India@100

Title: India@100 – Envisioning Tomorrow’s Economic Powerhouse
Author: Krishnamurthy Subramanian
Publisher: Rupa Publications, 2024 (First)
ISBN: 9789390260836
Pages: 497

India’s stature on international platforms post-independence was that of a pygmy because of its poor economic clout. Jawaharlal Nehru, our first prime minister, self-delusively believed that the circus he set up – called Non-Aligned Movement – would guide the world into new paths in international relations. But the plain fact was that nobody took any serious note of a block of nations which struggled even to feed its people. The stark truth in global power dynamics is that unless you are economically well off, you are nothing. At the most, a poor country can hope to be a pawn in the power play and get some crumbs off the table. After the 1991 reforms, India grew in size financially and she is perceived as such by the great powers. Trump’s additional tariffs for India’s purchase of Russian oil is an unwilling recognition of this truth. The country is on its way to become viksit (fully developed) by 2047, when it celebrates a century of political independence. The 2047 target has catalysed policy formulations at the government level and a distinct push towards that goal is clearly perceptible in the economy. This book explores the strategies India must pursue to achieve the target of 8 per cent growth in the next two decades to reach the target of a 55 trillion-dollar economy when India is at 100 in 2047. The book suggests the four pillars of macroeconomic focus on growth, inclusive growth for a large middle class, ethical wealth creation and a virtuous cycle ignited by private investment. The entire book illustrates these four concepts in good detail. Krishnamurthy V. Subramanian is an executive director of the IMF and professor at the Indian School of Business (ISB). He was the chief economic advisor to the government of India from 2018 to 2021. He was born in a Tamil family.

To be able to see the country blossom into the dawn of developed status in one’s lifetime is an unalloyed bliss for any citizen. Subramanian makes a painstaking analysis of the factors which guide this transition. Its greatest asset as the most populous country in the world is the people itself. Fortunately for us, India has entered the demographic phase in which a large share of the population is working age – between 15 and 64. India will remain in this demographic dividend zone for over two decades. In 2011, the working age population was 50.5 per cent of the overall; in 2041, it is expected to raise to 60 per cent. The author’s estimation of reaching 55 trillion dollars in 2047 looks like the height of optimism, because some reputed rating agencies approximate the size to only half of this figure. However, the author is quite persistent and fairly convinced that the country can achieve this goal if it necessarily grows the GDP at a rate of 8 per cent per year for the next two decades. India is at the position where China was in 2007. They grew at 7.7 per cent thereafter for 16 years. Given India’s demographic dividend, it has the potential to achieve similar growth rates, provided there is a supportive economic policy. Another factor which can help make the switch is that about half of India’s economy is still informal. Formalization of this sector can provide growth through productivity improvement.

The book discusses about some of the blunders of India’s socialist-era economic policy promoted by Nehru and Indira Gandhi and dismantled by P V Narasimha Rao. A relic of this socialist era is the perception that creation of wealth is somehow immoral and evil. This mindset still remains in some of the influential circles and must be shed, the sooner the better. India must also boldly jettison anachronistic ideologies about the large and pervasive role of the state as the provider of employment and producer of goods. Except for some strategically critical sectors, where the state’s role cannot be ceded to the private sector, the government needs to get out of business to enable better business. Subramanian also advises the government to adopt protectionist measures if it would help local industry even at the cost of stoking ire on the part of developed nations. Before attaining economic advancement, these same advanced countries used the same insular policies for which they shun the developing economies now. In the present day itself, when they face financial difficulties, they resort to the same tariff- and non-tariff-barriers in trade. This book was written last year in 2024, but Trump’s tariffs vindicated this prophecy. The author also calls out overzealous thrust for equity which is prevalent in social circles. While we desire an equitable society, excessive redistribution can dull incentives. In most cases, inequality of opportunity is much more objectionable than inequality of outcomes. Perfect equalisation of outcomes after the efforts have been exerted to obtain those outcomes, can reduce individual’s incentives for work, innovation and wealth creation. Inequality is not poverty; in fact, increase in inequality is most often accompanied by reduction in poverty. This book suggests that poverty alleviation through growth should be India’s central strategy. High growth rate will lead to lower debt-to-GDP ratio. So, government should borrow more to fund investments in digital, physical and human capital, where the human capital encompasses investments in healthcare and education. The directive to borrow more may run counter to established wisdom in this regard.

