ABSTRACT

The major determinant of a country’s economic and political power is the size of its gross domestic product (GDP). In this article, the first in a series of articles on the world’s largest economies in the 21st century, the authors develop a scenario which suggests that India’s GDP will pass the GDPs of the United States in the 2030s and China in the 2070s, and that in 2100 the economy of India – then the largest in the world - will be 50% larger than the economy of second-placed China. As background, they review India’s early and more recent economic history and its current position in the world economy. They also discuss some of the major challenges that India faces on the path to global economic leadership.

 

THE PAST

Early economic performance

Eminent systems theorist Graeme Snooks (1989) argues that civilisation and modern economies - a settled population with specialised agricultural, manufacturing, and services sectors and an effective overall administration – have existed for about 6,000 years. The largest economies in the first three millennia of this period were located in Mesopotamia (mainly Iraq), Egypt, the Indus Valley (Pakistan), and China (Shang and early Chou dynasties). However, for a quarter of the last 2.5 millennia, India may have had the largest economy – up to 140 years under the Mauryan dynasty, 230 years during the rule of the Gupta dynasty, and 330 years under the reign of the Mughal dynasty.

The Mauryan empire was formed in 322 BCE, when an army put together by former slave, Chandra Gupta Maurya, defeated an army led by Bhaddasala, commander in chief of the forces of the widely unpopular and corrupt Nanda dynasty (Thapar, 2003). Chandra Gupta placed most of India under single systems of administration, security, and finance. His reforms led to the rapid expansion of agriculture, the emergence of a small manufacturing sector based on textiles and pottery, and strong growth of both domestic and foreign trade. As with the earlier Egyptian and Indus civilisations, economic prosperity was accompanied by a flowering of creativity in art, architecture, and literature. Chandra Gupta, unlike most other great leaders, was not obsessed with power, abdicating in 297 BCE to become a Jain monk in southwest India, where he ended his life in the traditional Jain manner of suicide by slow starvation. His son, Bindusara Maurya, continued to support economic development, especially of the farming sector, which was easily the main source of government revenue. The Mauryan empire reached its zenith under Bindusara’s son, Ashoka (268-232 BCE), when it covered all of current India except the southern tip. With a relatively high per capita income and a population of about 30 million (20% of the global population – Gapminder 2022), the Mauryan Empire would have been the largest in the world. It collapsed in 180 BCE, after the Emperor, Brihadratha Maurya, a pacificist who had reduced the role of the army to mainly ceremonial activities and banned animal sacrifices (a major source of income for Vedic Brahmins) was assassinated by Pushyamitra Sunga, his Brahmin commander-in-chief and founder of the Sunga dynasty.

India could also lay claims to having the world’s largest economy under the Gupta dynasty, which was established in CE 320 when Chandra Gupta 1 united the families of the Guptas and the Licchavis by marrying the Licchavi Princess Kumaradevi (Boundless, 2022). Chandra Gupta I’s son, Samudra Gupta, expanded the empire across northern and eastern India, replacing the many oligarchies and minor kings with direct, centralised control. He was succeeded by Chandra Gupta 11, who both enhanced and took advantage of the political stability and consequent economic prosperity provided by his predecessors to support a wide range of intellectual and cultural activities. During his reign, the astronomer and mathematician, Aryabhata, demonstrated that the apparent westward movement of the stars is due to the rotation of the spherical Earth about its own axis, not the movement of the stars around a fixed Earth. Aryabhata may have been the first person to consider zero as a separate number. The game of chess also originated during this period. Its initial Sanskrit name, chaturanga (“four arms”), referred to the four military divisions of infantry, calvary, elephantry, and chariotry, which evolved into the pawn, knight, bishop, and castle, respectively, of the modern game. The empire declined and then disappeared in the middle of the 6th century due to a combination of weak Gupta leaders and repeated attacks from strong Huna and Malwa invaders.

