India’s share in world economy steadily growing

The Economic Survey 2016 describes India’s stand in the world as a “haven of stability” and declares that it as an “outpost of opportunity.”

This unique window of opportunity is going to allow India to behave both as a welfare state for the poor as well as meet the aspirations of the business class.

With these all encompassing credentials, the Economic Survey launches into a detailed evaluation of India’s prospects, which is described in this annual document as a “sweet spot still beckoningly there.”

At the same time, the Survey warns that any increase in public investment to shore up infrastructure may just return spending to its 2010-11 level of around two percent of GDP, well below the level in other emerging markets. This needs to be addressed urgently and the backlog across the country needs to be worked on, on a war footing.

Steady growth in India’s share of the world economy

India’s share in world GDP has increased from an average of 4.8 per cent during 2001-07 to 6.1 per cent during 2008-13 and further to an average of 7.0 per cent during 2014 to 2015 in current Purchasing Power Parity (PPP) terms. For this, the data has been drawn by the Economic Survey from the IMF. India’s resilience and current levels of reasonably strong growth should, thus, be appreciated in the light of its increasing contribution to global growth.

During the 1990s, the US’s contribution to the global GDP growth in PPP terms was, on an average, around 16 percentage points higher than India’s. The picture changed dramatically in 2013 and 2014 when India’s contribution was higher than that of the US by 2.2 and 2.7 percentage points respectively.

During 1991-2014, low growth in Japan (0.9 per cent of GDP annually) resulted in its low contribution (1.5 per cent) to global growth. India and China currently constitute 42.5 per cent and 53.2 per cent respectively of the total PPP measure of the lower-middle income countries and upper-middle income countries.

As China’s share in the world economy is constantly changing owing to its own internal instability, its share in the world economy is being constantly readjusted, leading to an increasing role for India. After the crises in different parts of the world, India’s contribution has become much more.

What about internal systems?

However, India’s budgetary deficit could grow. Therefore, achieving the original could prove difficult unless there are tax increases or cuts in expenditure. There is some scope to increase receipts from disinvestment and spectrum auctions. However, achieving this will require effort.

With such a rider and a positive outlook, the Survey admits that ” States that perform well are increasingly becoming “models and magnets.” Successful experiments in one state are models for others states to emulate by showing what can be done.”

The Survey points out that the clearest sign that a government is on a sustainable path is its debt-to-GDP ratio. If this ratio is declining, then the government’s fundamental fiscal strength is improving. For much of the period from 2008-09 and later, the government has run large annual deficits in order to kick start the economy.

These were eventually curtailed, but the resulting imbalances continued to grow. Finally, by 2013-14 this led to a sharp exchange rate depreciation that inflated the rupee value of foreign.

Two steps backward after three forward?

Overall government debt continued to grow as fast as GDP, keeping the debt ratio of the consolidated government (Centre plus states) near 67 per cent of GDP.

The Economic Survey compares this percentage with our nation’s credit rating peers and finds it to be higher than that of some countries in the Emerging Asia block. It concludes that the government is determined to break this damaging trend and finally put the debt ratio on a downward path to benefit from the GDP growth in real terms.

Finally, the Survey points to its prescription of a path of aggressive fiscal consolidation as the last Survey had envisioned. It reasons that such a low deficit would not only curtail debt accumulation, but would also offer wider advantages.

Benefits should not be clerical but real

Real term benefits translate into real jobs, real incomes, real food on the table and a real increment to the quality of life.

The Survey concludes in one of its sections that this would be the best time for pursuing a commitment to GDP growth and contribution to the world’s economy when our own economy is growing at more than seven per cent. “Such rapid growth would seem to provide ample revenues for the Budget, while enabling the economy to withstand the reduction in government demand,” says the Economic Survey 2016.