(This was published by the Quint on 26 August 2022 under the title: ‘Make India No 1’: Nation Needs This To-Do List of Reforms)

On India’s 75^th anniversary of independence, Prime Minister sounded a bugle for making India a developed nation by 2047. Chief Minister Delhi, two days later, issued his clarion call for India to become the Country No. 1.

Development jingoism is in the air. 

What exactly makes a country a developed nation? What does being the No. 1 Country mean?

India Today

Global GDP is about $90 trillion. India is only a $3 trillion economy. Really advanced countries have average per capita income exceeding $50000. Global average per capita GDP exceed $10000. India’s per capita GDP is only about $2000. India’s population is 1/6^th of the world population. India’s share of global GDP is only a little more than 3%. India’s per capita income is not even 20% of the global average.

India started out in 1947, after independence, as a very poor country. We got classified as a least developed countries (LDCs) in the UN system of classification of countries. We were also categorized as a low income country (LIC) in World Bank’s classification of countries in low, middle and upper income countries.

It took India more than 50 years to move out of the class of the LICs to become a middle income country, albeit only a lower middle income country.

What can be a developed country definition for India?

There is no globally accepted definition of a developed country.

India has become the 5^th largest economy in terms of $GDP. We will certainly overtake Germany and Japan in next few years to become the 3^rd largest economy. But does that make India a developed nation? Even when India become the 3^rd largest economy, in terms of per capita income, we will be barely in the first hundred nations of the world.

Some people see the largest economy tag as their flag-post. They even take refuge in purchase power parity (PPP) methodology of the World Bank for hurrying up to no. 1 tag. PPP is quite a flawed concept. It was designed for and works basically to identify the poor, that too by an artificially lowered threshold. You don’t pay for oil or computers or for that matter anything in PPP dollars. PPP weighted GDP is an imaginary GDP. It should be simply junked.

A high income country (HIC) can be a good indicator of a developed country. Current World Bank threshold for an HIC is per capita income in excess of $13,000.

China could raise its GDP five times to $16 trillion in 40 years and is on the verge of getting into the HIC club. For India to make this grade, our per capita income needs to grow more than six/seven times. This clearly looks improbable within next 25 years.

Let us set our development ambition a little more modestly. How about the goal of making India a $10 trillion economy by the middle of 2030s or a $25 trillion economy by 2050? Or, perhaps, more appropriately, increasing per capita income to $10000?

What will it take to reach there?

Whatever goal we adopt will require immense hard work. Many tough policy choices will also need to be made. Mere wishes and pledges will take us nowhere.

Here is a suggested reform agenda.

First, India did well to adopt the green revolution technologies in mid-1960s. This made India pivot from being a food beggar to a food exporter. Today, we export $60 billion and import $30 billion worth of agriculture products. India is truly self-reliant in agriculture. However, the opiatic cocktail of minimum support prices, input subsidies (fertiliser, power, loans, seeds etc.) and guaranteed low wage employment under MGNREGA keeps 20 crore of our farmers and landless workers trapped below the poverty line income and consumption. We need another major pivot to raise their income manifold. Farmers need to be freed from innumerable controls, restrictions and constraints. They cannot lease their lands, cannot freely convert their land into non-agricultural lands, tribal and Dalit/ST farmers cannot sell their lands outside their community, farmers have to sell their produce in regulated mandis and not anywhere. They cannot even enter into production/sales contracts freely. These controls need to be junked. Additionally, India needs to move a great majority of farmers and landless agriculture workers to industrial and service sector occupations for their  incomes to rise manifold. If India can ensure not more than 10% of India’s workers in 2047 in agriculture producing 10% of GDP, it will truly signal farmers’ prosperity.

