Krishnamurthy Subramanian, Executive Director at the International Monetary Fund and the former Chief Economic Advisor, GoI, launched his book India@100: Envisioning tomorrow’s economic power house at a CII organised event. In this, he states that with a growth rate of 8 per cent and inflation at 5 per cent, India will be able to become a USD 55 trillion economy by 2047. His research points to four key pillars that will fuel the growth. They are: macroeconomic emphasis on growth, microeconomic focus on social and economic inclusion, a vision of ethical wealth and a strategy of a virtuous cycle triggered by investment. Excerpts from his speech during the launch:
India can draw parallels from Japan and China
Let’s explore Japan’s economic trajectory from 1970 to 1995. In 1970, Japan’s GDP was USD 215 billion. By 1995, this figure had skyrocketed to USD 5 trillion, marking a 23-fold increase over the 25-year period. During this time, Japan’s GDP per capita rose from USD 2,100 to USD 44,000, an increase of 22 times. Concurrently, inflation fell sharply from 8 per cent in 1970 to just 1 per cent in 1995, leading to lower interest rates. Additionally, the yen experienced substantial appreciation, from 350 yen per dollar to 85 yen per dollar. With an estimated annual appreciation rate of around 5 per cent, the yen appreciated roughly fourfold during this period.
Similarly, in 2007, China’s GDP per capita was on par with India’s current level. Despite global challenges such as the financial crisis and the COVID-19 pandemic, China achieved an average growth rate of nearly 8 per cent over the next two decades, culminating in an economy worth USD 18 trillion.
Applying similar growth assumptions to India, let’s imagine an 8 per cent real growth rate combined with 5 per cent inflation. This would result in a nominal growth rate of 13 per cent. If the rupee depreciates by just 1 per cent annually, the GDP in dollar terms would grow at approximately 12 per cent per year. According to the Rule of 72, which estimates how long it takes for an investment to double at a given growth rate, this scenario would result in the GDP doubling every 6 years. Over a 24-year period (from 2023 to 2047), this would lead to four doublings, projecting India’s GDP to grow from USD 3.25 trillion to about USD 52 trillion—close to the USD 55 trillion target.
However, this optimistic forecast depends on maintaining an 8 per cent real growth rate and a minimal 1 per cent annual depreciation of the rupee. Rupee’s depreciation has historically been influenced by higher inflation rates. However, since 2016, India has adopted an inflation-targeting policy aiming for a 4 per cent inflation rate, with a permissible range of +/-2 per cent. The average inflation rate from 2016 to March 2024 has been around 5 per cent, which is approximately 2.5 per cent lower than the previous period. This reduction in inflation suggests a more stable macroeconomic environment, potentially supporting a more optimistic growth outlook.
Manufacturing led states have higher responsibility to fuel growth
The middle-income trap is a multifaceted concept, reflecting various economic conditions. For India to escape this, key approaches include integrating into global value chains and improving manufacturing capabilities.
The role of states like Tamil Nadu in India’s economic growth is significant. Effective reforms and sound economic policies are critical. In a federal system, power and responsibility must be aligned. States should be accountable not only for their authority but also for their responsibilities. States that excel in manufacturing, such as Tamil Nadu, Maharashtra and Gujarat, should lead in this sector to drive national growth.
Critics often argue that India missed the manufacturing opportunity, but this overlooks policy failures. Manufacturing depends on various factors—land, labour, capital, power, logistics, and economies of scale. High costs in these areas, partly due to inefficient policies and state-level issues, have impeded India’s manufacturing sector. For example, high power costs and inefficiencies in power distribution are major barriers. To tackle these issues, state governments must be proactive. They should focus on reducing manufacturing costs and improving efficiency. Balancing responsibilities between central and state governments is key. States should be as accountable for their economic performance as the central government
For India to escape the middle-income trap, strong growth in manufacturing is essential, alongside maintaining rule of law and driving productivity. These elements together create the conditions necessary for economic advancement.
9 Lakh jobs created per month between…
There’s been a lot of negative narrative about employment data, often based on unreliable sources. For instance, the International Labour Organization (ILO) report on employment in India does not reference CMI data at all, which suggests that data quality issues may contribute to the negative stories. From my perspective, using the Klems database – which the RBI also uses – provides a clearer picture. According to this data, from 2014 to 2024, approximately 125 million jobs were created. This means that, on average, 900,000 jobs were created per month. While significant progress has been made, continuous effort is necessary.
Growth in current global scenario
While we face potential headwinds, such as decreased support for globalisation and climate change challenges, there are also tailwinds that can propel us forward. Historical examples show that growth is achievable with the right policies and mindset.
The key to reaching our 2047 goals lies in disciplined efforts and effective public programmes. We need to recognize the role of wealth creators. These successful entrepreneurs and businesses, contribute significantly to job creation and economic development. Instead of demonising them, we should support and respect their role in building the economy.
