What India needs to do to be a Global Economic Power  

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The world is rooting for India to be a global economic power as it seeks to balance the rising economic power of China.

While India has made tremendous economic progress under Prime Minister Modi, India’s self-congratulatory mode in rising to be the fifth largest economy in the world or third largest in purchasing power parity is misplaced….that is due largely to India’s large population.

GDP is nothing but the sum total of the value of goods and services that an economy produces in a year… the more the people that a country has, the higher its GDP should be.  By that logic, since India, or Bharat as we now call it, has the largest population in the world, it should have the highest GDP in the world, not the fifth highest, not the third highest.

At the rate India’s population is growing, it is conceivable that one day India may be the largest economy in the world in terms of GDP, yet be one of the poorest countries in the world.

The prosperity of a nation is measured by its per capita GDP i.e. total GDP divided by the number of people in the country.

When we look at that number, India or Bharat is in 136th position in 191 economies of the world in per capita GDP.

Put another way, an average Indian ranks 136th in prosperity v. an average Singaporean who ranks 5^th;

Lower than an average Sri Lankan who ranks 131^st;

Lower than a Vietnamese who ranks 120th.

Why is the per capita GDP of India so low?  Because the total GDP compared to the population is low.

India has three times the population of the U.S.…three times the number of people producing goods and services so logically its GDP should be 3 times that of the U.S. but it’s only a fraction of that of the U.S., even when adjusted by PPP.

Why?

Because productivity of Indian labor is low.

Labor productivity in India is only 15% of the U.S.

Why?

Is the IQ of an average Indian only equal to 15% of the IQ of an average American?

Is the education level of an average Indian only 15% that of an average American?

Does the average Indian only work 15% as hard as an average American?

No.      It’s because:

1. An average Indian is still plagued by the remnants of Fabian socialism.
2. And excessive regulation.

How do we solve the problem?

1. Completely dismantle Fabian socialism. When large sectors of the economy are in the public sector inefficiency and low productivity is the rule.  You cannot make the public sector efficient or productive just as you cannot teach old dogs new tricks.  India needs Margaret Thatcher style mass privatization.
2. Deregulation: regulation causes high prices of goods and services, corruption and productivity loss.
3. Cut defense spending through free trade agreement with Pakistan and use the saving for skills training of the people that increase productivity.

An FTA with Pakistan will ensure India’s security.  If Pakistan’s money is invested in trade and investment in India, it will never throw a bomb on India because nobody throws a bomb on its own money.

India’s defense budget is $75 billion…1.89% of GDP.  If it makes peace with its neighbor through an FTA and moves towards a Canadian model of lower defense spending and higher investment in manpower, it will increase productivity of its manpower.

Canada spends 1.33% of its GDP on defense.

Now let’s look at our enemies…China spends 1.7% of its GDP on defense.

Pakistan spends 1.7% of its GDP on defense.  This is a decrease from 2.6% in 2020, 2.4% in 2021 and 2022.

Why has Pakistan’s defense spending compared to GDP going down?  Because they are smart enough to figure out that once you have nuclear arms the chances of someone attacking you dramatically decrease.

Is there something there that we need to learn from Pakistan?

FTA With Pakistan:

1. For those who say that a FTA with Pakistan is a crazy idea, I say look at the Europeans. They fought each other for centuries. Killed 20 million people in the process. Then they formed the European Common Market…which led to the European Union…Will the European Union lead to United States of Europe in time…  A powerful nation that could challenge the U.S?  I would bet yes.

2. Similarly, will a FTA with Pakistan lead to a common market with Pakistan, lead to a South Asian Union, lead to United States of South Asia, a nation that can stand up to the rising challenge of China? I would bet yes.

That will be the closest we will get to the Akand Bharat that BJP has been dreaming about for decades.

Will PM Modi in his third and last term lead the nation in that direction?

They say only Nixon could go to China.  I say only Narendra Modi can go to Pakistan.

As the recent elections in India have demonstrated Bharat ki janta (people of India) is no longer satisfied with incremental vikas (progress).  They want dramatic vikas (progress) now, not by 2047.  “It is an idea whose time has come”.  Therefore, we need to make dramatic reforms almost overnight to meet the aspirations of the people of India because as Victor Hugo said “An invasion of armies can be resisted, but not an idea whose time has come.”

The author of this article, Rajiv Khanna, is the President of India-America Chamber of Commerce and Partner in the law firm of Norton Rose Fulbright. Ragiv.khanna@nortonrosefultright.com

© Copyright 2024 Rajiv Khanna.  All rights reserved.

(The views expressed in this article are entirely the author’s own)