Modi's budget must focus on education and job growth
Neeta Lal says luck aside, there is reason for economic cheer in India
The International Monetary Fund's recent projection that India's economic growth will outpace China's in 2016-17 has triggered much excitement in Asia's third-largest economy.
Yet, such optimism needs to be tempered with a dose of reality. After witnessing average growth rates of some 9 per cent between 2003 and 2009, the Indian elephant was indeed increasingly being alluded to in the same breath as the Chinese dragon. However, China's gross domestic product has today ballooned to about US$10 trillion - five times India's US$2 trillion - while its per capita GDP is also five times India's. As a share of the global economy, the Indian economic footprint seems miniscule compared to China's.
As some economists have pointed out, if growth rates of the two Asian neighbours are intersecting, it's not because of a sudden spectacular performance by the Indian economy but because the Chinese economic juggernaut is slowing.
A fortuitous combination of external factors have also coalesced to aid India's growth. The ongoing slump in world oil prices has helped the world's fourth-largest consumer and net importer to save billions while bringing down interest rates.
However, there's more than happenstance bolstering India's growth. While the Chinese economy is export-driven, consumption drives India's. The world's largest democracy also boasts one of the youngest populations among emerging-market nations. Of its 1.2 billion people, nearly half are below 25, a "demographic dividend" that India can leverage for better growth prospects. China's population is ageing, and its working-age population has started shrinking.
Reform-minded Indian Prime Minister Narendra Modi has also generated a whirligig of positive expectations. He has sent out the right signals to industry by allowing 100 per cent foreign direct investment in some sectors. His campaign to boost manufacturing has enabled the country to push ahead with an investment-oriented economic agenda.
Modi has also managed to tackle inflation, is accelerating infrastructure building and cutting red tape. Bottlenecks in government projects are said to cost the Indian government at least 2 per cent of GDP every year.
However, Modi needs to step on the accelerator to launch bolder reforms to kick-start growth and augment social development indices. India's literacy level, at 74 per cent, is way below China's 95 per cent, while its infant mortality rate of 52 per 1,000 live births is four times that of China's. Back in the 1980s, over 600 million Chinese were officially living in poverty. Today, China's economic growth has whittled that figure down to around 82 million. India still hosts 300 million poor.
Improved access to quality education and job creation for the 10 million or so youth who enter the workforce each year also present tricky challenges for the government.
In the upcoming budget, Modi hopes to push for a vibrant ecosystem to facilitate entrepreneurship and reduce tax rates by widening the base. The idea is to turn India into a manufacturing hub and attract foreign investors. Raising foreign direct investment from the current levels of 1.5 per cent of GDP will also help bridge the savings-investment gap.
Modi has projected his own vision of India becoming a US$20-trillion economy. Controlling the fiscal deficit and removing ill-targeted subsidies remain pivotal. During the 1980s, subsidies reached 14.5 per cent of GDP, climaxing in a balance-of-payments crisis in 1991.
Instead of populist schemes, Modi's focus in the budget to be announced this month should be on effective education that can raise incomes permanently.
New Delhi-based journalist Neeta Lal was a nominee for the World Media Summit Awards 2014 and the Sopa Awards 2014