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Can India Raise Its GDP Per Capita to $5,000 by 2030?
The ebbs and floods of investment and growth in the Indian economy in the past two decades are rooted in the movements in steel prices. Short-cuts used in the compilation of macro statistics obscure the policy debate by creating incongruous images: real investment growth is rising, but the rate of investment is sliding; doing business is easier, but business activity is growing slower. If policies are pursued to facilitate business activity, and better methods are used to measure it, India can raise its gross domestic product per capita to $5,000 by 2030 (from $1,965 in 2017).
The author gratefully acknowledges comments received on earlier drafts from Anupam Prakash, Ashok Sahoo, Debaprasad Rath, Keshab Das, Michael Debabrata Patra, Sitikantha Pattanaik, and an anonymous referee.
The views expressed in this article are those of the author.
The decline in investment rate and the subdued growth of private investment witnessed from 2012 to 2017 remain central to the debate on the medium-term growth prospects of the Indian economy. The Economic Survey 2018–19 of the Government of India (GoI) has reignited the debate as it advocates a private investment-led growth strategy and recommends, among other things, that “policymakers need to double down on reducing domestic economic policy uncertainty” (GoI 2019: 125). A variety of narratives are available on the behaviour of investment during the past two decades. The scrutiny in this article suggests that the changes in this variable tracked the movements in steel prices, thanks to the prevailing estimation method. The debate on the medium-term growth also took a political colour in that it became entangled with the change in government in 2014. The debate whether growth was higher during Manmohan Singh’s government or Narendra Modi’s is somewhat misplaced. The pace of economic activity, including investment during 2012–17, which included two years of the Manmohan Singh government and three years of the Modi government, was faster than what the macro numbers suggest.
Viewed from a longer-term perspective, economic growth has improved in India. The compound annual growth rate of India’s gross domestic product (GDP) per capita in 2010 dollars, 5.7% from 2000 to 2017, was substantially higher than the 1.2% in the 1960–80 period or the 3.4% in the 1980–2000 period, and second only to China’s.1 The conventional wisdom is that industrial deregulation and liberalisation, as part of wider structural reforms since the 1990s, and progressive integration into the global economy improved the rate of economic growth in India from 1980 to 2000 (Mallik 1991, 1994; Ahluwalia 2000; Acharya 2002; Virmani 2003; Kelkar 2004; Panagariya 2004). What improved the growth rate from 2000 to 2017? The answer is not easy, and conventional or received explanations vary.
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