India’s $10 Billion Economy Dream Risks Turning Into Nightmare

The Center for Economics and Business Research made Indian Prime Minister Narendra Modi very happy this week by tipping his economy to be among the three biggest within 15 years.

For Modi, who’s had a decidedly rocky 2022, the headlines generated by the London-based consultancy’s prediction couldn’t be better timed. CEBR’s contention that India will leapfrog to the top three globally assumes it grows about 6.5% annually over the next decade.

As CEBR argues, “this growth trajectory will see India rise from fifth place on the World Economic League Table in 2022 to third in the global rankings by 2037.” And as early as “2035, we forecast that India will become the third $10 trillion economy. Although there are political factors that could hold India back, it has demographics on its side.”

Yet it’s these “political factors” and “demographics” that could complicate things. And keep India’s per capita income from leapfrogging along with the rate of gross domestic product growth.

India, it’s often said, has a “demographic dividend.” With more than half the population under 25 and a national median age of 28.4, India’s swelling labor force is an asset as workforces in Japan, China and South Korea get greyer and greyer. It’s only an asset, though, if Modi’s government picks up the pace of creating better job opportunities.

Sadly, there are few signs Modi, eight-plus years into his tenure, has a coherent plan to increase economic efficiency, cut red tape, increase productivity and invest in improved education and training. These microeconomic upgrades are hard for any Asian leader to pull off in the best of times, never mind amid a pandemic, surging global inflation and major central banks virtually everywhere hiking interest rates.

Modi, unfortunately, has spent these last 103 months prioritizing macroeconomic success—rapid GDP rates, principally—over efforts to level India’s playing fields. This micro-over-macro focus means that the Modi era has generated decent top-line growth but lags where it really matters: ensuring all Indians enjoy the fruits of fast economic growth.

All this has former lawmaker and diplomat Shashi Tharoor concerned that excitement over India hitting $10 billion misses the point that it doesn’t need to grow faster—it needs to grow better. As he argues in a recent Project Syndicate op-ed, “uneven regional patterns, if not addressed, could turn India’s demographic dividend into a permanent demographic divide.”

Tharoor has broad experience. He served as Indian minister of state for external affairs, minister of human resource development, United Nations under-secretary-general and a National Congress parliament member. His concern is that “while India’s northern states have already stabilized, in some states, like Kerala in the south and Nagaland in the northeast, the population has already begun to shrink. This means that parts of India may experience baby booms while other regions grapple with aging populations.”

It’s a graphic reminder, Tharoor notes, that “population growth poses both opportunities and challenges.” Its population is seen over the next four decades growing to roughly 1.7 billion, before plunging to 1.1 billion by 2100. That drop will reflect expected declines in mortality and fertility. The bottom line, he says, is that “India has a narrow window of opportunity to harness the growth of its productive labor force to boost economic development.”

If Modi’s Bharatiya Janata Party has a plan to make up for lost time to do just that—and keep India’s dividend from becoming a nightmare—it’s not saying. Economist Chietigj Bajpaee, author of “China in India’s Post-Cold War Engagement with Southeast Asia,” notes that “in this context, a reality check is required: Does the rhetoric of India’s foreign policy aspirations match the reality of the country’s domestic reform momentum?”

Not so much, when you consider the persistent barriers keeping wealth concentrated amongst the wealthy. As Bajpaee writes in The Diplomat, “despite the government projecting a more investor-friendly image since India’s economic liberalization in the 1990s, the country’s historically protectionist and conservative economic policies remain well entrenched.”

This includes the supposedly pro-business Modi era. To be sure, Modi put some notable structural changes on the scoreboard. They include opening sectors like aviation, defense and insurance to increased foreign investment. His government oversaw the passage of a national goods-and-services tax.

But bigger and more politically risky moves to alter power dynamics in sectors from labor to land to taxation and curbing corruption remain on the to-do list. Despite some progress, New Delhi must step up efforts to get bad loans off state banks’ balance sheets. And while India is enjoying a tech “unicorn” boom, allowing entrepreneurs to grow, flourish and disrupt the economy requires a regulatory Big Bang that Modi has yet to unleash.

So, it’s grand that India’s trajectory toward top-three economy status along with the U.S. and China is getting attention. What does it matter, though, if the vast majority of Indians are left behind? This is the nightmare Modi would leave future generations if he doesn’t accelerate reforms.