The Power Point

MARTIN WOLF IS chief economics commenta­tor at Britain’s Financial Times. In a widely read column, he pronounced loftily: “India is indeed likely to be a rising great power.”

Note the caveat: “…likely to be…” Wolf, like most Western commentators, has woken late to India’s rise. There is a grudging acceptance that a nation many in the Anglophone media had predicted would balkanise is now not only the world’s fifth-largest economy, but will by 2027 be the third largest.

By purchasing power party (PPP), as Wolf notes, India already has the world’s third-largest GDP. He goes on to compare per capita income in China and India. “India’s GDP per head [at purchasing power] is close to 40 per cent of China’s lev­els, according to the IMF.”

As per the International Monetary Fund (IMF), India’s GDP (PPP) in 2022-23 was $13,003 and per capita income $9,070. China’s GDP (PPP) was $33,010 and per capita income $23,380.

The realistic per capita income gap between China and India is therefore 2.5x, not 5x, as commonly cited.

Then comes Wolf’s long-range prediction for India: “The IMF fore­casts annual economic growth at a little over 6 per cent from 2023 to 2028, with GDP per head growing at roughly 5 per cent. Such growth would be quite close to the averages of the past three decades. Provided the country is not buffeted by big global or domestic shocks, this sounds perfectly feasible, even rather plausible. But what about the longer term? Remember that India still has huge room for catching up. It is also a young country, with a grossly underemployed labour force, potential for im­proving the quality of that labour force, a reasonably high savings rate and increasingly widespread hopes of greater prosperity.

“On balance, I judge that India should be able to sustain growth of GDP per head at 5 per cent a year, or so, up to 2050. So, let us assume that India’s GDP per head continues to grow at 5 per cent a year, while that of the US grows at 1.4 per cent, roughly as it has over the last three decades. Then, by 2050, India’s GDP per head [at purchasing power] would reach about 30 per cent of US levels, roughly where China’s is today. According to UN median forecasts, India’s population would also be 4.4 times as big as that of the US. So, its economy would be some 30 per cent larger than the US’. It is, in sum, quite rea­sonable to assume that India will become a great power. It is not that hard to imagine that its economy will be of a similar size to that of the US by 2050. Thus, Western lead­ers are making a sensible bet on an alliance of convenience with India.”

To the West, India is essentially a “sensible bet” to counter China—“an alliance of convenience”, as Wolf writes. Wolf indeed gave the plot away in the very first sentence of his forensic examina­tion of India’s rise as a great power: “The enemy of my enemy is my friend. On this basis, closer Western relations with India make good sense.”

Wolf gets many things wrong. He predicts India’s average GDP growth over the next two decades at 5 per cent a year. The IMF is more realistic. It forecasts India’s long-range GDP growth at over 6 per cent a year. India’s Chief Economic Advisor V Anantha Nageswaran be­lieves the combination of demo­graphics and rapid infrastructure build-up can take GDP growth to 7 per cent a year over the next decade.

What about the future? Demographics will obviously play a big part. In India, the ratio of the number of depen­dents (aged over 65) to the number of working-age popu­lation (aged 15-64) is among the lowest in the world. That is an asset running through to 2050.

Santanu Sengupta, Goldman Sachs Research’s India economist, underscores this trend: “Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies. So, that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure.”

Wolf can’t help ending the first part of his two-column piece with a barb: “But will India also be a liberal democracy? I will discuss that issue next week.” We shall deal with it in the second part of this column.

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