(This post first appeared in The Times of India on 7th March, 2023.)
In a recent article (India in 2047 – A Developed Country, TOI 17 February 2023) Surjit Bhalla has tried to quantify the Prime Minister’s call for making India a developed economy. He has suggested that we adopt the level of per capita income, in PPP terms, that South Korea had reached in 1996, the year in which was admitted as a member of the OECD. Thus, Surjit implicitly suggests, as is also widely recognised by others, that we should take OECD membership as the criteria for being categorised as a developed country.
Surjit cites this level of per capita income as PPP$18, 000. This is loosely based on South Korea’s level of PPP per capita income of PPP$17,810, (constant 2011 international dollars) which South Korea reached in 1996 and which was also the year the country was admitted as a member of the OECD. It is then argued that with the current per capita income of PPP$6027 (constant 2011 international dollars) India can easily reach this level of per capita income by securing a CAGR of 4.8% over the next 25 years and hence be categorised as a developed country . A goal set by the Prime Minister during his address to the nation on Independence Day.
In my view, there are several serious problems in selecting PPP$18,000 per capita income as our target for 2047 and use it to give India the tag of a developed economy. According to the World Bank, countries such as Belarus ($19757); Libya ($21965); Malaysia ($26 333); Mexico ($19086) and even the Dominican Republic ($18,626) have all achieved higher per capita incomes PPP terms in 2021 (constant 2017 international dollars). Even China has reached a per capita income PPP$17 603 in 2021. By no stretch of our imagination can these countries be categorized as being developed even on the simple criterion of per capita incomes. We should additionally look at the quality of life, the state of the environment and other SDG parameters before recognizing a country as being developed.
Do we really want India after twenty-five years in 2047 to be similar to countries mentioned above with the quality of life they have at present ? Is this an acceptable level of our aspiration? And could the Prime Minister be actually thinking of India, at the end of its Amrit Kaal, to look like Malaysia, Mexico and the Dominican Republic as they are today already? The answer must be an emphatic negative.
Moreover, will India’s security and other interests be met at $18,000 per capita. At that level, the size of our economy in 2047 will be $ 28 trillion. With its current per capita income of PPP$ 17,603, China will most likely reach the current OECD average per capita income level of PPP$ 44,827 by 2047. Because for reaching that level, the Chinese economy will have to grow at a mere 3.8% for the next 25 years. At that level of per capita income, the Chinese economy will be the largest economy at a whopping $ 63 trillion. With an economy, less than half of our northern neighbor, India will face an unacceptable security deficit. For the above reasons, we should not accept PPP$18,000 as the target for our per capita incomes in 2047.
With our current per capita incomes at $ 6592 in PPP terms (constant 2017 international dollars), can we possibly reach a level of $44,827 by 2047 and stake our claim to be a full-fledged OECD member. To reach that level, per capita incomes will have to grow at 7.95% per annum for the next 25 years. Given an average population growth rate of 0.7% over the next 25 years, it implies a GDP growth in real terms at about 8.6%. This level of CAGR of GDP would seem to be unrealistic, given that in the past our highest potential rate of growth has been estimated at best at 8%.
However, we can define another target. Nineteen of the thirty-eight OECD members, currently have an average per capita income of $33,106. To reach this level by 2047, India will have to achieve an average CAGR of 6.7% in per capita incomes. This level of CAGR is eminently achievable. Given that we are today in a ‘sweet spot’ internationally and that the large number of structural reforms during the last eight years have laid an even stronger foundation for higher rate of growth, we should as a nation surely strive to achieve this goal.
Such an aspirational target would help mobilize our entrepreneurs, farmers, scientists and the civil society in a nation-wide effort to make economic development the top most priority for the entire population. The goal has the motivational power to make development a Jan Aandolan or a peoples’ movement. It goes without saying that we will have to achieve this ambitious goal while ensuring that our economic growth remains ecologically sustainable and inclusive both in inter-personal and inter-regional terms.
At this level of per capita incomes, the size of the Indian economy in 2047 will be $ 54 trillion. This will be within catching distance of the Chinese economy specially as our demographic advantage will then be significantly better than China’s. The target, when achieved, will allow us to escape the middle income trap and ensure that our firms and farmers attain global competitiveness and help raise India’s share in the global economy to levels commensurate with our share in world population. Most importantly, it will ensure that Indians get the quality of live they aspire for and deserve.