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‘If this is achieved, India will become the second largest economy in the world by 2031 itself’
Demographics, manufacturing, exports and internationalisation are the four engines that can power India to achieve escape velocity from the emerging economy orbit and take off towards becoming an economic superpower, according to MD Patra, Deputy Governor, Reserve Bank of India (RBI).
“If India capitalises on its opportunities and overcomes the challenges (recovering output lost to the pandemic; building world class infrastructure; developing a high quality labour force; and a greener, cleaner India), it is widely believed that India will bend time.
“It is possible to imagine India striking out into the next decade with a growth rate of 11 per cent,” Patra said in a speech delivered at an event organised by RBI to celebrate Azadi Ka Amrit Mahotsav in Bhubaneswar.
He observed that if this is achieved, India will become the second largest economy in the world not by 2048 (OECD’s 2021 calculations indicate that the Indian economy will be overtake the US by 2048), but by 2031.
Even if it does not sustain this pace and slows to 4-5 per cent in 2040-50, India will still become the largest economy of the world by 2060.
The Deputy Governor highlighted that a striking feature of India’s growth is that it is home financed – investment is financed primarily by domestic savings, with foreign savings playing only a supplemental role.
“Another noteworthy feature is that the saving rate has started slowing down since 2007-08 after the global financial crisis. Eventually, this pulled down the investment rate which has exhibited deceleration since 2012-13. Reversing this trend is critical to achieve higher growth,” he said..
Patra emphasised that a comparison of the ratio India’s working-age population (WAP) to the total population with that of other countries — China, Brazil, USA, and Japan, shows that India stands at an advantageous position.
“The working-age populations of these countries have started declining already while India’s WAP ratio will increase till 2045, even exceeding that of China by 2030. Making the most of this demographic dividend is India’s opportunity as well as a challenge,” he said.
The Deputy Governor said investment, which is the production of goods that, in turn, produce other goods is seen as India’s game changer, as for most developing countries that are capital scarce.
Patra opined that: “…The manufacturing sector has backward and forward linkages with other sectors of the economy. A robust growth of manufacturing is essential for boosting India’s exports,”
Per his assessment, if 7.5 per cent growth (of manufacturing) is attained in the next decade, manufacturing would reach a share of 20.4 per cent of overall gross value added (GVA) by 2030-31.
“If manufacturing were to grow at 10 per cent – the target set by the ‘Make in India’ campaign – its share would reach 25 per cent in 2030-31. India would become the manufacturing shop floor of the world with positive effects for employment and other sectors of the economy,” he said.
To become the manufacturing shop floor of the world, Patra said manufacturing sector must adapt to the fourth industrial revolution (automation; data exchange; cyber-physical systems; the internet of things; cloud computing; cognitive computing; the smart factory; and advanced robotics).
Further, India must develop a skilled labour force by stepping up investment in human capital; and efforts must be directed to boost international competitiveness that allows manufacturing to find expression in global markets.
According to the Deputy Governor, exports provide an avenue for the widening of markets and production capabilities beyond national borders.
Currently, India’s exports of goods and services at close to US $ 800 billion constitute 2.7 per cent of the world total. The Government of India has set a target of US $ 1 trillion to be achieved by 2030.
“This would take India’s share to 5 per cent of the global total and India would become an export powerhouse….Raising India’s share in world exports to at least 5 per cent is within reach,” Patra said.
The Deputy Governor underscored that Indians are among the most internationalised people in the world. The Indian diaspora is the biggest in the world and India is the top recipient of remittances.
“The Indian rupee trades three times more offshore than onshore. Yet we still talk of internationalisation as if it is a last frontier….If the INR turnover rises to equal the share of non-US non-Euro currencies in global forex turnover (4 per cent), the INR will have arrived as an international currency, reflecting India’s position in the global economy,” he said.
Published on August 13, 2022