Editorial 1 : Journey to 2047
Introduction: In light of recent developments at home and abroad, we need to have a clear roadmap for India’s growth. The expectations of the people are clear, we want to become a developed country by 2047, that is, when India completes 100 years since Independence.
What does it mean to become a developed country?
- International financial organisations currently classify countries with per capita income of $13,845 and above as developed countries. In 2047, this would be higher.
- India’s per capita income as of now is $2,500 (IMF, April 2024), which shows the distance we have to travel.
- Based on assumptions of the future exchange rate of rupee and domestic inflation, we need to have an average annual real rate of growth of six to seven per cent to achieve this level of per capita income.
Investment Needed for 7% Growth
- Achieving a 7% growth rate requires a real gross fixed capital formation (GFCF) rate of 35% of GDP, assuming an ICOR of 5 (as seen in recent years).
- We are close to 35% GFCF currently, driven mainly by increased government capital expenditures.
- This growth in government spending is unsustainable due to high fiscal deficits (over 5.9% in the past 3 years).
- To achieve sustainable growth, private investment needs to increase by 1-2% of GDP.
- This requires creating an environment that encourages private investment (both corporate and non-corporate).
Development Strategy for the Next Two Decades
- Rethinking Industrial Policy: Analysts are exploring changes to industrial policy due to global developments.
- Success of Export-Led Growth: Many East Asian countries (and later China) achieved rapid progress through exports.
- China's export share grew from 0.6% (1970) to 11.9% (2022).
- India's share remained low, increasing from 0.6% (1970) to only 2.5% (2022).
- Shifting Trade Landscape: The global trade environment has changed.
- Free trade support is weakening.
- Protectionism is rising in some countries.
- Developed economies are expected to experience slower growth.
- India's New Approach:
- The old export-led strategy may not be ideal for India.
- However, focus on exports should not be abandoned entirely.
- Importance of Exports: Exports remain a test of efficiency.
- Focus on Merchandise Exports: India needs to demonstrate excellence in merchandise exports (physical goods) alongside its success in service exports.
- External Demand as Growth Driver: Exports can be a significant driver of economic growth.
Multi-Dimensional Development Strategy
- Focus on Multiple Sectors: Emphasize exports, services, manufacturing, agriculture, etc.
- Identifying Growth Areas: Identify "sunrise" industries with high potential, like food processing (labor-intensive, helps agriculture, and has export demand).
- Smart Import Substitution: Promote efficient import substitution that considers cost. Atmanirbhar shouldn't lead to inefficient practices.
Jobs and Technology
- Challenge of Technological Change: Technological advancements (AI, Gen AI, machine learning) may decrease job creation per unit of output.
- Balancing Growth and Jobs: Jobless growth is undesirable, but job creation without growth isn't ideal either.
- Solution: Adapt to new technologies through skill development and foster sectors that create jobs alongside growth.
Equity and Social Development
- Importance of Equity: Growth benefits must be distributed fairly.
- Poverty Reduction: Evidence suggests a decline in extreme poverty (below 3% according to World Poverty Clock).
- Decreasing Inequality: Consumption expenditure surveys show a slight decrease in the Gini coefficient (inequality measure).
- Focus on Poverty First: Developing economies should prioritize rapid poverty reduction.
- Social Safety Nets: Programs like subsidized food grains are crucial for social safety.
- Growth and Equity as Two Sides of the Coin: Economic growth is essential for achieving equity, and equity is necessary for sustainable growth.
- Investing in Public Services: Prioritize quality and quantity of public spending on health and education for equity.
Conclusion: Thus, in substance, India’s development strategy should be multidimensional. Growth may be stimulated by raising investment rates, emphasising manufacturing, services and exports, absorbing new technologies and promoting a mix of sectors that are employment-friendly. Job creation is going to be the toughest challenge ahead.
Editorial 2 : The world and Modi 3.0
Introduction: European political thinkers at a recent conference expressed deep concern about a looming new Cold War, with some even fearing a potential World War. There are whispers that suggest wealthy Europeans are relocating to perceived safe havens like Cambodia and Papua New Guinea.
Europe's War Fears: Historical Context
- Europe's Recent History Shapes Concerns: Europe's experience of two World Wars and the Cold War fuels anxieties about potential conflicts.
- Similarities Between Past and Present: They see parallels between past escalations and current tensions.
- Multiple smaller conflicts led to WWI.
- Strategic blunders by Germany and Japan (Pearl Harbor, Poland) escalated WWII.
- The Cold War threatened global destruction on numerous occasions (acknowledged by the Pentagon).
- Fears of a New Global War: Europe worries about a potential Cold War-like situation between the US and China escalating into a major conflict, potentially involving other nations.
Superpower Dissonance and Escalating Tensions
- Leaders Downplay Tensions: US and Chinese leaders deny a new Cold War, emphasizing cooperation. (Examples: Biden - "We are all better off if China does well"; Xi Jinping - "China doesn't want a cold war or a hot war with anyone")
- Global Competition Heats Up: Despite leader rhetoric, competition between superpowers intensifies.
- Resource Scramble: Competition for critical minerals intensifies across continents (Africa, Latin America).
- Strategic Partnerships: Race to build military and economic partnerships across Asia.
- Open Warfare: Existing conflicts in Europe (Ukraine) and Middle East (Gaza) add to global tension.
- Mounting Casualties and Escalation Threats:
- Ukraine war sees rising losses for both sides (Ukrainian forces, civilians, Israeli soldiers).
- Russian minister's accusation of NATO's potential use of tactical nukes raises fears of a wider conflict.
- Potential for Social Unrest:
- Gaza conflict sparks demonstrations in Europe and US.
- European leaders worry about pro-Palestinian movements leading to civil unrest in major cities.
Rising Tensions in the Indo-Pacific
- Taiwan's Stance Angers China: Taiwan's new president, Lai Ching Te, asserts Taiwan's independence from China, citing the country's constitution.
- China Threatens Taiwan: China criticizes Lai's statement, calling him a "dangerous separatist" and his speech a "downright confession of Taiwan independence."
- China Threatens Punishment: China threatens "counterattack" and "punishment" for Taiwan's pursuit of independence.
The UN's Challenges in Maintaining Peace
- UN's Origins: Established after WWII's devastation (75 million casualties) to promote global peace.
- Cold War's Impact: The UN's effectiveness was hampered during the Cold War just a few years later.
- Current State of the UN: The UN is seen as either biased or ineffective in addressing contemporary issues.
Urgent Need for De-Escalation
- Raging wars and rising tensions worldwide demand immediate attention.
- Another Cold War or a world war would be catastrophic.
- India's strategists in Modi 3.0 should prioritize de-escalation efforts.
- "Peace" isn't a recognized international stance.
- India's traditional neutrality, like that of Switzerland and Norway, offers a platform to collaborate with other Global South powers in finding solutions.
Conclusion: There was a time during the Cold War when India played an active role in the Non-Aligned Movement. But that was the non-alignment of the weak. Today’s India is strong and respected. It has the audacity to pursue “strategic autonomy” from a position of strength, not yielding before any big power. In the process, it has raised hopes in several quarters.