Will we become rich?

Our 75th birthday is an occasion for celebration. We have succeeded beyond all expectations, including our own, to remain a one-nation democracy. In the history of democratisation for developing countries, this is a record, especially if you add the condition of no civil-war. We have also structurally moved from being very poor to now a lower middle-income economy. China vs India: For centuries, between 1500 and the 1980s, India and China had broadly the same per capita PPP income. Today, in 2022, China’s per capita income is 2.5 times higher – $16,700 vs $6,500. One of the most important stories about development is that of “catch-up”. Simply stated, it asserts that because of globalisation (movement towards same technology and same factor prices) there will be equalisation. No estimate of when equality will occur, just the likely time path. It is also found that as countries move on this predicted path, they will encounter a middle-income trap i.e. their growth will slow down. After locking near double-digit growth for close to three decades, China’s per capita income grew at a toppy 12.8% in the go-go year of 2007. That same year, India’s growth was a respectable, but lower, 7.8%. Over the last decade, China’s per capita growth has declined by more than half to “only” 4.5% per annum. Per capita growth in China is now expected to not exceed 3% in 2022; India, the fastest growing major economy, is expected to clock close to 7%. Is China in a middle-income trap? No – it is experiencing convergence doldrums! Over the next 25 years, China’s per capita growth is unlikely to exceed 3%, a level nearly double that of its counterparts in advanced economies. Big changes coming: The next 25 years are expected to be truly transformational for India. Mega structural change is coming – from roads, to airports, to water and electricity for all. Add to this the culmination of present trends in education. Today, every child in India goes to school; more women attend college than men; and India has the highest proportion of female pilots in the world – 12.4% compared to 5.5% in the US. Of course, our population is more than four times the US, but after (unfair and incorrect) accusations of gender inequality in India, it is pleasantly shocking to see this excess of female professionals. In India, more than 40% of female graduates are in STEM disciplines, easily outperforming the US by more than 10 percentage points. Human capital is going to be a big source of growth over the next 25 years. Add a continuing decline in fertility, which will mean an ever-increasing supply of female human capital. Add to that the unravelling of economic mistakes in the first 40 years post-Independence. Important economic reforms remain to be undertaken. Agriculture still remains where it was, stymied by lack of institutional reform. Why? It is politics, stupid. But change will come, as will the day when all income earners will be treated equally. We believe in equality, but not if it means equal taxation of equal incomes – agricultural income taxation will be an important reality before India reaches 100. Many growth drivers: There are several future sources of growth for India, many of them taking the form of low-hanging fruit. China and developed economies have few growth-enhancing initiatives left. Hence, it is not difficult to envision that over the next 25 years, India grows at close to 3.8% extra than China. It is this extra-growth which constitutes catch-up. If this happens, India at 6.8% average, China at 3%, then India and China will have similar per capita incomes in 2047, around PPP $35,000. The same as Spain today, and within 10% of Italy, Korea, Japan and New Zealand. In 2047, we will be keeping with our tryst with destiny – a democratic country, with per capita income in the top 10% of all economies. Whatever will be will be, but very likely that the future is ours. The writer is Executive Director, IMF