“India can aspire to become a USD 7 trillion economy in the next six to seven years (by 2030)”, so wrote India’s Chief Economic Advisor V Anantha Nageswaran in his pre-Budget report published on January 31.
This was neither the first aspirational and futuristic forecast of the size of India’s economic output nor was it founded on any firmer analysis than many other predictions.
Five years ago, presenting the 2019 Budget, Finance Minister Nirmala Sitharaman said that “the Indian economy will grow to become a 3 trillion dollar economy in the current year and reach the vision of the Prime Minister to become a 5 trillion dollar economy in the next 5 years,” that is, by 2024.
Neither prediction was borne out.
At different times in the past few years, other ministers and bureaucrats have made varying predictions of future Gross Domestic Product (GDP). For instance, in 2023 Union Commerce Minister Piyush Goyal speaking in Pune at the Asia Economic Dialogue predicted a 40 trillion dollar economy by 2047. According to an official press release, the Minister said, “My own conviction about the way India is growing is that we will drive our economy probably closer to 35 - 40 trillion-dollar economy by 2047. The desire of every Indian is to be second to none.” It is debatable whether his use of the word ‘desire’ bears any semblance to the third Purushartha of Hindu philosophy.
At the Vibrant Gujarat Summit on January 10-12, Nirmala Sitharaman predicted that the Indian GDP would be USD 30 trillion by 2047. Not to be outdone in this costless and ever-upward bidding game, Reliance Industries boss Mukesh Ambani upped the ante when he said that “no power on earth can stop India from becoming a 35 trillion dollar economy by 2047”.
On January 23, 2024, according to ANI, Union Petroleum Minister Hardeep Singh Puri said, “Lord Ram is blessing us…” It was after all the day after the Pran Pratishtha (consecration) event of the Ram temple in Ayodhya. “There is no need to wait until 2028 to become a 5 trillion dollar economy,” he said. “...it will happen by 2024-25. We will then be a 10 trillion dollar economy by 2030.”
In this bizarre game of numbers and dates, the rule appears simple. Pick a round number between 5 and 40 trillion, choose a convenient year from 2025, 2030, and 2047, and anyone who seeks both to please the audience and curry favour with the regime can make a bold and seemingly courageous prediction with little fear of contradiction or challenge.
The star of this game has to be an unsigned Goldman Sachs Research report which in July last year said, according to CNBC, that India was “poised to become the world’s second-largest economy by 2075, leapfrogging not just Japan and Germany, but the U.S., too”. This long range prediction was echoed even by Arvind Panagariya, chairperson of the 16th Finance Commission, in his Deshmukh Memorial Lecture in December last year. He simply assumed a lowish growth rate for America and a higher and constant growth rate for India to draw a chart that shows the two lines intersecting in 2073. Luckily for both Goldman Sachs and Professor Panagariya, the few of us who just might be tottering around in 2075 will mercifully have no memory of the predictions they made in 2023.
It is not that these numbers will not be reached at some point in time for the simple reason that, except for periods of extraordinary turmoil like the Covid pandemic, the GDP grows every year. Prabhat Patnaik’s point about the obvious shortcomings of GDP as a single catch-all measure of prosperity shows that these wild, feel-good predictions from the rich and powerful are as misleading as they are useless in setting policy.
Let me set out some of these considerations.
Relevance. The GDP is the most workable single measure we have to estimate the economic output of a country or a state within it. The nation’s GDP depends on two factors: the number of workers and the productivity of each worker. If productivity stagnates but the number of workers rises each year, then the GDP will grow but it leaves individual people as poor as before. The one measure of prosperity not included in any of these grandiose predictions from ministers and others is GDP per capita, which, however crude, is a measure of the prosperity of the ‘average’ person.
Whether India soon becomes the world’s third largest economy in GDP terms is of little consequence to the vast majority of Indians because the GDP per capita will be at the bottom end of the league table. In 2023, India’s GDP put it at No 5 but the GDP per capita put India at No 120.
Lack of precision. What exactly are we talking about? Is it nominal GDP (where the valuation is in current prices) or real GDP (where the nominal prices GDP is corrected for inflation and is measured in constant prices as prevailed in 2011-12). That makes a difference. For example, according to the Reserve Bank of India, India’s nominal GDP in 2022-23 was INR 272.4 lakh crore (approx 3.5 trillion dollars at the average exchange rate of 78), but the real GDP (2011-12 prices) was INR 160.06 lakh crore (approx 3.4 trillion dollars, at an average exchange rate of 47).
