If India achieves a growth rate of 11% into the next decade, it would become the second largest economy in the world not by 2048 as projected earlier, but by 2031, said Michael Debabrata Patra, Deputy Governor, Reserve Bank of India (RBI) on Saturday.
“Even if it does not sustain this pace and slows to 4-5% in 2040-50, it will become the largest economy of the world by 2060 [surpassing China],” Dr. Patra said while speaking at an event to celebrate Azadi Ka Amrit Mohotsav organised by the RBI in Bhubaneswar.
Observing India’s progress in a cross-country setting, he said today, India was the world’s sixth largest economy in terms of market exchange rates.
“Noteworthy is the age of Japan which started in the 1960s and lasted through 1970s and 1980s. The age of China began in the early 1990s, taking it to the position of the second largest economy of the world. It is from 2015 that India’s time seems to be arriving,” he said.
He said in spite of the pandemic and the war in Europe, India was going to contribute about 14% of global growth. In fact, India would be the second most important driver of global growth in 2022 after China, he emphasised.
Stating that the use of market exchange rates for cross-comparisons of economic performance measured by GDP had been questioned, he said an alternative measure was purchasing power parity. “It is the price of an average basket of goods and services that a household needs for livelihood in each country,” he said.
“Currently, India is the third largest economy in the world in terms of purchasing power parity (PPP) terms, with a share of 7% of global GDP [after China (18% ) and the U.S. (16% )],” Dr. Patra said.
“India’s GDP in market exchange rates is expected to reach US$ 5 trillion by 2027. By that year, India’s GDP in purchasing power parity terms will exceed $ 16 trillion (up from $ 10 trillion in 2021),” he added.
He said the Organisation of Economic Co-operation & Development’s 2021 calculations indicate that the Indian economy would overtake the US by 2048. This would make India the largest economy in the world after China [in normal course].
“In terms of PPP, the exchange rate appreciates with the prosperity of a nation and a rise in its productivity. The Indonesian Rupiah is set to become the strongest currency in the world, with the Indian Rupee emerging as the second strongest currency,” he said.
He said the four engines that could power India to “achieve escape velocity from the emerging economy orbit and take off towards becoming an economic superpower” include demographics dividend, manufacturing, exports and internalisation.
“If manufacturing were to grow at 10% – the target set by the ‘Make in India’ campaign – its share would reach 25% in 2030-31. India would become the manufacturing shop floor of the world,” he said.
To achieve this manufacturing sector must adapt to the fourth industrial revolution (automation; data exchange; cyber-physical systems; the internet of things; cloud computing; cognitive computing; the smart factory; and advanced robotics) and India must develop a skilled labour force by stepping up investment in human capital.
He said raising India’s share in world exports to at least 5% was within reach.
Dr. Patra said India has to focus on addressing four major challenges which includes recovering the loss of output and livelihood faced due to the pandemic, to close the infrastructure gap, developing a high- quality labour force and meeting the target of making India greener and cleaner by augmenting an estimated cumulative investment of $10.1 trillion to meet net zero commitments by 2070.
“If India capitalises on its opportunities and overcomes the challenges, it is widely believed that India will bend time. You may think that I am a dreamer, but let me remind you that while history does not repeat itself, it often rhymes,” he said emphasizing that India which was once the world’s biggest economy, can regain its lost position.
