Event ReportsPublished on Jan 14, 2011
Prof. Arvind Panagariya of Columbia University argues that India has not actually emerged, as US President Barack Obama said during his visit to India, but it is in fact rising. He presented his assessment about India as a rising power during a discussion at ORF.
India and the Global Economy: The Next 15 Years

The perceptions about India as a rising power was the topic of discussion at Observer Research Foundation on Friday, January 14, 2011, when Prof. Arvind Panagariya of Columbia University presented his assessment on the subject.

Beginning with US President Barack Obama’s words during his trip to India that India has already emerged, Prof. Panagariya said that India has not actually emerged, but is in fact rising.

The visiting professor took the economic aspect of the issue to buttress his argument and went on to give reasons for his statement. Presenting facts such as India’s share of GDP is just 2.5 per cent, India’s global ranking is 11th, her share in merchandise is 1.3 per cent, even though its share in services is 3 to 4 per cent, he said that is why India is emerging. In per capita terms, India is extremely poor. As per the 2009 per capita GDP rankings, India stands at the 153rd position. This is definitely not the picture of a global economic power.

However, what remains as a fact is that India has been growing rapidly. The growth picture has been bright compared to what was in the period between 1947- 1980. Growth was slow for a very long period of time. Nevertheless, as has been pointed out by a BRIC report, drastic measures are required to deal with the issue of poverty in India. Poverty has remained entrenched in India, and there has been no reduction. As population grows, more number of people in absolute terms is falling below the poverty line. Also, the population growth rate in India is higher than that of the GDP.

India’s GDP at factor cost is between 8 to 9 per cent. However, the rupee has depreciated in real terms against the US dollar, which means that India’s growth is a phenomenal 12 per cent. In all probability, the current growth rate will be maintained. However, this cannot be accelerated. Thus, from a global perspective, the next 15 years are extremely important for India.

IMPORTANT TRANSFORMATIONS: Speaking on the important changes that have taken place, Prof. Panagariya said that there are important demographic changes that are taking place, as India is getting younger at a high frequency. Putting this in the global context, India becomes extremely important. China, along with EU and the US, will be at demography of minus 15 million people in the next 20 years. This has implications for India. Migration is accelerating rapidly, and explosions of Indians are being witnessed in every field. Except for in the filed of sports, Indians have done extremely well in all fields. About 3,00,000 Indians are pursuing education abroad, and this bulge, which results from the population increase, is rising. India’s higher education system will not be able to respond rapidly with this increase. Despite the fact that the labour force from India is becoming the global labour force, a lot remains to be done in India.

WEAKNESSES: The overall picture for India is optimistic, despite the fact that there are some problematic underlying issues. Indian incomes and distribution is lopsided. In the early stages of development, there is a decline in the share of agriculture in GDP, and this has happened in transforming rural economies. India is also undergoing this process. The decline is to below 15 per cent.

In terms of employment, as shown by National Sample Survey (NSS) data in2004, about 54 per cent of the workers are still employed in farming and related activities. There is an intense strain on the land, and this is a big problem for India. Growth will definitely continue in India but this issue needs to be closely focused on. Also the output per worker is extremely low. Farmers’ incomes need to rise. In the last 60 years, incomes have been stagnating. The fastest growth was witnessed in the period of the 1980s, which stood at 4.4 per cent. At the moment there is a need to accelerate the process of moving into industries and services.

IMPORTANT ISSUES FOR CONSIDERATION: Large parts of even the non agricultural labour force still remains in the informal sector. As shown by NSS data in 2004, even in the formal sector, there are just 46 per cent formal employees. The total employment in the formal sector has hardly budged. Sectors such as automobiles, petroleum, and engineering goods have been experiencing rapid growth. All of these are capital intensive industries, as well as skill intensive industries. All the employment opportunities are concentrated in large enterprises. From a long term perspective, this presents a sad picture. Thus there is a need to change the environment for investments.

There has been no response in terms of emergence of large firms, and in terms of the distribution of industries. An example of this is the Indian apparel sector, which is smaller than that of Bangladesh and even Sri Lanka. The Chinese in the period of 1980s to 90s were the dominant apparel exporters, and till date the Chinese export 10 times more than India. The transformation from agriculture has been much more rapid in china than has been in India. Thus big reforms are required in India.

The gross enrolment ratio in 2000-01 was 10 per cent for India, while it was 8 per cent for China. China today is way ahead of India, and stands at 23 per cent while India stands at 18 per cent. Despite having experienced the Great Proletarian Cultural Revolution, in which institutes of higher learning were destroyed, China has achieved this ratio. Thus there is an urgent need in India to allow private universities to enter the Indian educational market, in order to help India deal better with the challenges that lie ahead.

(This report is prepared by Sriparna Pathak, Junior Fellow, Observer Research Foundation)

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