1 per cent in the ten
years to 2012 to a forecast of a mere 4
per cent in the decade up to and
including 2029.

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2. Global economic
slowdown: slowing
catch-up

The rate of catch-up can be defined as
the difference between the growth of
GDP per head in emerging and
developing countries and that in
advanced economies. That has fallen
from a peak of around 3.5 percentage
points to a little less than half that rate in
IMF forecasts for the 2020s.

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2. Global economic
slowdown: emerging
economies

India is forecast to enjoy a growth
rate of GDP per head of close to 5
per cent in the decade to 2029,
which is in line with similar
averages since the 1990s. China’s
growth is still forecast to be higher
than in the other large emerging
economies, apart from India.
Indonesia and Turkey are forecast
to slow to a ten-year average in
growth of GDP per head of a little
over 3 per cent in the decade to
2029, with, Brazil, Russia and
Mexico down to 2 per cent or less
over the decade.

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2. Global economic slowdown

Why the slowdown?

The pre-2007 performance was a “bubble economy” not a trend

The impact of multiple shocks:

The 207-15 “global” financial crisis

Pandemic, inflation and war

Exaggerated hopes of technological progress

Rising uncertainty

Worsening policy

China’s deceleration

Global “Slowbalisation”

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3. “Deglobalisation” or “Slowbalisation”?

Are we “deglobalising” or “slowbalising”?

Are we “friendshoring” or “regionalising”

The answers seem to be that we are slowbalising, especially
in services, not deglobalising

And we are friendshoring, not regionalising

But policy is on a knife edge. Trade could implode if political
relations collapsed

And this could even affect services

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3. “Deglobalisation”
or “slowbalisation”?

The openness of the world economy
varies in both directions, over time,
with two big upswings (one in the late
19th and early 20th centuries, and
another in the second half of the 20th
century and early years of the 21st),
but also a collapse in the 1930s and
early 1940s.

The openness of the world economy
reached unprecedented levels in the
early 2000s.

Since 2008, the ratio of merchandise
trade to GDP has oscillated, but not
(yet) collapsed.

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3. “Deglobalisation”
or “slowbalisation”?

Trade in goods may have peaked
relative to world GDP. But work by
Richard Baldwin and colleagues
(Deconstructing Deglobalization: The
Future of Trade is in Intermediate Services
2024) suggests that this is NOT true for
trade in internet-enable services, which
still has strong potential and is also hard
to stop.

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3. “Deglobalisation”
or “slowbalisation”?

A recent analysis from the World Trade
Organisation concludes that” trade flows
have become more sensitive to
geopolitical distance since the start of
the war [in Ukraine].” More precisely,
“Trade in goods between hypothetical
East and West blocs has grown 4 per
cent slower than intra-bloc trade since
the start of the war. On the other hand,
we find no evidence of an increased
regionalisation of world trade since the
shock of the COVID-19 pandemic or the
war in Ukraine.

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4. Global slowdown: prospects

Reasons for optimism:

Cessation of shocks – the end of the era of “bad luck”

Acceleration of technological change (AI etc)

Reversal of the malign policy trends of the past one and a half decades

Reasons for pessimism:

Climate change

Demographics – ageing and sub-replacement fertility rates in both high-income
and upper middle-income countries

Fragilities — high indebtedness, great power competition, global economic
fragmentation, diminishing co-operation and threats of war

Decay of liberal democracy — rise of nationalism and reactionary populism and
fierce opposition to necessary economic reforms

Pessimism wins, alas! Growth will remain slow and might get slower

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5. India’s options

What might all this mean for India?

The global environment has changed fundamentally. It is more
dangerous and chaotic than (at the least) prior to 2007

This clearly creates huge risks

But, for India, it also offers big opportunities:

India can form useful and productive economic relations with all sides

It can, if it tries, partially replace China as a competitive global supplier of
goods and services

It can become a magnet for foreign direct investment

It can (and must) be a positive influence on global discussions

India can still take advantage of global opportunities

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5. India’s options

India’s has substantial assets in seeking to shape the world
to its advantage:

It is an obvious “plus one” in a world of “China plus one” and even
more so in a world of “any country but China”

India has good relations with the West, to which it is strategically
important

The Indian diaspora is enormously successful, especially in the US

India’s size gives it the resources (if properly used) to diversify and
upgrade the economy over time

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5. India’s options

India may be tempted by aggressive industrial policies and
even self-sufficiency. It must resist these temptations.

Three mistakes, according to Chatterjee and Subramaniam (2020):

Belief that “India is a large country with a large market.” But, they argue, true market
size for tradeable goods and services, especially more sophisticated ones, is
somewhere between 15 and 45 per cent of GDP, less than 20 per cent of China’s

Belief that “exports have not been important for Indian growth.” But exports havein
fact been important as a source of growth, not least because they pay for
competitive imports and increase competition in the economy.

The belief that “global opportunities are disappearing.” Such export pessimism has been
ruinous in the past. But it still makes sense to exploit — and, in India’s case, seek to create
— opportunities. Remember that India’s actual share in world exports was a mere 2.2 per
cent in 2022, against China’s 18.4 per cent. Even its exports of commercial services were
only 4 per cent of the world total in 2022, well below the US share of 12.9 per cent and
Chinese share of 6.5 per cent.

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5. India’s options

The ratio of trade to GDP has stabilized,
at best. If India is to grow even faster in
the years ahead, it is likely to need to
remain about this open. A good working
assumption is that exports will need to
grow about as fast as the economy. That
would imply growth of at least 6 per cent
a year in real terms, which is likely to be
double the growth of the world economy
and world trade

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5. India’s options

The obstacles to the necessary progress lie overwhelmingly in
domestic institutions, policies and politics

Inclusive and rapid growth on the desired scale will require
sustained openness, but also huge investments in physical
and human capital

Openness remains a handmaiden of economic progress.

Today, the opportunity increasingly lies in services, where
India has a strong comparative advantage

India is big enough to shape the world, while it also tries to
reshape the domestic economy

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6. Conclusion

India wishes to become a high-income country by 2047

That is unlikely to be achieved. But it should become an upper
middle-income country by then

It would then also become a superpower

The slow-growing, shock-prone and fragile world we now
confront will make this rise difficult

India will have work hard to use its influence to shape that world
in a favourable direction

It will also have to shape itself to exploit the opportunities it will
have

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