What a long, enriching trip it’s been (so far)

India has reversed its shrinking share of the world economy since its Independence with a corrected course of economic management that has made it the fastest-growing major economy. For this, we should rightly be proud. It has taken a development path that relies more on its enormous market for everything from food to industrial output and services, funded principally by the savings of Indians. This makes for a self-contained growth engine that has delivered decent dividends the last 30-odd years. But this has also resulted in rising inequality and a poor record in human development.

India needs a sustained effort to increase ‘total factor productivity’ (TFP), the increase in output that cannot be attributed to increase in inputs of labour and capital. The way to boost this secret sauce of growth is to improve infrastructure, both physical (read: bullet trains, metros, etc) as well as social (education and health outcomes). India’s female workforce participation remains abysmal. The task of the next 25 years must be to increase it to global averages. The quality of governance also needs to improve, not only in the narrow sense of enforcement of laws and contracts but also a wider enhancement of societal trust. Important elements of the latter include impartial enforcement of laws and a sustained attempt to break down caste and religious barriers.

The gaps in education, healthcare and employment remain glaring for what will this year become the fifth-largest economy in the world. Without having completed one itself, India now ranks among countries that have been through their industrial revolutions, the most recent one being in China that embarked on its development path at about the same time. This contributes to India remaining a high-cost economy where labour productivity has not kept pace with consumption. There is the danger that India might grow old before it grows rich. To prevent this, it must attempt to boost the share of manufacturing in GDP by making it easier to do business. This includes both old-fashioned manufacturing like textiles, as well as sectors like semiconductors, renewables and technologies associated with 5G and the Internet of Things. In some of these sectors, GoI‘s production-linked incentive (PLI) scheme seems to have got off to a good start.

Having settled the growth-vs-equity argument in favour of the former, India must also apply itself to sustainability. India has the difficult task of increasing the standard of living while meeting ambitious decarbonisation goals. There are lessons from other countries that have raised the overall standard of living within a generation. The next quarter-century could provide India that opportunity. It must make avail of it.