The greatest of all Indian dynasties was the Mughal, which supplanted the Delhi sultanate in 1526 (Wikipedia, 2022). At its zenith, from the accession of Akbar the Great in 1556 until the death of Aurangzeb in 1707, the empire covered the whole subcontinent apart from the southern tip. Its prosperity was due to a combination of political stability and efficient administration, which provided a framework supportive of rapid economic development. The political system was a monarchy, with the throne passing from son to son. Administration was through a bureaucracy led by officials - called mansabdars - who maintained cavalry that could be called on by the government at any time and collected taxes on behalf of the government in return for land grants, payments, and status. Economic activity was based on a large agricultural sector, a small textile sector, growing internal and external trade, and acquisition of land and other resources by conquest. Like earlier dynasties, that of the Mughal relied on the farm sector for the major part of its revenue, with levies typically amounting to more than a third of the farmer’s output. The requirement that farmers pay their taxes in cash contributed to the development of a money economy as well as a network of grain markets, bazaars, and small towns. This was the period of the so-called “three great rulers” – Jahangir, Shah Jahan, and Aurangzeb (who commissioned the famous Peacock Throne and built the Taj Mahal, one of the Seven Wonders of the World). During their reign Lahore, Delhi and Ahmadabad were among the most prosperous cities in the world and Goa, under the control of the Portuguese, was referred to as the “golden city”. In 1700, the empire had a population of 160 million people, comprising 26% of the global population. Given the stagnation of China since the early 15th century and the much smaller populations of the emerging European powers, the Indian economy under the Mughals would have been the largest in the world.

The Mughal empire declined due to both civil unrest and external pressures. Muslims held ultimate power but comprised only 15% of the population; the rules for succession did not specify which son should inherit the throne (Aurangzeb murdered two of his brothers to gain power and then ordered his father-in-law to kill the remaining princes to ensure there were no other rivals for his throne); and when the dynasty was unable to continue expanding its land area, the main inducement for the mansabdars to cooperate with the emperor disappeared. At the same time, the Dutch, French, Portuguese, and British learned that they could secure better trading rights by negotiating directly with local bodies rather than with the Mughals. The empire was formally dissolved by the British in 1859, following their quashing of a rebellion against the British East India Company. 

 

Recent economic performance

The initial post-independence economic strategy

After achieving Independence from Great Britain in 1947, the prime goal of the new Indian government was to develop the economy. The overarching economic objective was rapid growth of GDP.  Redistribution was not a priority, as it was believed that the initial gains from that approach would be small and, since these gains required the diversion of resources from investment and growth, they would not be sustainable (Adhia (2015).

The strategy for achieving high economic growth contained three strands. First, production would focus on basic and heavy industrial products such as steel, chemicals, machinery and tools, locomotives, chemicals, and power. Heavy industry was the sector that the country’s leaders identified with economic progress - the richest countries at that time had large heavy industrial sectors. Agriculture was not a mainstream of the strategy, both because large agricultural sectors were associated with backward economies and because, eventually, the market for agricultural products becomes saturated – there is a limit to how much people can eat. Nevertheless, while agricultural development was not a prime objective, it did form an important part of the government’s strategy. The aim for agriculture was to increase the incentives and the resources of front-line workers. This was to be done by redistributing land from the owners of large estates to those who actually tilled it, improving the contract conditions of tillers who leased plots from large landlords, and forming farmer cooperatives that would pool resources to buy modern tools and equipment and bargain for higher prices of the products sold by their members.  

Second, the state would play a leading role in undertaking and directing economic activity. This statist approach was due largely to a commitment by the government to establish “a socialistic pattern of society” since this was believed to be morally superior to the individualistic pattern of more market-oriented societies. The role of the state was to be performed through a series of five-year plans, large state-owned enterprises (SOEs), licensing of specified private sector activities, and subsidies. The production of consumer goods such as footwear, furniture, sporting goods, leather goods, and kitchen appliances was to be undertaken by small, family-owned, cottage-industry firms. To ensure that the private sector did not expand too quickly and divert resources from the SOEs, private firms above a certain size would be required to obtain a licence before they could make new products, change their input mix, import inputs, expand productive capacity, or relocate their businesses. This system was later commonly referred to, disparagingly, as the ‘license Raj’, likening it to the oppressive control exercised by the earlier imperialist British Raj.  

Third, the market focus was to be on import substitution rather than exports. This approach was in line with the view of the first Prime Minister, Jawaharlal Nehru, that “To import from abroad is to be slaves of foreign countries.” (Panagariya, 2008). Quantitative restrictions and high tariffs were to be applied liberally so domestic firms could compete with the more efficient foreign producers.

