India's GDP is rising — now boost Def-ex, Cap-ex, and R&D-ex
India's ascent to becoming the world's 4th-largest economy will be a statistical milestone. It will not make us 'richer' than Japan, which has a per-capita income more than 10x India's. It doesn't bring us significantly closer to No. 2 China's GDP, which is 5x ours. But for an economy that languished in the lower-middle ranks 30 years ago, it's an achievement worth recognising.Now, it's time to look at a few other key metrics that can help India rise from the lower-middle rung of per-capita income, the ultimate reflection of living standards.
India's quest to become a developed country by 2047 requires rapid growth, faster than roughly 6% the country has averaged since 1991. The only period in which India grew at 8-10% a year was between 2003 and 2008, when global tailwinds played a major part. That was the peak era of globalisation. That era is now over. India will have to grow fast in an external environment vastly different from the one that propelled China, or the other star Asian economies.
The external economic environment is unfavourable. So is the external security scenario. A crumbling Pakistan is a clear and present danger. An unfriendly China, with disproportionate control over natural resources and massive trade surplus with India, is a lurking threat. America's isolationism makes the world more uncertain than at any time in the last several decades. India has a pathway to address both its geopolitical and economic challenges. It rests on investment in three pillars: defence, R&D and natural resources. Definitely defence India is one of the largest arms importers in the world. That dependence is not a good thing in today's world, where enemies are numerous and friendships are transactional. India isn't a product nation because it doesn't spend enough on R&D. Every successful country owns products and global brands. India is highly import-dependent on energy and minerals. It needs to be more self- sufficient to ensure no disruptions.In this context, India needs to chase three metrics:
Def-ex It needs to raise defence spending from under 2% to 4% of GDP. Cap-ex The capex component needs to rise faster than expenditure on salaries and pensions. The recent engagement with Pakistan showed that wars will be fought using tech and equipment more than humans. To its credit, GoI has modernised and upgraded equipment. But most of the cutting-edge stuff is bought from overseas. Priv-ex GoI has also encouraged greater private sector participation in defence manufacturing. That has brought in efficiency and choice. Where there is less choice (fighter jets and HAL), there are challenges. It needs to continue to encourage the private sector while increasing its expenditure. It will be good for our security, manufacturing, jobs and growth. R&D, steady, go India's R&D spending is around 0.6-0.7% of GDP, which is low by standards of any advanced country. It needs to rise 100%. Both the government and private sector underspend on R&D. Often, their priorities differ, and there is limited collaboration.The private sector spends too much time battling regulation and other structural rigidities in land and labour, which add to its cost of doing business and distract from R&D. GoI must deregulate and give incentives for private investment in R&D. It must also institutionally align its R&D with the private sector and universities, so that the whole becomes greater than the sum of its parts. Cook the raw India cannot afford to import energy and minerals worth almost $400 bn a year, or 50% of its total imports. This is money spent on creating jobs and growth outside India, when India has the geological potential to produce domestically. The story of dependence on oil imports may be repeated with critical minerals.Even with limited manufacturing of EVs in India, the current Chinese clampdown on rare earth exports is set to threaten Indian auto manufacturers. Manufacturing new technologies will be key for rapid growth. It cannot flourish without a secure and affordable supply of raw materials. GoI should fully liberalise the exploration of minerals, on the model of oil.India's growth strategy needs to be tailored to prevailing times and opportunities. There will be no stopping India's rapid rise if we adapt. (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. The reason why a Royal Enfield will go 'silent' from next year
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In an exclusive conversation with Firstpost, renowned Indian economist Dr Hendri Saparini emphasised that with Trump tariffs and military conflicts gripping the world, the importance of global-level cooperation has declined, opening space for fostering strong regional and bilateral relationships read more With Trump tariffs and two ongoing wars — in Gaza and Ukraine — gripping the world, the importance of 'global-level cooperation' has declined, opening space for fostering 'strong regional and bilateral relationships,' said prominent Indonesian economist Dr Hendri Saparini. In an exclusive conversation with Firstpost's Bhagyasree Sengupta, Dr Saparini said the world is facing several challenges with the global order undergoing sudden changes. 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In my opinion, this trend is good because we can be more focused on issues. Just like the United States, Indonesia has long-term collaborations and partnerships with Australia, India and China in different areas. We tend to be more competitive than complementary. If three countries [India, Indonesia and Australia] work together, it will be complementary partnership. The three nations can cooperate in sectors like human resources, and technology, and then develop new strategies. The cooperation between the three countries will be beneficial. On Indonesian economy Q. Indonesia is facing its share of economic challenges. We saw the economic figures of the first quarter have been the weakest since 2021, consumer confidence has dipped since December and there have been fears that the Indonesian govt is overspending on welfare initiatives and some of them can even bust the budget deficit cap of 3 per cent, what is your assessment regarding the current economic situation in the country. Dr Saparini: We predicted that Indonesia will see a decline in economic growth not only in the economy but also in terms of policy response to the situation. The characteristic of the Indonesian economy is traditional. Our economy is based on domestic consumption. If we integrate between household consumption and government consumption, it's around 75 per cent. Consumption among middle-class households has declined to a share of 56 per cent, so the economy is also witnessing a decline. Now the government tries to allocate more budget to help the consumption of the household. For example, giving money to people whose wages are at a certain level. It is just a short-term solution. In the long run, we need to create more jobs. Why middle-class consumption is declining because they are e facing layoffs. There is no competitiveness in industry because of industrial policy, because of the trade policy and also because of the technology. Indonesian industry tends to use robots reducing human labour. The old problems need a solution. It is not just like a prescription for the headache or for the stomach. We need to work on the core of the Indonesia problem. The real problem is unemployment. Twenty per cent of the total population is facing unemployment. Q. Given your background in macroeconomics and poverty reduction, how do you see regional economic integration impacting poverty and inequality in Southeast Asia? Dr Saparini: The partnership and collaboration between nations should be beneficial. If we work together, countries will benefit more than they do by themselves. We should talk about energy to reduce carbon emissions. If the developed countries said the solution is going electric. Let's change the energy source from fossils to cleaner options to produce electricity. But then we need nickel to develop the battery. Then they invest in Indonesia, especially east Indonesia. In some circumstances we have a good partnership, and relationships in economics and investment but why is it hurting the people? So, it means the design of the policy should be changed. Q. What are your thoughts on the future of Asean's centrality in regional security and economic frameworks, especially as external pressures mount? Dr Saparini: For Asean, I'm quite optimistic about the future. Maybe 20-30 years ago, most of us [Asean countries] were like competitors to each other because of the economic characteristics. But now we have different characteristics between Asean countries. So it should be more complementary between Asean countries. We have a market and we still have natural resources. Collaboration between Asean countries will be better for the future. Now Asean also has partnerships with developed countries it is not just limited to Asean countries. Asean has ties with India, and Japan so then we should seek more opportunities to work together. We have a good partnership with Asean countries. Like in Thailand right now, it's facing an ageing population. They need the labour from Indonesia. But we have to work on providing that labour.