Second, we took a very wrong turn, in the era of socialist pattern of society, while planning to industrialise India. We banked too much on public sector. Private industry was caged in licence-permit-quota raj in the small space left for them. The policy produced capital guzzling inefficient public sector and crony capitalist private sector. India did not industrialise really. India’s manufacturing sector has remained stalled at around 15% of GDP despite loosening many controls in 1991. Ease of doing business might have improved in last few years, but cost of doing business has not. India remains globally non-competitive in most industrial products. Make in India, Phased-In Manufacturing, PLI, high tariff protection etc. implemented, in the absence of real technological edge and innovation, has resulted in what is seen in the case of the most successful PLI. Over 95% of mobile handsets are being manufactured by 5 Chinese companies. We have to truly free up private sector instead of supporting them by the PLI crutches, expose them to the rigour of global competition and allow them to freely import technologies. The cost of doing business in India needs to become real competitive with power, land, loans and taxes for industry priced at their economic costs, not excessively for misplaced cross-subsidisation and other considerations.

Third, it is the time for Government to walk the talk on privatisation. The Government has to sell-off the public sector lock stock and barrel instead of wasting too much public funds in sustaining sick and bankrupt BSNLs and MTNLs. The public sector in India would wither-away in any case in next 25 years as it is unable to make investments in new technologies and adopt productive governance practices. The difference between a pro-active privatisation and slow-burning self-disappearance is that the Government would be able to recover a good deal of investment by privatising but would end up sinking in billions of dollars more if it goes the haemorrhage path.

Fourth, financial sector is the key for rapid and productive investments. Instead of being a weak and inefficient owner-participant in the financial markets, Government and RBI needs to focus on managing internal and external stability of currency, adopt practical approaches for new-age fintech, digital banking, venture capital and currencies. Government needs to get out of running banks, insurance companies and infrastructure financing institutions like IIFCL and NaBFID. Value creation is shifting to infrastructure, digital economy and environmental economy from the traditional agriculture and industrial economy. These sectors are tougher businesses and not for the risk-avoiding traditional public sector banks.

Fifth, there is massive infrastructure deficit- physical and digital both- in India. This has to be made up fast. Current policies and investment framework are not quite conducive for constructing this infrastructure, barring in a few sectors. Government will have to plan a big infrastructure agenda- building 10,000 kilometres of high speed railways, 25,000 kilometres of 6/8 lane expressways, 50-60% power generation in renewable mode, first rate schools/hospitals and other social infrastructure, national water grid and so on. Let this all be constructed by the private sector with Government providing extensive viability gap funding.

Sixth, the digital economy is the future of economic advancement both for our nation and her people. Of the four key parts of the digital economy- chips, code, networks and services- we have been good at only the services. Almost 100% of chips we use are imported. We are non-existent in semi-conductors fabrication. We have only started gaining ground in software/code only lately. Our policies thwart building of national and global scale digital networks. The social media, the future of communication, is consequently all in foreign control. We need to get our data polices and e-commerce policies right and adopt a very open attitude towards digital technology import and investment, if we want to build a strong digital economy. Otherwise, like the result of our import substitution policies of 1950s-1980s, India will become only a reluctant adaptor rather than a leader in digital economy.

Seventh, besides higher income, we must also aim at securing better quality of life. Today, pollution of air, water and land has made the quality of our lives relatively quiet poor. If Delhi remains the most polluted city of the world with PM 2.5 mg being 22 times of the safe limit, India cannot be a healthy and prosperous country. We need to think big on pollution and carbon control. Pollution control should become the most important public policy and service objective of the Government. In place of public works departments to construct roads, it is time to create engineering capacity in the Government to make our cities, villages, rivers, lakes and other water bodies clean and pollution free. It is time to shift to industries which make non-polluting products and use waste productively to build a circular economy. It is time to shift to wind, solar and other non-fossil fuel industries to generate the power to run our homes and machines. This shift will also help in India making its due contribution to control of global carbon to make the world in which India exists a lot less hot.

Dreams are important. Pledges are important. But, to realise dreams and to redeem pledges, a lot of hard work is needed and a lot of hard choices have to be made.