 

The results of the initial strategy

The strategy of government-led development of basic and heavy industrial products achieved some success. After many delays and cost overruns steel, machinery and tools, and similar goods were produced, albeit of variable quality and at prices that were uncompetitive in international markets. However, difficulties with the strategy became obvious in the 1950s and intensified in succeeding decades.

First the statist model failed to produce economic efficiency. It soon became apparent that government policy makers and bureaucrats did not possess the altruistic spirit, the understanding of economics, and the technical information needed to develop and implement sound economic plans. Rather, political considerations soon outweighed economic realities in determining the allocation of resources; licensing and quantitative restrictions became vehicles for rewarding political supporters of the government and generating supplementary income for government officials (especially customs officers) rather than for regulating economic behaviour in line with plan objectives; and decisions were often based on guesswork and hunches rather than objective and reliable information.

Second, the SOEs faced little accountability for their performance. An example was the Haldia fertiliser company, which was established in the early 1970s. It employed 1,500 workers who were provided with not only a modern factory but also a new town, replete with top-class schools, roads, recreation grounds, and other facilities conducive to a comfortable lifestyle. The staff were well-disciplined and punctual, and they kept the plant clean and in sound working condition. Many were paid annual bonuses for good performance and received generous overtime allowances. However, no fertiliser was ever produced. More than two decades after being established, the government closed the plant.

Third, the private sector stagnated because of both the government-imposed limitations on their growth and the discouragement of foreign direct investment (FDI), easily the gold-star bearer of the much-needed inward transfer of latest technologies. When foreign firms were asked to dilute their holdings in their Indian subsidiaries, multinationals such as IBM and Coca-Cola moved their operations to other countries.

Fourth, the Government was unable to raise sufficient revenue to finance the planned huge development of the SOEs and resorted to borrowing from the central bank. This resulted in a sharp rise in inflation. Fearing a political backlash due to the rising cost of living, the government introduced price controls on essential goods and services, which diverted scarce resources from maintaining law and order to supervising the price controls. Price controls led to further growth of the black-market economy. Under the fixed exchange rate system that then prevailed, the rise in inflation also caused exports to fall and imports to rise, resulting in declining foreign exchange reserves, the imposition of rationing of foreign exchange, the closure of many firms then unable to purchase needed inputs, and eventually devaluation of the rupee. 

Fifth, early efforts to reform the agricultural sector met with limited success. Political opposition to land redistribution resulted in only about 5% of the land being transferred. Poor organisation by government bureaucrats and lack of enthusiasm by farmers frustrated efforts to establish cooperatives. As a result, the average annual growth rate (AAGR) of farm production during 1960-75 (2.1%) did not even keep up with the AAGR of population (2.2%), leaving the economy increasingly exposed to food and foreign exchange crises. Fortuitously, poor harvests and ensuing food shortages in 1976 lead to an immediate change in agricultural policy, with focus being moved to the granting of subsidies aimed at encouraging the adoption of new high-yielding varieties of rice that had been developed abroad and the use of chemical fertilisers. These policies led to the green revolution and rapid growth of agricultural production.

Finally, the focus on import-substitution rather than exports shifted resources away from sectors where India had a comparative advantage to industries where it had a marked disadvantage. The approach can be likened to requiring Virat Kohli (India’s best batsman) to neglect his batting and focus on his bowling and Jasprit Bumrah (the country’s best fast bowler) to ignore his bowling and improve his batting. The foreign trade sector languished due to its comparative lack of skills and resources, limited domestic markets, productive inefficiencies resulting from the generous protection of import-competing industries, and low or negative margins. At the same time, developing countries in East Asia, such as Hong Kong, South Korea, and Taiwan were enjoying double-digit economic growth on the back of rapidly growing exports of labour-intensive consumer goods. Growth in these other countries was not only expanding their GDP, it was also providing employment and rapidly rising wages for millions of relatively low-skilled workers.

 

The change of strategy in the 1990s

The cumulative effects of the breakup of the Soviet Union in 1991 (which effectively destroyed the credibility of the centrally-controlled economic system), a decline in support for asceticism and rise in support for the pursuit of material gain, the success of Asian economies that adopted a strategy of export-led growth, and the prospect of another foreign exchange crisis led, in 1991, to a sharp change in India’s economic strategy. The reliance on socialism was replaced by adoption of the principles of liberalisation, privatisation, and globalisation. Tax rates were slashed, price controls and the licensing system were abolished, several large SOEs were privatised, import duties were reduced, and foreign investment was actively encouraged.

