India’s growth story is more challenging compared to China that grew with relative ease in the early 2000s due to a favourable global trade and investment climate, finance minister Nirmala Sitharaman said on Friday, assuring that a new Indian era will emerge by 2047 with core characteristics like the developed countries, providing leadership to the world.
Delivering inaugural address on ‘the Indian Era’ at the Kautilya Economic Conclave in New Delhi, Sitharaman said the event provides an opportunity for the exchange of latest research and ideas on a host of issues that are engaging the attention of governments globally.
India’s creditable economic performance is evident by “its leapfrog from the 10th to the 5th largest economy in a matter of five years”, which is achieved by sustaining high growth rates while maintaining inflation well within the comfortable range, she said, asserting that India’s growth story is sustainable and certain.
“While it took us 75 years to reach a per capita income of $2,730, as per IMF projection, it will take only five years to add another $2,000. The upcoming decades will see the steepest rise in living standards for the common man, truly making it a period-defining era for an Indian to live in,” she said. The conclave is jointly organised by the Department of Economic Affairs (DEA) and Institute of Economic Growth (IEG) from October 4-6 in the Capital.
The finance minister said India is witnessing growth with equity. “This is being achieved with declining inequality, as the Gini coefficient for rural India declined from 0.283 to 0.266, and for urban areas it declined from 0.363 to 0.314,” she said adding that the economy will continue to see improvements triggered by reforms undertaken in the last 10 years and new policy measures in days ahead. According to the World Bank, the Gini index (or coefficient) measures the extent to which the distribution of income or consumption among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.
Talking about India’s onward growth journey in the turbulent geopolitical context, she said from a policy standpoint, India’s economic rise in the coming decades will be unique. “First, while India will continue to grow over the decade, the global backdrop is no longer the same. In the early 2000s, emerging markets like China grew relatively more easily due to a favourable global trade and investment climate. This poses a potential challenge (and an opportunity) for India,” she said, adding that the country “must develop its domestic capacity” to develop sustainably.
Second, India seeks to double its per capita income in a matter of a few years for its 1.4 billion strong population, which makes up 18% of the global total, she said. Third, the development journey will have to contend with the twin challenges of dealing with the legacy emissions of the developed world and managing India’s energy transition. “The balancing act requires a ‘whole-of-government’ approach and contextualised solutions unique to India. Moreover, India’s energy demand and energy use practices have something to offer the world, such as the food-to-feed balance,” she said.
Her last point related to future challenge in India’s onward growth journey was related to the advent of new technologies and its impact on the labour force. “The resulting economic and social impacts may be more profound than the world has experienced. While this is a global phenomenon, it is more acute for India, given its vast young population and the need to create livelihoods for millions. It is also a question of the kind of society we wish to create that people gathered here and outside have to reflect upon,” she said.
Five factors for her optimism for robustly continuing India’s growth story are – country’s demographic dividend, organic rise in consumption, innovation ability, strong financial system, and India’s rising equity on global affairs.
“India’s youthful population provides a large base for total factor productivity improvements, savings, and investment. While India’s share of the young is set to rise over the next two decades, several other developing economies are past their demographic peak,” she said while elaborating the five factors that will shape the Indian era.
The factor is one of the four key focus segments for the government – Poor, Women, Farmers and Youth, also referred to as ‘four castes’ by the FM.
“A nation’s greatest asset during its high growth years is a young population. India needs to ensure that they are cognitively equipped, emotionally strong and physically fit. That is a core policy priority,” she said.
She said Indians’ consumption will organically rise over the coming decade. “As of now, 43% of Indians are younger than 24 years old, and they have yet to explore their consumption behaviour fully. There will be organic growth in consumption as they become full-fledged consumers. Simultaneously, a rising middle class will pave the way for strong consumption, inflow of foreign investment and a vibrant marketplace,” she said.
