To realize its full potential, India must take the necessary steps to help its economic units grow larger given that small habitations, small farms, and small enterprises are intimately linked, according to Economist Arvind Panagariya.

Reforms that help industrial and services enterprises grow larger will create job opportunities for the masses, which in turn will pave the way for urban migration. This will increase the land per worker in farming, while also bringing more and more of the population to where development is.

“With the population becoming progressively concentrated in urban agglomerations, we will also see larger economic units replace some smaller ones in areas such as schools and colleges,” Panagariya said.

The comments were part of a speech titled ‘India at 125: Reclaiming the Lost Glory and Returning the Global Economy to the Old Normal’, delivered at the 18th C D Deshmukh Memorial Lecture on December 15. Panagariya is a Professor of Economics and Indian Political Economy at Columbia University. From January 2015 to August 2017, he served as the first Vice Chairman of NITI Aayog and India’s G20 Sherpa. Prior to that, he was Chief Economist of the Asian Development Bank and has also worked with the World Bank, IMF, and UNCTAD in various capacities, in addition to writing over 15 books.

Panagariya said that during the past two decades, India has grown at an annual average rate of 10.22 per cent in current dollars. At this rate, India’s GDP will reach $5 trillion in 2026 and $5.5 trillion in 2027, making India the world’s third-largest economy by the end of 2026 from being the fifth largest at present.

“A conservative assumption is that the Indian GDP in constant dollars will sustain a growth rate of eight per cent in the next two decades. In addition, the country will maintain a five per cent growth rate for at least three additional decades,” he said, adding that with the assumed growth rates, India should catch up with the USA in 2072, precisely at the end of the 125th year of its independence.

This sustained growth will be supported by several factors that are working in India’s favour, including political stability, he said. While policy changes within India are slow, as exemplified by the pace of economic reforms, they are durable once made and not easily reversed, he said, adding that as education expands and communication channels improve, even state governments will be held to higher delivery standards.

The second factor favoring India is the low level of its current per-capita income. Acquiring technology and complementary skills and machines would permit India to achieve higher levels of per-capita GDP aided by numerous reforms that are already in place or will be implemented.

The third factor is rooted in its demography, which includes components of both size and composition. India is the largest country by population and this size offers economies of scale and network economies in the use of digital services. It also translates into a large workforce, which paves the way for varied skills, making India an attractive location for multinationals. In addition, India’s large young population also translates into higher savings and investment which will contribute to a higher per-capita income, he said.

Panagariya added that the global environment is also working to India’s benefit, given that the Chinese economy is now exhibiting all signs of fatigue and is expected to soon exit its high-growth phase. Further, India is emerging as a favored country by USA and Europe, and already has friendly relations with Japan, South Korea, and Southeast Asian countries.

“The fifth and final factor working to India’s advantage is the consensus favoring pro-market reforms forged over the past three decades. Many reforms are already in place, and those that are still outstanding have a good chance of being implemented in the coming years,” he said.

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