 

The results of the new strategy

Table 1 provides an overview of economic performance during the early period of statist and inward-looking strategies and the later period of market-oriented and globally-focussed strategies. The AAGR of labour productivity doubled, from 1.9% in 1961-90 to 4.0% in 1991-2020. The AAGR of per capita income increased at an even faster rate – from 1.9% in 1961-90 to 4.2% in 1991-2020. India’s share of world trade, which declined during 1961-90, increased more than six-fold in 1991-2020. The faster pace of productivity growth was also accompanied by an improvement in the distribution of income, with the proportion of the population living in poverty falling from about 50% in 1990 to 6% in 2020.

 

Table 1. Key economic indicators, 1960-2020

 

1960

1990

2020

Population (m)

451

873

1,380

   AAGR (%)

 

2.2

1.5

Labour force (m)

162

316

530

   AAGR (%)

 

2.2

1.7

Labour productivity (I$)

2,830

4,961

15,930

   AAGR (%)

 

1.9

4.0

GDP

459

1,566

8,443

   AAGR (%)

 

4.2

5.8

Per capita income (I$)

1,019

1,793

6,118

   AAGR (%)

 

1.9

4.2

Source: Compiled from data published by the United Nations Population Division, the World Bank. and the US Central Intelligence Agency

 

The provision of telecom services illustrates the magnitude of the changes in productivity. By the early 1990s, just before the change in economic strategy, the public telecom monopoly had installed only 5 million landlines across the whole country, and the waiting time for a new line was 7 years. A decade later, several private providers were each installing more than 5 million lines per month.

 

THE PRESENT

In 2020, India’s population, of 1,380 million, accounted for 17.9% of the global population. It was only 2% below the population of China (Table 2). However, India’s labour force, of 477 million comprised only 14.1% of the global labour force. The population participation rate (PPR) – the ratio of the labour force to population - was 35% in India, compared with 44% globally and 56% in China. India was thus shouldering a heavy demographic burden globally (a relatively low proportion of the population in the labour force), while China was enjoying a large demographic gift (relatively high proportion of the population in the labour force). Fortunately for India, but not for China, demographic burdens and gifts tend to be temporary.

 

Table 2. Key indicators for selected regions and countries, 2020

 

Population

Work force

Productivity

GDP

PCY

 

(million)

(million)

(I$)

(I$ billion)

(I$)

World

7,709

3,386

36,709

124,295

16,123

Asia

4,599

2,055

28,554

58,683

12,759

South Asia

1,857

651

16,486

10,735

5,781

India

1,380

477

17,700

8,443

6,118

China

1,411

792

29,035

23,010

16,306

USA

332

165

120,474

19,847

59,870

Australia

26

13

92,763

1,251

48,686

Source: Compiled from data published by the United Nations Population Division, the World Bank. and the US Central Intelligence Agency

 

Labour productivity in India was I$17,700, 48% of the global average, 62% of the Asian average, and 61% of the level in China. Accordingly, India’s GDP, of I$ 8,443 billion, accounted for 6.8% of GWP. While third largest in the world, it was equivalent to only 37% of the GDP of China (the world’s largest economy) and 42% of that of the United States (the world’s second largest economy). India’s per capita income, of I$ 6,118, was equal to 38% of both the world average and that of China. Approximately 23% of the difference in per capita GDP between India and the world as a whole was due to India’s current global demographic burden, and 35% of the shortfall of India’s per capita GDP from that of China was due to the combination of India’s demographic burden and China’s demographic gift.       

 

THE FUTURE

The forecasting model

The scenario outlined below has been derived from the Hooke/Alati World Income Model. This model contains annual estimates for 1960-2020 of demographic and economic data for 168 countries comprising more than 99% of both the global population and GWP. It also contains annual projections for these variables to 2100. The model for GDP is:

 

GDPt = LFt * LVt                         (1)

LFt = PPRt * Pt                            (2)

PPRt = PPRt-1 * (1 + pprt)           (3)

LVt = LVt-1 * (1 + lvt)                   (4)

 

Where:  

  • LF is labour force
  • LV is labour (force) productivity
  • P is population
  • PPR is the ratio of the work force to population
  • ppr is the rate of growth of the PPR
  • lv is the rate of growth of labour productivity

The scenario assumes that present political boundaries will be maintained for the remainder of the 21st century. Population estimates for 2020 and projections for later years are obtained from the UN Population Division’s website. Estimates of the labour force and GDP are taken from the World Bank’s website. The projections of the labour force in later years assume that the PPR will converge smoothly to 0.50 (the current rate in Europe, the demographically most mature region) in 2080 for African economies and 2050 for all other economies.

