A Tale of Yaay! and Hmm: Is India's growth story impressive, or disappointing — or a bit of both?

Economic Times

7 hours ago

Purchasing power, stop running away! We're doing fine! India has become the world's 5th-largest economy, eclipsing former economic giants like Britain. In a matter of 1-2 years, it should be the 4th-largest, surpassing Japan. Post-pandemic economic growth is nothing to be scoffed at. India is the world's fastest-growing major economy. Over the past 3 years, a rather turbulent period for the world economy, India's GDP increased at nearly 8% annually.Impressive, definitely. Yet, is the rising euphoria on India's escalating economic ranking justified?
Perhaps. But only after we acknowledge the statistical meaning of being among the world's top-ranked economies. India is the world most populous country. In per-capita terms, we are still ranked as low middle-income. In per-capita nominal GDP, India is 143rd in a ranking of 194 countries. Adjusting for purchasing power parity (PPP), it's at 125th - the rank going up a few notches, but not very much. Humbling, yes. But let's not minimise the importance of being among the top 5 economies in overall GDP. China is 69th in nominal per-capital GDP, and 72nd in PPP per-capita GDP. Yet, its influence on the world stage is not diminished by its per-capita income ranking. China's economic and strategic influence is next to none, other than the US', and sometimes even higher.As an example, while most nations have cowed into pleasing Donald Trump and accepted his trade deals, China has decided to fight - and appears to be winning. Many countries are weighing whether they should develop closer alliances with China or the US, and how the others will react.Likewise, India's influence will also be measured by its overall ranking in GDP, and not just by its per-capita ranking. Yet, let's keep in view that gap between India and the top two world economies. The US economy is $30 tn in nominal GDP. The Chinese economy is $19 tn. India's is far, far below at $3.9 tn. Humbling, yes.Performance vs expectations: that's the other aspect of India's growth story. In 2018, GoI pledged that India would be a $5 tn economy by 2025. This was a target that many experts viewed with amused scepticism. Of course, progress was halted by the two years of the pandemic. But for those long waiting for the arrival of the $5 tn economy, it's still disappointing to see that we are just halfway towards the target.In 2018-19, India's GDP was $2.8 tn. In 2024-25, it's still $1.1 tn short of the target. Now we hope to achieve that target by 2029.Analysis of leading sectors - where the world acknowledges India's influence - also brings a mixed tale of optimism and caution. India is the world's largest user of ChatGPT, and, according to a Microsoft, Bain & Company, and Internet and Mobile Association of India (IAMAI) report, home to 16% of the world's AI talent. Impressive, yes.India has the ambition to lead the world in AI and Narendra Modi says, 'AI will remain incomplete without India.' Yet, so far, India doesn't have an indigenous foundational language model, and it's 3-5 years away from developing domestic AI chips. It lags substantially behind other nations in attracting investment in AI.Estimates by Stanford University researchers suggest that India received only $1.2 bn in private investment in AI. Of course, the US received the lion's share - $109 bn. But China received 7x than India. A recent article in The Economist asks whether India can be an AI winner. It cautiously concludes that it has a lot to do to lead the sector.The most-talked-about achievement on the manufacturing front is that Apple is now assembling 20% of its smartphones sold worldwide in India. By 2026, it is planning to assemble in India all smartphones it will sell in the US. Again, impressive. Yet, the humbling reality is that India is simply assembling the phones, with almost all of their parts being manufactured in China or Southeast Asia. Hopefully, this will change once Foxconn, Apple's top supplier, sets up production facilities in India.The biggest propeller for future economic growth is investment in Rundefined the US 3.5% of its even-larger GDP.Even in sectors where India has emerged as a top global supplier, investment in R&D is pathetic. India often labels itself the 'pharmacy of the world'. Indian pharma supplies 20% of all generic drugs globally, and 40% of generic drugs used in the US. Generic drugs do not need R&D.But the non-generic sector is substantially driven by R&D. According to the Journal of Medicinal Chemistry, in pharmaceuticals, China's R&D investment is 16x India's. India imports 70% of its drug ingredients from China. Clearly, in some sense, we are far behind China even in sectors where we have a major global presence. (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.) Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. How Vedanta's Anil Agarwal bettered Warren Buffett in returns
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