New Delhi: NITI Aayog member and economist Arvind Virmani played prominent advisory roles in the economic reforms of the 1990s and 2000s, especially related to the financial sector and fiscal policies. In an interview with DH’s Gyanendra Keshri, Virmani, who was India’s Chief Economic Advisor from 2007 to 2009, said India is likely to be a high income country by 2051. He also dwelled on the role of states and manufacturing in the government’s Viksit Bharat vision.
Here are the edited excerpts:
Various projections and theories are in circulation related to Viksit Bharat. In your opinion, what does Viksit Bharat mean?
First of all, let me make it clear that so far there is nothing from the Government or the NITI Aayog in terms of a paper or any specific thing that can be termed a target. So, in a literal sense there is no target as of now. Viksit Bharat is a vision. There is no formal definition of a developed country. So, the idea of Viksit Bharat is connected to this idea of a high income country. There are specific numbers and formal processes in the World Bank to categorise a country low income, lower-middle income, upper-middle income and high income.
By when is India expected to be a high income country?
For analysis I look at two countries – Indonesia and Romania. In 2019, Indonesia moved up from lower-middle income to upper-middle income category, while in the same year Romania moved from upper-middle income to high income country, as per the World Bank’s classification. Indonesia’s per capita GDP at Purchasing Power Parity (constant 2021 international dollar) stood at $12,895 and that for Romania at $36,800. In 2023, India’s per capita GDP in PPP at the same terms stood at $9,172.
With a 5.4 per cent average annual growth, India should become an upper-middle income economy by 2030 and high income country by 2051. With 5.7 per cent growth we can achieve this target by 2047. Analysing the historical trends and estimates of international organisations, 5.4 per cent looks the most pragmatic projection. Pessimistic number is 4.6 per cent, which comes from the OECD analysis. The Prime Minister’s vision is to achieve it (high income category) when India completes 100 years of Independence. Obviously, it is political messaging. That minor 1 or 2 years does not matter. We need not get stuck to it.
India’s economic growth has been quite robust in recent years. Don’t you think the 5.4 per cent projection that you are giving, is conservative?
My forecast for the next five years is 7 per cent. The 5.4 per cent number that I am giving is an average for the next 25 years. Why don’t I just assume 7 per cent for the next 25 years? Because the empirical study and data do not allow me to do that. What we find is that the growth is faster in the beginning and gradually slows down. If you take the 5 years moving average maximum is 6.2 per cent, if you take the 10 years moving average the maximum is 5.7 per cent, for 15 years it is 5.6 per cent and 20 years 5.2 per cent. So the average, which I am predicting is between these last two. This is for the growth in per capita.
Manufacturing has been among the key drivers of the growth for most advanced economies. The share of manufacturing in India’s GDP has been almost stagnant for decades. What ails India’s manufacturing?
India is the fifth largest manufacturer in the world, behind China, USA, Germany and Japan. But in terms of exports it is at number 15. So there is a big gap between production and exports. In the case of other major manufacturing countries, this gap is one or two places. But in the case of India it is 10 places. There are two main issues – anchor investors and supply chain. Why are anchor investors important? Because, it brings demand with it. It also brings capital, skills and technology. Therefore attracting anchor investors and supply-chain is very important for the next 5 to 10 years.
What role are states likely to play in the Viksit Bharat vision and attracting investments?
Out of the 28 states, only four or five are doing very well in attracting investments. What about the rest of the states? What is it that they need to do to attract the supply chain and anchor investors? When we talk about supply chain and attracting investments, it has to be in some state. The action has to be on the ground. If somebody wants to invest, they need land, electricity, water and so on. These are all state subjects. The Prime Minister has told us to help the states, find out their issues and help in resolving them.