Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council, said on Tuesday that India will become an upper-middle-income country by 2047 even as real gross domestic product (GDP) grows at a “relatively conservative” rate of 7.-7.5 percent in the next 25 years old. If this happens, India’s economic size will be just under $20 trillion and its annual per capita income will be about $10,000 when the country celebrates its centenary of independence. While 7-7.5 percent growth does not seem very high, sustaining it for 25 years is a tall order, as empirical data shows. From the financial year 1997-98 to 2021-22, India’s GDP grew at an average annual growth rate of six percent.
In fact, the country’s GDP has grown at an average rate of 7 percent or more for five consecutive years only once in the past 30 years, or since the country took a giant step to open up its economy in 1991-92. This period included the final year of the National Democratic Alliance government in FY04 and the first four years of the first United Progressive Alliance government between FY05 and FY08.
The economy grew by just 3.8 percent annually before that five-year period in fiscal 2003 and a slightly higher 4.3 percent in the year immediately following that period ending in fiscal 2009, when the economy faced the ripple effects of the global financial crisis triggered by the sub-prime crisis and the collapse of Lehman Brothers. One may argue that talking about average annual growth does not mean that it must produce a growth rate of 7-7.5 percent every year. Some years may see a higher growth rate and some may see a lower growth rate, but the average may still be within this range.
However, this is not the case with the Indian economy in the last 25 years, which has grown at an annual rate of 6 percent since 98. One could say that the difference between 6 percent and 7-7.5 percent is not big. But the difference is big when added up in 25 years. This is what Debroy was getting at when he said that the nature of the exponential function is such that even if you are relatively conservative in terms of the real growth rate, India would not do badly.
In fact, Debroy had a question for those who predict. “Certainly the results of forecasting economists are not very good unless they can justify post-facto why their predictions went wrong,” he said. He reinforced it further twenty-five years ago in 1997, if people were asked what would happen in 2022, no one would have got it right. “Did you know that Rishabh Pant will become a great cricketer? No, Rishabh Pant was just born in 1997,” he said, referring to the Indian cricketer.
Debroy also said, “The question is what needs to be done to raise our per capita income from $10,000 to $12,000 by 2045 and increase the annual real GDP growth rate to 8-8.5 percent to make India a with higher incomes. “ In the last 30 years, the Indian economy has grown in this range only seven times – FY00, FY06, FY07, FY11, FY16, FY17 and FY22. However, the FY22 growth rate of 8.7 percent came on the back of a 6.7 percent decline in GDP the previous year due to the Covid-induced lockdown. So those two years yielded an average annual growth rate of just 1 percent.