The key variable influencing the model’s projections of GDP is labour (force) productivity. It is assumed that the trajectory of a country’s productivity depends on (1) the outward movement of the global technology frontier, (2) the country’s position relative to the frontier, (3) the potential of the country to reach the frontier, and (4) the date on which it will realise that potential. The United States is regarded as the technology-leader in 2020 and is assumed to remain on the frontier for the rest of this century. It is also assumed that the frontier will continue moving outward at its current rate of about 1.5% a year. This is the rate that will therefore constrain growth in the United States, and also in other countries as their labour productivity catches up with that in the United States.

The process by which countries close their labour-productivity gap with the technology leader is based on convergence theory. The convergence model divides economic eras into three phases: the breakaway, the catch-up, and the fine-tuning phase. It also divides economic entities into two categories: the technology leaders and the technology followers. The process begins with the development of a new technology, such as scavenging 3 million years ago (MYA), hunting 1 MYA, farming 12 thousand years ago, and industrial technology a little more than 200 years ago. During the breakaway phase, the per capita income of the technology-leaders (e.g., Western Europe and North America in the industrial era) rises but is unchanged for the technology followers. In the catch-up phase, the followers adopt the new technology and close their per capita income gap with the technology leaders. In the fine-tuning phase, where participants try to extract the remaining benefits from an increasingly exhausted technology, leaders and followers have similar per capita incomes. (For a discussion of convergence theory, see Hooke [2022].)

The scenario assumes that labour productivity in most countries has the potential to converge with that of the United States during this century. To calculate the convergence trajectories, countries are classified into seven groups based on per capita income (which is the more-frequently-used variable in convergence theory and is closely related to labour productivity) in 2020 (Table 3). It is assumed that convergence takes place at a geometric rate that is constant within countries but, of course, differs across countries. Completion of the convergence process for individual countries depends on their per capita income in 2020 and ranges from 2030 for the highest-income countries (Group 1 in Table 4) to 2090 for the lowest-income countries (Group 7).

 

Table 3. Convergence date of per capita incomes, 2040-2100

Category

Group

Income Range (I$)

Countries

End date

HIC

1

Above 50,000

16

2030

2

40,001-50,000

15

2040

3

30,001-40,000

12

2050

MIC

4

20,001-30,000

17

2060

5

10,001-20,000

35

2070

LIC

6

5,001-10,000

25

2080

7

5,000 and below

48

2090

Source. Income data have been derived from the World Bank’s website. Income classifications have been made by the authors.

 

Special assumptions are made for highly regulated and more inward-looking economies such as those of China, North Korea, and Russia, where historical performance suggests the existence of a significant trade-off between political stability and economic growth. For example, China, a country that places high importance on political stability, moved into the catch-up phase of economic convergence in the early 1980s. Its GDP then increased at double digit rates for several decades. However, those high rates required the support of an investment to GDP ratio of about 50%, compared to less than 20% in South Korea, Taiwan, and Hong Kong when those countries were at a similar stage of convergence. This suggests that the efficiency of investment in China was very low. Further, most countries in the catch-up phase of convergence maintain double-digit growth rates until their per capita income reaches about 80% of that in the leading economies. For example, Taiwan’s per capita income in 2020 was I$ 53,882 or 90% of the per capita income of the United States (and more than three times the per capita income of China). However, China’s GDP growth rate started to fall when the country’s per capita income was only 20% of that in the USA. After a decade of steady decline, the rate is now below 5% even though the investment to GDP ratio is still above 40%. 

Emphasis on political goals has also imposed an economic cost on Russia. Unlike China, Russia was a technology leader during the breakaway phase of the industrial era, and it has been exposed to the technologies of the leading countries since the collapse of the Soviet Union in the early 1990s. Nevertheless, per capita income in 2020 was 60% lower than in the USA, 40% below that in the EU, and 20% lower than in the breakaway countries from the Soviet Union. For China, North Korea, and Russia a discount factor of 10% has been applied to their potential to reach the technology frontier.

