The Hindu Business Line : ADB puts India’s GDP at $35 t by 2040

Addressing the Pravasi Bharatiya Divas, a conference of the Indian diaspora here, Mr Nag said that by 2040, India would be the second largest economy in the world, only after China, accounting for 18 per cent of the world’s economy, against 2 per cent today.

He said that the Indian rupee would appreciate against the US dollar, contributing to the GDP, which is calculated in terms of the dollar. Of the 11.5 per cent growth projected, 9 per cent would be in terms of ‘real effective exchange rate’ (REER), and the appreciation of the rupee would account for the rest.

By 2040, India would be the second largest economy in the world, after China. India’s population would have risen to 1.7 billion people, but still, the per capita income would be $20,000.

The transformation of India from ‘poor’ to ‘rich’ would happen in one generation, Mr Nag said.

Mr Nag, an alumnus of IIT, Delhi, said that India has an edge over China in terms of demographics. While China’s labour force is ageing and will peak in a few years, India’s is young and the ratio of labour force to overall population is growing.

However, to achieve this growth, India would have to meet five major challenges, Mr Nag said. The first, is rising inequality within the country. “India not yet integrated domestically, and a large faction of its people, depending on traditional agriculture, is not participating in the current economic boom,” he said.

Second, India will have to invest more in infrastructure. Mr Nag noted that currently India invests about 5-6 per cent of its GDP on infrastructure. The country intends to raise this to 9 per cent in the Eleventh Plan period, but “we believe that the number has to go up to 12 per cent”.

Third, India would need to provide massive support and investments for technological upgradation to encourage innovation, “something like Japan and Korea have done in the last fifty years”.

Third, pointing out that India’s use of water and energy is “wasteful”, Mr Nag said that India should “take up an environmentally sustainable path of development different from what it has taken in the past”.

Fourth, India must overhaul its relations with the neighbours in the sub-continent. South Asia is the last region in terms of regional co-operation. To illustrate: 55 per cent of the trade in goods and services among East Asian countries happens within the region, while in the case of South Asia, it comes to 5 per cent, Mr Nag said.

There is a limit how far India and other South Asian economies can grow without co-operating with each other. Issues such as environment, common resources such as water and security cannot be tackled effectively in isolation, he said.

“In this context, we can learn from China’s recent strategy of extending its growing economic prosperity to its immediate neighbours despite past tensions,” he said.

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