A news item that has dominated the business media in India recently is that India has pipped France to become the sixth-largest economy in the world. Not surprisingly, the government of Prime Minister Narendra Modi has made a big song and dance about it, as it does for almost everything. At the same time, those against the Modi government have been asking, What’s the big deal?
The truth, as usual, is somewhere in between. Let’s take a look at a graph that basically plots the gross domestic products of the world’s 10 biggest economies.
- The GDP of the global top 10 economies. Image: Vivek Kaul
What does the graph tell us? The French GDP in 2017 was US$2.582 trillion. The Indian GDP was $2.597 trillion. As India has grown over the years, it has become bigger than many economies. This is par for the course. It’s not the first time something like this has happened.
Let’s take the case of Canada. As we can see from the graph, Canada is the 10th-largest economy in the world. In 2009, the Canadian GDP was $1.371 trillion. The Indian GDP was slightly lower at $1.324 trillion. In 2010, the Canadian GDP was $1.613 trillion. The Indian GDP was $1.657 trillion. Thus, in 2010, India became a bigger economy than Canada.
Let’s go back a few years more and take the case of South Korea, which is currently the 12th-largest economy in the world. In 2006, it had a GDP of $1.012 trillion. The Indian GDP was $920.317 billion. In 2007, the Korean GDP was $1.123 trillion. The Indian GDP was $1.201 trillion. Thus India became a bigger economy than South Korea.
The point here is that the Indian economy has become bigger than other major economies even in the past, during the era when Dr Manmohan Singh was the prime minister.
As the pivot of global growth moves from Europe and North America to Asia (ex-Japan), the Indian economy will keep becoming bigger than other major economies in the years to come. It is more or less certain that the Indian economy will become bigger than the British economy this year. Getting back to France, that country has not grown in the last 10 years. In 2007, the French GDP was $2.657 trillion. In 2017, 10 years later, it was slightly lower at $2.582 trillion.
What about the UK? In 2007, the British GDP was $3.074 trillion. In 2017, it was significantly lower at $2.622 trillion.
The larger point here is that the Indian economy in terms of size has been competing against economies that have contracted or barely grown over the years. Even Germany, which is currently the fourth-largest economy in the world, barely grew between 2007 and 2017. In 2007, the German GDP was $3.44 trillion. In 2017, it was $3.677 trillion.
On the other side, as India has grown, it has pulled a multitude of its people out of poverty. A recent study by the Brookings Institution notes:
“According to our projections, Nigeria has already overtaken India as the country with the largest number of extreme poor in early 2018, and the Democratic Republic of the Congo could soon take over the No 2 spot. At the end of May 2018, our trajectories suggest that Nigeria had about 87 million people in extreme poverty, compared with India’s 73 million. What is more, extreme poverty in Nigeria is growing by six people every minute, while poverty in India continues to fall.”
Indeed, this couldn’t have been achieved without economic growth and the fact that the Indian economy has pipped many others to become a bigger economy over the decades.
If anything, this tells our politicians all over again that economic growth is the best antidote to poverty, which is something some of them refuse to believe. Having said that, there are other points that need to be made here:
- In 2017, India’s population was around 1.34 billion. It took 1.34 billion Indians to generate a GDP of $2.597 trillion. On the other hand, the population of France in 2017 was just 67 million, or around 5% of the population of India. They generated a GDP more or less similar to that of India. What that basically means is that an average Frenchman is much more productive than an average Indian. The per capita income of France in 2017 was $38,476.70 and that of India was $1,939.60. The French per capita income is nearly 20 times India’s. The poverty of India can also be gleaned from what it takes to be a part of India’s richest 1%. As James Crabtree writes in his new book The Billionaire Raj: A Journey through India’s New Gilded Age: “In North America it required $4.5 million in assets; in an average European country $1.4 million. In India the same figure was just $32,892.” The point is that the Indian economy still has a long way to go before it reaches anywhere near the French economy. GDP is just one measure.
- As India has grown over the years, the rich have captured the bulk of the gain. The World Inequality Report of 2018 points out that the top 10% of the Indian population earned around 55% of the national income. In 1980, this was close to 32%. While some inequality will always be a part of society, nevertheless, a rapid increase creates its own set of problems.
- Close to 10 million Indians enter the workforce every year and there are very few jobs available for them.
- Many Indian public-sector banks are technically bankrupt. A country that has ambitions of becoming a global economic power cannot have a large number of its banks not being in a position to carry out fresh lending.
- India’s health and education sectors continue to be in a mess and suffer from huge government apathy.
Yes, India has grown and become bigger than many of the world’s largest economies over the years, and that is a good thing, but there are many other things about the Indian economy that are holding it back. And from the way things currently are, it doesn’t look like the current government has much interest in correcting these things.