In view of the exchange rate fluctuations, one can only assume that they mean nominal GDP. But that number will forever be hostage to inflation and the consequent erosion in the purchasing power of the rupee.
Ignorance of the algebra of compounding. There seems to be a general lack of understanding of compounding (also known as exponential growth) and the importance of focusing on annual growth rate rather than the absolute GDP growth from one year to the next.
Take Sitharaman’s prediction of 7 trillion USD by 2030. Assume the 2023-2024 GDP will turn out at INR 285 lakh crore (the officially reported GDP in H1 - April to Sept 2024 was in fact INR 142.34 lakh crore). In dollar terms, that is 3.47 trillion (at an exchange rate of 82). To go from 3.47 trillion to 7 trillion in the 6 years between now and 2030 – assuming she meant FY 2029-30 – would require an annual growth rate year-on-year of 12.5%. An analysis of data on quarterly GVA (Gross Value Added) from the RBI shows between 2012-13 and Q2 2023-24 (i.e. the quarter ended Sept 30, 2023), the annualised growth rate exceeded 10% in only two quarters and both of those were because of a rebound effect after precipitous falls during the Covid pandemic.
The 40 trillion by 2047 is equally problematic. There is no reason to pick that year aside from the obvious fact that it would be the centenary year of India’s Independence. But assuming we start now (3.4 trillion in 2024), it would require an annual growth rate of 11.3% year-on-year for 23 years.
The ignorance of compounding also shows up in ludicrous claims made even by senior people. Speaking to senior business leaders at the Treasury Leadership Forum in Mumbai in February 2023, Deepak Bagla, the then head of Invest India – a company set up in 2009 to attract investments into India – made statements that went viral but were rapidly debunked by Shashi Tharoor as “empty boosterism” and by me on X as claiming credit for the easily explained algebraic magic of compounding. Bagla said that India’s first trillion dollars took 65 years, the second took 8, and the third trillion came in just 5 years. Even if the annual growth rate remained constant throughout a period spanning 8 decades, that same pattern will emerge. That last trillion came sooner not because of some magic wand waved by whoever was in power at the time, but because the same growth rate was applied to a larger starting value.
America may grow at 3.3% but because of the sheer present size of the US economy (25 trillion dollars in 2022), it will add another trillion dollars in just 15 months; India, even growing at 7.1% (the highest of any large economy) will take 4.5 years to add another trillion dollars.
The myth of the ‘long-run’ scenario. When Keynes famously said that “In the long run we are all dead,” he was not decrying the need for policy-makers to consider the long term consequences of their decisions. He was in fact making the case for NOT ignoring the need for short term improvements. He said, “But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.”
That perhaps is the real sly agenda behind these disingenuous attempts to befool the public with rosy predictions of a seven-course thali decades from now – to take our mind off the grim reality that 813.5 million Indians will need, for the next 5 years, free food grain handouts from the state.
In these tempestuous times when India is at the bottom of the G20 league table in both the Human Development Index and GDP per capita, our ministers, economists, and business leaders must do better than reassure us that decades hence, even half a century from now, calmer waters will prevail.
Policy implications. No directly actionable ideas flow from these medium and long range GDP projections. The inescapable economic fact is that the only way a country can grow richer and more prosperous over time is when the average sum of economic value produced by each worker in any given year is greater than what he produced in the previous year. The role of the government is to ensure the right climate for investment, jobs, equality of opportunity, equal access to resources for everyone, law and order, social cohesion, communal harmony, and thence, sustained productivity growth.
Merely predicting a pot of gold at the end of a very long and distant rainbow may earn the speaker some immediate applause but when the feel-good factor dies down, the hard slog of real governance begins. Leadership is indeed about setting the direction and spelling out the vision, but government is about taking the right decisions. You cannot will the result without also willing the means.
Jammi N Rao is a retired public health physician and epidemiologist. He has particular skills in data science, medical research ethics, evaluation of research proposals, critical appraisal of evidence, and policy development. He devotes his spare time to reading and commenting on public affairs.
Views expressed are the author’s own.