Subramanian was chief economic advisor of India in the Covid period and it is natural that he reminisces about it and brags a little about his achievements in that difficult and unprecedented period. India’s economic policy during the Covid 19 disruption is compared to its response to the 2008 global financial crisis. The Covid response was well-conceptualized and ab initio for the needs of the economy rather than a copy-paste of policies implemented by advanced nations. This was not so in 2008 and that was why India soon ended up in the ‘fragile five’ list by 2013. The author also advises about the Middle Income Trap which is usually encountered by rapidly expanding less-developed countries in their stride. This arises when fast-growing economies experience rising wages and struggle to sustain an economy that is based on labour-intensive manufacturing and export-led growth. However, he finds a ray of hope through which India might evade this trap. The productivity improvements driven by reforms suggest that the necessary conditions for avoiding the middle-income trap is being fulfilled in India. This is because India’s growth since the 1990s manifested more from growth in capital and productivity, with labour contributing very little. However, it may produce other problems such as an exacerbating inequality in societies and may create fault lines. The final two sections of the book are dedicated to healthcare and education that should develop a labour force which will take India to prosperity.

The author looks into every aspect of the economy and administration and suggests sweeping reforms in many sectors which would ease the way to India@100. The suggested judicial reforms skip all contentious issues regarding the appointment of judges. To clear pending cases and to ensure a 100 per cent clearance ratio of new cases, he suggests that more judges are to be appointed. The book recommends movement of professionals from private sector to middle-level government bureaucracy and vice versa. The government should simplify the regulations and allow some discretion in decision-making. Ex-ante accountability and ex-post supervision should be strengthened. The book also calls for agricultural reforms that benefits the small, marginal farmers who constitute 85 per cent of the households. The vocal minority of rich farmers in Punjab and Haryana earn most of the government’s largesse. These vested interests oppose real farm reforms. Profits of these farmers are also tax-free as agricultural income is not taxed. It is obvious that this observation was formulated in the wake of the repeal of government’s farm laws in response to the high profile agitation engineered by the rich farmers around Delhi. It is also suggested to relax restrictions on agricultural land conversion for alternate uses. Currently, these restrictions depress the value of agricultural land and pose obstacles to transitioning out of agriculture. This rule prevents other types of land to be converted to farm use. Aggressive privatisation of public sector enterprises is advised because it unlocks the potential of PSEs to create wealth.

It’s a no-brainer that private enterprise should be encouraged to the maximum to bring out the best in the economy and to reach fully developed status by 2047. The author makes some prescient observations in this regard. Private investment is the key driver that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction of uncompetitive enterprises and generates jobs. India’s economic prosperity till the eighteenth century and her economic progress post-liberalization in 1991 demonstrate that the secret to sustained prosperity lies in enabling private enterprise in sectors where government has no business to be in business. A policy stance in favour of competitive markets and free enterprise – in short, pro-business – is often confused with a pro-cronyism stance. Competition will lead to creative destruction of some companies and generate more wealth for the whole sector. When creative destruction is fostered, sectors as a whole will always outperform individual companies within the sector. R&D investment is another area that needs to be strengthened. India’s R&D expenditure at 0.65 per cent of GDP is very low as compared to 2.5 – 3 per cent of advanced economies, primarily because of the disproportionately lower contribution from business sector. Government alone does the heavy lifting in this field and this should change. Manufacturing is also an essential sector India must accord priority to. Higher wages and lower uncertainty in this sector increase aggregate consumption more than service sector jobs.

Frankly speaking, this books flies over the heads of most readers who are not so familiar with the vocabulary of macroeconomics. The author uses a top class methodology of sophisticated charts and diagrams to prove the truth in his line of thought. These diagrams are too small in most cases and monochrome print has robbed some of its relevance. These look best if presented on to a big screen in full colour display. The publisher could have set up an online resource page to access these diagrams dynamically and in higher resolution so that some of the readers could follow through the argument. This book targets pragmatic administrators, visionary politicians and patriotic influencers who want to bring in change for the better. The targets Subramanian has chosen are very ambitious and there is every likelihood that they may be missed. Still, getting somewhere ahead and within a short range of the ultimate aim would itself be a tremendous achievement that will transform the lives of Indian society for the better.

The book is recommended.

Rating: 3 Star