How India will shape the new global order - Part II

PART-II

Professor Sarat Mahanta Memorial Lecture

By Jayant Sinha

On a purchasing power parity basis (the best measure of economic output – and based on IMF forecasts for 2017), the world's three largest economies are Chi ($23.2 trillion), the US ($19.4 trillion), and India ($9.5 trillion).  If, for the next decade, the Chinese economy grows at an average annual growth rate of 5%, it will contribute an additiol $14.5 trillion to global GDP.  If the Indian economy grows at average annual growth rate of 8%, then it will contribute $11.0 trillion; at an average annual growth rate of 2.5%, the US economy will add only about $5.4 trillionto the global economy.

The numbers tell one part of the story.  More importantly, India's growth in economic output is likely to be qualitatively different from the manufacturing and investment-driven development model followed by East Asian countries.It appears that ourmodelwill require much less energy, tural resources,carbon emissions, and capitalper unit of GDP – it is thus showing the way towards frugal and sustaible growth.  Given the historic Climate Change treaty signed in Paris, nothing could be more important for the planet.

India conserves resources and uses them carefully because we have no choice.  We have only 2.5% of the world's land mass, 4% of the fresh water, yet over 17% of the global population and cattle.  Our land is needed for agriculture, it tends to be expensive, and real estate prices are high.  We impose high carbon taxes and most of our resource inputs are fairly priced.Manufacturing-driven economies, on the other hand,tend to be much more resource-intensive.  For instance, as per World Bank and Resources for the Future data, Chi currently utilizes 52% more energy per unit of PPP GDP than India.  Moreover, the data suggest that Chi uses 3-4 times more steel and cement than India for each unit of PPP GDP.  Chi's carbon emissions per unit of PPP GDP are 78% higher than the emissions for India.

India's capital productivity is also much higher than that of the other major economies. India has among the highest real interest rates in the world today, with capital priced so that savers have an incentive to put their money into savings accounts.  While some Indian business groupsare over-leveraged, Indian companies are generally conservative in their borrowings.  Government and fincial sector debt is also lower than that of most major emerging market countries.  India's debt to GDP ratio (including the fincial sector, and as per McKinsey Global Institute data) is only 135%; it is 282% for Chi; 160% for Brazil; 154% for South Africa; and 88% for Russia.  It is 269% for the United States.

Accordingly, here in India, we are able to generate relatively rapid GDP growth with fewer tural resources, use less carbon space, and require less leverage.This is good for India and good for the world.

BECOMING THE NEXT WORLD'S ENTREPRENEURIAL ENGINE

How do we in India do this?

The quest to deliver affordable products and services for a vast, young population drives India's frugal development model.  Moreover, India has an open, market-driven economy.  As a result, we have a competitive and specialized manufacturing sector, a vast non-tradable services sector, and an employment-intensive but relatively small agricultural sector. 

India produces a wide range of inexpensive items designed for aspiring middle class consumers: mobile telephony, fincial services, ice creams, shampoos, motorcycles, small cars, heart operations, ultrasound machines, consumer appliances, generic pharmaceuticals, doorstep delivery of food, and so on.  Such affordable products and services are intelligently designed by world-class firms to fit the needs of Indian consumers without sacrificing reliability or necessary functiolity. A well-developed innovation ecosystem encompassing research labs, incubators, serial entrepreneurs, flourishing venture capital firms, and supportive regulators is springing up to produce a steady stream of newindustries.  In ecommerce, Amazon, Flipkart and Spdeal have developed an innovative, marketplace-oriented business model that is based on cash-on-delivery rather than upfront credit-card payments. 

(To be continued)

(Jayant Sinha is India's Minister of State for Civil Aviation and a Lok Sabha Member of Parliament from Hazaribagh, Jharkhand.These are his persol views.)