The Hindu Business Line : Can India come of age in comity of nations?

Two Goldman Sachs reports, widely discussed in recent months, predict that in the next 50 years, Brazil, Russia, India and China will as a group become a much larger force in the world economy than the top rich countries of today. But the interpretation that India is well on its way to becoming an economic superpower is too optimistic as the reports also highlight the deficiencies that constrain rapid economic development in this country.

ON June 10, speaking at the conclusion of a summit meeting of the heads of state of the Group of Eight (G8) developed nations held at Sea Island, Georgia, the British Prime Minister, Mr Tony Blair, said there is "certainly a case for including countries like China and India" in the group.

On the first day of the meeting, Italy's Prime Minister, Mr Silvio Berlusconi, said discussions had taken place on the growing economic clout of the world's two most populous nations, adding: "... the idea was put forward to call China and India to join the G8, making it the G9 or G10."

The Russian President, Mr Vladimir Putin, too has been quoted as saying that India and China's participation in the G8 conference would make much sense.

Two reports by the American financial services bigwig, Goldman Sachs, have been avidly discussed in India in recent months.

The first report argued that over the next 50 years, four countries — Brazil, Russia, India and China (or the BRIC economies) — would become a much larger force in the world economy than the Group of Six (G6) developed countries, namely, the United States of America, Japan, Germany, France, Italy and the United Kingdom.

The second report focussed only on this country and claimed that India could be a bigger growth story than China over the long run.

The first report, dated October 1, 2003, was co-authored by Mr Dominic Wilson and Ms Roopa Purushothaman. The second, dated April 14, 2004, was written by Ms Purushothaman alone.

Whereas some have interpreted the reports to mean that India is well on its way to becoming an economic superpower, such an interpretation is not warranted as the reports have also highlighted various deficiencies that have hampered (and will certainly continue to constrain) rapid economic development in this country.

Even if India grows faster than all the countries already mentioned half a century down the line, as is expected, the fruits of this growth may not be evenly distributed.

Thus, even as the country's economy expands in size, income per head will continue to lag behind the levels in other countries.

According to the first Goldman Sachs report, in 2050, India's economy could be larger than Japan's by 2032 while China's economy would be larger than that of the US by 2041 and larger than everyone else as early as 2016.

India's economy would be the third largest in the world, after China and the US.

However, in terms of per capita income measured in US dollars, India would come last among the ten countries being compared.

The four BRIC economies taken together would be bigger than the G6 by 2039.

By 2025, they could account for over half the size of the G6 whereas they are worth less than 15 per cent at present.

In US dollar terms, China could overtake Germany in the next four years, Japan by 2015 and the US by 2039.

India's economy could be larger than all but those of the US and China in 30 years and Russia would overtake Germany, France, Italy and the UK. Of the current G6 countries, only the US and Japan may be among the six largest economies in 2050.

The report added that India has the potential to show the fastest rates of growth over the next fifty years.

The real rate of growth of India's GDP could be higher than five per cent over the next thirty years and close to 5 per cent as late as 2050.

India would be the only country among the BRIC economies recording growth rates significantly above 3 per cent per year.

Now comes the downside. Despite much faster growth, individuals in the BRIC "are still likely to be poorer on an average than individuals in the G6 economies by 2050". The exception would be Russia, which would catch up with the poorer among the G6 countries in terms of income per capita by 2050.

China's per capita income could be similar to where the developed countries are now (about $30,000 per capita per year) for, by 2050, the per capita income in the US would be roughly reach $80,000. By way of contrast, India's per capita income would be a relatively much lower $18,000 against around $50,000 in Russia and over $26,000 in Brazil.

An important reason for the per capita income gap between the developed countries and the BRIC countries is demographics. The decline in the working age population (between the ages of 15 and 60) is generally projected to take place later than in the developed countries, but will be steeper in Russia and China than India and Brazil.

Thus, growth in labour force will contribute more to growth in India and Brazil while it would detract from growth in Russia.

India fares particularly poorly as far as its track record on education is concerned.

The second Goldman Sachs report highlights the fact that although India "has witnessed well-known success in tertiary education on the back of public investment in higher education," its pathetic performance as far as elementary and secondary education is concerned has acted as a "major obstacle to achieving long-term growth potential".

In 2000, the proportion of the country's population over the age of 15 with no education was as high as 44 per cent — though this proportion was an even higher 72 per cent in 1960 — compared to 18 per cent in China, 16 per cent in Brazil and one per cent in Russia.

According to Unesco, in 2000-01, only half the children in India who entered primary school went on to study till Std V.

This is mainly on account of the fact that elementary and primary education in the country has inadequate public funding, including dispensation of resources for implementation of mid-day meal schemes. India's student dropout rate at 53 per cent is the worst in the whole of South and East Asia.

Whereas India continues to follow conservative monetary and foreign exchange policies, its fiscal policy is "loose", the second Goldman Sachs report observes.

The high deficit, at around 10 per cent of the country's GDP, hampers growth by diverting much needed resources for interest payments instead of health-care, education and infrastructure.

If India could match China's infrastructure as well as primary and secondary education standards, its average annual rate of growth of GDP over the next five years would jump from just over 6 per cent at present to over 8 per cent, that is, above the target specified in the Tenth Plan (April 2002 till March 2007).

India and China account for 40 per cent of the world's population. Both have witnessed strong growth over the past decade, both have surplus labour and both countries have diasporas that contribute to economic development.

According to Ms Purushothaman (author of the second report), India is 10-15 years behind China in the reform process, suggesting that better growth is yet to come in India.

She points out the differences in economic orientation but does not mention the political differences between the two countries — India is a heterogeneous, noisy, anarchic democracy while Chinese society is far more homogeneous, regimented and reportedly wary of granting its citizens excessive political freedom.

India has a long way to go before it can truly claim to be a developed country. One out of four people in the country still lives below the poverty line and one out of three individuals is illiterate.

(The author, a senior journalist, is Director, School of Convergence, New Delhi. He can be contacted at paranjoy@yahoo.com)