 

India’s projected GDP

The labour force

The main determinant of the labour force is population. Table 4 shows the UN Population Division’s estimates of population for 2020 and projections to 2100 for India and for other selected countries and regions that act as comparators. They suggest that the global population will rise, though at a diminishing rate, in each of the four projection periods, and in 2100 will be 39% higher than in 2020. India’s population will rise in the first two projection periods but will decline in the last two periods. In 2100, India’s population, of 1,450 million, will be only 5% above its level in 2020. However, China’s population will fall in the last three projection periods. In 2100, China’s population will be 1,065 million, 25% below the level in 2020 and 27% below the population of India in 2100.

 

Table 4. Population of selected regions and countries, 2020-2100

(millions)

 

2020

2040

2060

2080

2100

World

7,709

9,119

10,060

10,514

10,679

Asia

4,599

5,162

5,277

5,041

4,699

South Asia

1,857

1,857

2,351

2,296

2,142

India

1,380

1,593

1,652

1,582

1,450

China

1,411

1,449

1,333

1,186

1,065

USA

332

367

391

415

434

Australia

26

31

35

39

43

Source: Compiled from data published by the United Nations’ Population Division.

 

Table 5 shows projections of the AAGR of the labour force, which depend on the AAGR pf both population and the PPR. Labour force growth in India is projected to fall from 2% in 2021-40 and 0.8% in 2041-60 to minus 0.2% in 2061-80 and minus 0.4% in 2081-2100. However, in China, the projected rate is negative in all periods. For the 80-year period commencing 2021, the AAGR of the labour force is 0.6% globally, 0.5% in India, and minus 0.5% in China.

 

Table 5. Labour force growth in selected regions and countries, 2020-2100

(AAGR in percent)

 

2021-40

2041-60

2061-80

2081-2100

World

1.2

0.6

0.3

0.2

Asia

0.9

0.4

-0.2

-0.3

South Asia

2.0

0.9

-0.1

-0.3

India

2.0

0.8

-0.2

-0.4

China

-0.3

-0.6

-0.6

-0.5

USA

0.5

0.3

0.3

0.2

Australia

0.8

0.6

0.5

0.5

Source: Table 4 and projections of PPRs by the authors.

 

Labour productivity

With its per capita income in 2020 placing it in Group 6 of the global per capita income table above, India is assumed to complete the process of labour productivity convergence in 2080. Hence, its growth of labour productivity is constant in the first three forecast periods (at 4.8%) but declines in the fourth period to 1.5%, in line with the outward movement of the global technology frontier.

 

Table 6. Labour productivity growth in selected regions and countries, 2020-2100 (AAGR in percent)

 

2021-40

2041-60

2061-80

2081-2100

World

3.3

3.8

3.5

1.5

Asia

4.1

4.2

3.5

1.5

South Asia

4.9

4.9

4.9

1.5

India

4.8

4.8

4.8

1.5

China

4.2

4.2

2.8

1.5

USA

1.5

1.5

1.5

1.5

Australia

2.8

1.5

1.5

1.5

Source: Projections by the authors.

 

GDP

Table 7 shows the implications of the assumptions outlined above for GDP in the selected countries and regions. In 2020, India’s GDP was equal to 37% of the GDP of China and 42% of the GDP of the United States. During the first projection period (2021-40), India’s projected GDP moves above that of the United States and rises to 64% of the GDP of China. By 2060, it is double the GDP of the United States and equal to 95% of the GDP of China. It moves above the GDP of China in the third forecast period and is 48% higher by 2080. In 2100, India’s GDP is 51% greater than the that of China and more than three times the GDP of the United States.

 

Table 7. GDP of selected regions and countries, 2020-2100

(I$ billions)

 

2020

2040

2060

2080

2100

World

124,295

299,297

710,673

1,501,022

2,091,781

Asia

58,683

155,708

380,269

723,277

909,013

South Asia

10,735

41,883

132,746

337,952

424,557

India

8,443

31,819

95,253

232,827

287,419

China

23,010

49,887

100,725

157,092

189,994

USA

19,847

29,645

42,613

61,023

86,028

Australia

1,251

2,568

3,899

5,765

8,499

 

