On 11 July, the good news emanated from the Washington-based World Bank ~ India had surpassed France to become the world’s sixth largest economy and was only a short distance away from the UK. This is a spectacular achievement as India’s GDP amounted to $2.597 trillion at the end of 2017, against France’s $2.582. The US with $19.39 trillion of GDP topped the list followed by China ($12.24 trillion), Japan ($4.87 trillion), Germany ($3.68 trillion) and UK ($2.62 trillion), ahead of India, while Brazil ($2.06 trillion), Italy ($1.93 trillion) and Canada ($1.65 trillion), were below India. This is the performance of the top ten countries.
For India, this is a spectacular achievement when we reflect that ten years ago, our GDP was half of that of France while, in the first quarter of 2018, India overtook China with its growth rate of 7.7 per cent, against the latter’s 6.8 per cent. The Asian Development Bank (ADB) has supported the view that India will be the fastest growing major economy, ahead of China, both in 2018-19 and 2019-20.
India has doubled its GDP within a decade and is expected to become a key economic player in Asia soon. China has slowed down over time. More importantly, the IMF has projected India to generate a growth rate of 7.4 per cent this year and 7.8 per cent next year boosted by its household spending and a bold indirect tax reform. The economy has recovered from the mess in 2017, a year that was marked by a slowdown due to lack of demand in the rural and retail sectors in the wake of demonetisation (November 2016) and crippling of manufacturing activity. The market was hobbled by uncertainty even before the introduction of GST and the massive overhaul of the country’s indirect tax system in the middle of 2017. But the economy was able to quickly overcome these temporary setbacks as manufacturing and consumer spending have stimulated the economy in the last and the first quarter of 2017 and 2018 respectively.
The London-based Centre for Economics and Business Research (CEBR) considered the internal strength of the Indian economy to be robust enough so as not to have allowed these scars to linger. This facilitated the economic turnaround. In its reckoning, the Indian economy is now free from thousands of crores of black money that had piled up over the years and the multiplicity of indirect taxes ~ 17 in number ~ existing at different layers of the government. This ensured transparency and mobility making production and distribution smooth. CEBR had predicted that the country would surpass the GDP of the UK and France towards the end of 2017.
According to the World Economic League Table ( WELT), India will ‘leapfrog’ Britain to become the fifth largest economy of the world in 2018. The ADB in its Asian Development Outlook also states that four factors will accelerate the growth momentum ~ (a) increased public spending as more than 99 per cent of the money withdrawn during demonetisation has returned back to the banks; (b) higher capacity utilisation rate because of growing gross capital formation; (c) the rejuvenated private investment owing to the government’s recapitalisation of the banks; and (d) renewed focus on infrastructure development coupled with surging private consumption. Thus was the country able to overcome the disruptions of 2016 and 2017.
The inner strength of India lies in its gradual emergence as one of the world’s leading innovative economies as is evident in the Global Innovation Index (GII) Report, 2018, entitled ‘Emerging the World with Innovation’.
This report was published jointly by Cornell University, the World Intellectual Property Organisation (WIPO) of the UN and the GII Knowledge Partners. These entities ranked 126 economies on the basis of 80 indicators and placed India at the 57th spot this year, a slight improvement from 60th of last year. Its indicators covered intellectual property rights, filing rates, mobile application, spending on education, scientific and technical publications.
India performed well on a number of parameters; it also exposed its weakness in certain others. The important areas of India’s strength, as it ranked high even among the top ten economies, included the number of science and engineering graduates; protection of minority investors; domestic market expansion measured in purchasing power parity (PPP); trade, competition and international market scale; number of companies that contributed to global research and development (R&D); gross domestic capital formation and the overall investment in and outside the country.
As a culmination of all these factors, India not only ranked 4th spot in terms of GDP growth rate, it emerged as the top exporter of IT services for the second consecutive year with its creative goods exports becoming the 17th largest. The emerging digital India has helped a lot in its booming exports according to a recent report of Google India and KPMG.
Going by their projection, by 2022, digitisation will unleash an export potential in select areas of Indian business such as travel, media and entertainment, consumer brands and real estate worth $39 billion against $16 billion last year as the Asia-Pacific field is coming up as the lucrative economic zone. China, Malaysia and Indonesia are the key targets. Backed by India’s growing growth rate, South Asia will be the fastest growing sub-region in the world, according to ADB.
Among the lower-middle income economies, India not only moved up to the fifth position in the GII rankings, it also outperformed on innovations relative to its GDP per capita for eight years in a row. Here India ranked impressively on a number of important indicators such as productivity, growth and export of information and communication technology and services.
Given its size and innovation development, Chamber of Indian Industries (CII), one of GII Knowledge Partners, acknowledges that India has the potential to make a true difference to the global innovation landscape in the years to come.
The GII report 2018 identifies 20 economies, including India’s along with Iran, Malaysia, Mexico, Thailand and Vietnam as the ‘innovation achievers’ and the ‘real movers and shakers in the innovation landscape’ that are constantly climbing the rankings. India also has its areas of weakness, as the report indicates.
These included political stability and safety, several societal divisions, notably agitation over reservation even 70 years after Independence, regulatory quality, applied tariff rate, intensity of local competition, ecological sustainability, business environment comprising the ease of starting a business and the ease of resolving insolvency and the education sector comprising expenditure on education as a percentage of GDP and the pupil-teacher ratio at the secondary level. In each of these cases, India ranked below 90 with its severest failure being the environment parameter (123rd ranking).
In fact, the utterly dismal performance on environment has marred India’s progress and has dragged it towards a low overall level below 50. These areas of concern are to be looked into with more intense care and attention to ascend the GII rankings in the years to come. But the environmental failure is related to the country’s failure to check the population growth. In fact, all the impressive figures at the international level turn out to be gloomy when we consider the per capita aspects. India with 1.34 billion people is poised to become the world’s most populous country with its per capita income being 20 times less than that of France.
Presently, there is another concern for the Indian economy and that is the burgeoning rate of inflation due to the continuous hike in oil prices.
According to Dun and Bradstreet, the research firm, the all-time high fuel prices are bound to affect other sectors keeping the rate of inflation higher. Presently, the consumer price inflation is at 4.6-4.7 per cent range despite RBI’s continuous effort to keep it below 4 per cent. The Reserve Bank has now revised the retail inflation rate at 4.8-4.9 per cent range for the first half and 4.7 per cent for the second half of this fiscal, but it is downgrading the rupee against the dollar which does not help the economy any way.
Efforts to reduce oil prices are imperative. These should be brought under GST so that its cascading effect does not result in inflation.
(The writer retired as Associate Professor of Economics in the West Bengal Education Service)