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India and the Global Economy : The next 15 years

Gross domestic product growth in the advanced ...

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05 February 2011

India and the Global Economy : The next 15 years’ was the theme of Prof. Arvind Panagariya’s talk at ORF on December 17th 2010. Prof. Panagariya teaches at Columbia University and has worked in the ADB and World Bank.

According to him, India is still not an ’emerged’ economy but is rising fast. In per capita terms it is still poor and India’s share in the world GDP is approximately 2.5 per cent. Its share in the world trade is about 1.3 per cent. He pointed out that the growth rate between the years 1947 to 1980 was relatively low and even today poverty remains entrenched. But India has been growing at 8 to 9 per cent in the past seven years. And since the rupee has appreciated in real terms against the dollar during this period, the actual growth rate has been a phenomenal 12 per cent.

There are also important demographic changes that are taking place in the world that would impact on the future pattern of migration. In the next 15 years, China plus Europe plus US and other developed countries will be ’minus 100 million’ people in the age group of 20 to 50. India will have in that same age group, ’plus 130 million’. He said that migration is going to accelerate and there is a likelihood that Indians will increasingly be in dominant positions in various parts of the world, in the future. But, he pointed out, there are weaknesses in the scenario about India’s future growth, especially in the area of employment. This is because Indian agriculture has had low productivity for decades and cannot any longer support a growing population-even though this year the growth has been around 4.4 per cent. While its contribution to the GDP has declined to around 17 per cent, agriculture still supports 54 per cent of the population. India will have to create a situation in which workers move out of agriculture into industry and services and this process will have to speed up. Small firms and micro enterprises will have to shape up and grow in order to absorb this movement from agriculture because only 7 per cent of the labour force is currently employed in the formal /organized factory sector. Services sector, on the other hand employs only 2 per cent of the labour force. He pointed out that the informal or unorganized sector employs most of the people seeking jobs.

The transformation from rural, largely agricultural jobs to modern industrial and service oriented economy is however constrained by the lack of adequate skills in the labour force. There is a great need for skill development and higher education. To fill the gap between the demand and supply of higher education, there is a need for private universities to come up in a big way.

Dr. Panagariya also pointed out that India has the potential of becoming a major economic power provided India takes its demographic dividend seriously and the government is involved in promotion of education and skills.

Similarly, other social indicators also need to be upgraded like health and nutrition. Otherwise instead of having an advantage over other countries, India may have a huge burden to bear in the future. Thus it would be important to focus on food security, higher agricultural productivity and a better public distribution system also.

Dr Panagariya and other NRI economists usually blame the government for inaction on many fronts. India is a vast country with diverse problems and each state has a different set of problems. Migration, infrastructure, land, jobs, skill development are some of the big problems mentioned by the participants of the seminar.

The discussion clearly showed that there were many more problems than can be addressed by a set of additional economic reforms which Dr. Panagariah listed. Skill development is a huge problem that will make the absorption of 500 million youth entrants in the labour force in the next 15 years very difficult. They have to be given appropriate training in schools and universities.

It was pointed out that the problem of education starts at the primary level and for the universal primary education that the government aspires for, there would have to be additional monitoring of village schools and ensuring that there are teachers, equipment and infrastructure, so that the quality of education improves rather than just the enrollment ratio.

The surrounding issues of India’s growth prospects also involve land and its uses. If there is going to be no agricultural land available for setting up industry, then how can manufacturing industry grow? Politics of land is an important question, specially land acquisition by the state as in the case of West Bengal and the lease of land to Tata in Singur. But it was pointed out that sometimes land has been freed for projects which do not employ many people and so the employment potential is not exploited.

There is also the question of jobless growth which is a big problem as many industries are going for capital-intensive mode of production.  How do we get more labour intensive industries in the future and what labour law amendments are needed to facilitate the process?

Thus many questions were raised which made it clear that India has many serious problems in the next 15 years. The problem of endemic corruption also has to be addressed and over time, with better governance, and more transparency in government transactions, it may become less. Every country has had to grapple with problems of corruption and graft but as democracy matures, these problems become less prominent.

Clearly, there will be huge problems in the future and how India strives to overcome them will determine its place in the world as a sizeable economic power.

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