She expressed confidence that India’s innovation ability will mature and improve over the coming decades. “As the Global Innovation Index for 2023 shows India has been performing above average in innovation for its income group. There is a gradual maturing of innovation potential across sectors. We observe, for instance, a maturing of India’s services sector exports and a rise in innovative potential within this sector,” she said relying on country’s low-cost scalable innovation capacity which was evident in developing vaccines and the Chandrayaan mission.
She said India’s financial system is well capitalised to fuel productive credit, besides promoting financial inclusion. “There has also been a sharp narrowing in the gaps in financial access (between rich and poor, male and female) over the past decade,” she said. Pointing at India’s emergence in major global forums, Sitharaman said: “This re-positioning can act as a structural force to India’s advantage by creating robust supply chains with countries with strategic congruence. India benefits from the new international order, which is reshaping better to reflect the power distribution of today’s world.”
Elaborating on the approach to establish an era of growth, Sitharaman said the government is “unleashing” structural drivers through ‘Jan Bhagidari’, with sound economic policies and strategic planning with focus on continuing laying the groundwork for Viksit Bharat. The government is committed to reduce the fiscal deficit aided by buoyant revenue generation, restrained revenue expenditure growth and healthy economic activities. The fiscal deficit is estimated to decline from 5.6% of GDP in FY24 to 4.9% in FY25. “The commitment to fiscal discipline will not only help keep bond yields in check but will translate to lower economy-wide borrowing costs,” she said.
Similarly, the government’s focus is on improving the quality of expenditure, she said. Capital expenditure is budgeted to increase by 17.1% to ₹11.1 lakh crore in FY25. This amounts to 3.4% of GDP, she added.
“Additionally, a larger proportion of fiscal deficit is now accounted for by capital outlays, indicating an increasingly investment-oriented deficit financing. The decline in commodity prices has facilitated the lowering of the budgeted allocation for subsidies on fertiliser and fuel,” she said, adding that this has contributed to restraining the growth in revenue expenditure, which is estimated to increase year-on-year by 6.2%.
Sitharaman stressed on policy continuity as the “bedrock of sustained growth” across infrastructure, banking, trade, investment, and ease of doing business. “Innovation and rapid advancements in total factor productivity are required in Amrit Kaal. In cognisance of this fact, the FY24 budget allocated ₹1,200 crore to research and development projects… we have set up the Anusandhan Research Fund to seed and promote research across academic institutions and R&D laboratories,” she said
“Ultimately, the largest stakeholders and beneficiaries of the growth process towards Viksit Bharat will be the four major castes, namely ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer). Accordingly, the budgets in Amrit Kaal will be devised with these stakeholders in mind,” Sitharaman said.
The finance minister said, “The Indian era is not a new phenomenon if we look at the civilisational history of the sub-continent. For a thousand years, India has created a cultural sphere of philosophy, polity, science, and art, which spread across borders not through conquest but through its cultural magnificence. During this period, the rest of the world benefitted from India’s soft power.”
“By 2047, as India crosses the 100-year mark of independence, the new Indian era will have core characteristics similar to developed countries. Viksit Bharat will usher prosperity not just to Indians but to the rest of the world by becoming central to a vibrant exchange of ideas, technology, and culture,” she added.
Introducing the 3rd edition of the Kautilya Economic Conclave, IEG president and former chairman of the 15th Finance Commission NK Singh said the conclave will deliberate on current challenges and reflect on how to sustain high growth rate in the context of growing global uncertainties. Addressing to Sitharaman he lauded her prudent management of the Indian economy by focusing on technology-driven mechanisms to deliver “multiplicity of benefits” to the people adversely affected by Covid-19 pandemic instead of choosing the way of “fiscal profligacy” like many developed economies. He said the FM addressed the challenge effectively, converting them into opportunity for unravelling “widest set of economic reforms” and “touched on some complex difficult subjects… which were regarded as untouchable earlier” resulting into high rates of economic growth.