It’s India’s Turn Now
In a slow-growth global economy, India has seized the growth baton and emerged as a key driver of global growth. In the next decade, in terms of incremental PPP GDP growth, India’s contribution could equal about 60% of China’s and 180% of the US’ contribution. Moreover, India’s economic development model is frugal in its use of natural resources, carbon, and capital. The products and services developed in India for Indians are likely to be used widely across the developing world, where the majority of humanity resides. Thus the Indian development model is going to contribute to global growth not only in quantitative terms, but also in defining a more sustainable growth trajectory for the world.
On a purchasing power parity basis (the best measure of economic output – and based on World Bank data), the world’s three largest economies are China ($18.0 trillion), the US ($17.4 trillion), and India ($7.4 trillion). If, for the next decade, the Chinese economy grows at an average annual growth rate of 6%, it will contribute an additional $14.3 trillion to global GDP. If the Indian economy grows at average annual growth rate of 8%, then it will contribute $8.6 trillion; at an average annual growth rate of 2.5%, the US economy will add only about $4.9 trillion to the global economy.
The numbers tell one part of the story. More importantly, India’s growth in economic output is likely to be qualitatively different from the standard manufacturing and investment-driven development model. It appears that our model will require much less energy, natural resources, carbon emissions, and capital per unit of GDP.
India conserves resources and uses them carefully because we have no choice. We have only 2.5% of the world’s land mass, 4% of the fresh water, yet over 17% of the global population and cattle. Our land is needed for agriculture, it tends to be expensive, and real estate prices are high. We impose high carbon taxes and most of our resource inputs are fairly priced. China’s manufacturing-driven economy is much more resource-intensive. As per World Bank and Resources for the Future data, China currently utilizes 52% more energy per unit of PPP GDP than India. Moreover, the data suggest that China uses 3-4 times more steel and cement than India for each unit of PPP GDP. China’s carbon emissions per unit of PPP GDP are 78% higher than the emissions for India.
India’s capital productivity is also much higher than that of the other major economies. While some Indian business groups are over-leveraged, Indian companies are generally conservative in their borrowings. Government and financial sector debt is also lower than that of most BRICS countries. India’s debt to GDP ratio (as estimated by McKinsey Global Institute analysis and including the financial sector) is 135%; it is 282% for China; 160% for Brazil; 154% for South Africa; and 88% for Russia. It is 269% for the United States.
The quest to deliver affordable products and services for a vast, young population drives India’s frugal development model. India has an open, market-driven economy producing a wide range of inexpensive items for aspiring consumers: mobile telephony, financial services, ice creams, shampoos, motorcycles, small cars, heart operations, ultrasound machines, consumer appliances, generic pharmaceuticals, airline services, etc. Such affordable products and services are intelligently designed by world-class firms to fit the needs of Indian consumers without sacrificing reliability or necessary functionality.
India has a vibrant entrepreneurial ecosystem producing a steady stream of new industries. For instance, ecommerce companies have developed an innovative, marketplace-oriented business model based on cash-on-delivery rather than upfront credit-card payments. They have brought hundreds of thousands of small producers and merchants online by providing inventory management, logistics, payment, and financing services. Similarly, payment banks are about to transform the financial landscape by providing low-cost, convenient accounts accessible from the neighborhood grocery store and post office.
India exports these frugal products and services. It is already one of the world’s leading producers of generic pharmaceuticals, small cars, and motorcycles. It is soon going to become a manufacturing hub for electronics and defense equipment. As India exports its frugal industries across the developing world, it will likely spur growth and development for other countries also. Such economic growth is consumption-driven and demand-led. This type of growth is likely to be different from the supply-side, commodity boom that has powered recent growth in the developing world.
(Jayant Sinha is India’s Minister of State for Civil Aviation and a Member of Parliament from Hazaribagh, Jharkhand. These are his personal views.)