Important milestones

  • 2025 – India’s population (1,441 million) moves above that of China
  • 2039 – India’s GDP (I$ 30 trillion) passes the GDP of the United States
  • 2044 – India’s labour force (748 million) moves above that of China
  • 2076 – India’s GDP (I$ 125 trillion) passes the GDP of China
  • 2100 – India’s GDP (I$ 287 trillion) is 51% larger than that of China and is more than three times the GDP of the United States

 

Conclusions

The key assumptions of the above scenario relate to population, the population participation rate, the potential of countries to reach the global technology frontier, and the pace of productivity convergence. Demographic data give strong confidence that India and China will continue to have the largest populations during the present century and that India’s population will be well above that of China in 2100. Trends in the age-composition of populations make it almost certain that India’s larger population will translate into a larger workforce. If India maintains a relatively free and open economy, it should move to the global technology frontier before 2100. Continuing the policy of free trade will ensure that India builds on its comparative advantages. Maintaining a welcoming approach to FDI will provide it with easy access to the latest and best global technologies. Subject to the qualification of maintaining a free and open economy, and the assumption that political boundaries are unchanged, it is almost certain that India will have the largest economy in 2100.

Some challenges facing the Indian economy are common to all economies. They include resisting popular demands for barriers to participation in the work force, such as overly generous or poorly constructed unemployment benefit and age pension programs. They also include a failure to fully appreciate the ability of markets to obtain, process, and disseminate information and to harness the motivating power of self-interest to achieve socially desirable goals.

However, India faces two current challenges that were avoided by successful catch-up economies such as South Korea and Taiwan. It has a modern, highly productive, and globally integrated formal sector, which employs about 20% of the labour force. The remainder pf the labour force are engaged in generally low-productivity activities in the agricultural and informal urban sectors. Earlier countries that successfully navigated the catch-up path of convergence did so by persuading technologically-advanced international companies to establish local plants that produced labour-intensive manufacturing goods for export to the high-income countries. However, international companies are reluctant to invest as freely in India. This is due partly to the country’s highly restrictive labour laws (it is almost impossible for large companies to lay off workers). This difficulty is compounded by India’s poor transport infrastructure, which makes it hard for companies with global supply chains to contain costs by using just-in-time inventory management. However, challenges can also present opportunities. If India can free-up its labour markets and develop its transport infrastructure, it could advance considerably the date on which it will boast the world’s largest economy.

 

References

Adhia, N. (2015). India: Past, Present, and Future. Winter.

Boundless (2022). https://www.boundless.com/world-history/textbooks/boundless-world-history-textbook/

Gapminder (2022). https://www.gapminder.org/data/documentation

Hooke, A. (2019). Global Economic Development: Past. Present, and Future. Lakeland House.

Hooke, A. and Alati, L. (2022). What will the world economy look like in 2100? In How the Twin Tsunamis of COVID-19 and the Digital Revolution are Transforming Business Studies. Intertype.

Panagariya, A. (2008). India: An Emerging Giant. Oxford University Press.

Snooks, G. (1989). The dynamic society, Routledge.

Thapar, Romila. Early India: From the Origins to AD 1300. Berkeley: University of California Press, 2003

UN Population Division (2022). https://population.un.org/wpp/Download/Standard/Population/

Wikipedia (2022). https://en.wikipedia.org/wiki/Mughal_emperors.

World Bank (2020). https://data.worldbank.org/indicator/SP.POP.TOTL

World Bank (2020). https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

World Bank (2020). https://data.worldbank.org/indicator/SL.TLF.TOTL.IN

 


BIOGRAPHIES

Angus Hooke is Emeritus Professor, Senior Scholarship Fellow, and Director of the Centre for Scholarship and Research (CSR) at UBSS. His earlier positions include Division Chief in the IMF, Chief Economist at BAE (now ABARE), Chief Economist at the NSW Treasury, Professor of Economics at Johns Hopkins University, and Head of the Business School (3,300 students) at the University of Nottingham, Ningbo, China. Angus has published 13 books and numerous refereed articles in prestigious academic journals.

Lauren Alati is Lead Consultant at Argon & Co, world leading consultants headquartered in Paris with global offices in Atlanta, London, Mumbai, and Melbourne. She is certified in Logistics, Transport and Distribution with APICs. Lauren also has a master’s degree in Operations and Supply Chain management from the University of Technology, Sydney, and an honours degree from the University of Nottingham. She has authored articles and book chapters on technology, economic growth, and international trade.