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Second, consumption may better indicate material well-being and differs from income, as savings, the gap between income and consumption, vary between economies, and between the rich and the poor. Some researchers even adjust for leisure and life-expectancy to arrive at \u2018consumptionequivalent welfare\u2019. However, this is hard to measure and compare accurately and frequently.<\/p>\n\n
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Third, purchasing power parity (PPP)-based per capita GDP is a better measure of welfare, as it adjusts for cost-of-living differences. For example, a haircut or a taxi ride would be much cheaper in India than in the US, even though they deliver similar value. Per capita GDP in the US is 29 times India\u2019s in nominal USD terms, but only seven times India\u2019s in PPP-adjusted terms. On nominal GDP per capita, India ranked 140 globally among 196 nations, versus 162 in 2005, and is expected to rank 134 by 2030. Its PPP-adjusted rank was 124 and expected to rise to 117 by 2030. Over time, though, these series converge.<\/p>\n\n
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Thus, a macroeconomic target based on per capita GDP, though not perfect, is the most appropriate.India\u2019s move up the ranks over the past two decades has been among the most consistent globally, but China and Vietnam have moved faster. China was at India\u2019s 2025 per capita GDP in 2007 and ranked 123. It has moved up to 73 and is on the verge of high-income status with a per capita income nearly five times that of India. Vietnam was at our level in 2016 and is now ranked 122, with per capita GDP around 60% higher than India\u2019s.Can India reach high-income status? And by when? As chart 2 shows, to cross the high-income threshold by 2047, India must grow per capita GDP in USD terms by at least 9% annually, and GDP by 9.5%. If inflation averages 4%, and the rupee depreciates 2% annually against the USD, real growth needs to average 7.5% annually for the next 25 years.While this is indeed India\u2019s current growth rate, as the economy moves towards the productivity frontier, growth will begin to taper: economies at the frontier grow less than 2.5% annually. Thus, growth must be faster over the next decade to compensate for the nearly inevitable slowdown in the 2040s.How must one accelerate growth? It helps to view growth in GDP as coming from growth in labour input, in capital formation, and in productivity.While labour input is linked to slow-changing-demographics, and cannot be changed quickly, India can and must lift its abysmally low female workforce participation in paid work. A large part of India\u2019s demographic dividend would otherwise be wasted. While weak demand for labour is a major challenge, improved law-and order, regulations that ease part time work, and focus on job-creation in sectors that are dominated by women globally are essential interventions.The bulk of the acceleration in growth must come from faster capital formation. The starting conditions are in place, with a significant drop in the cost of capital, driven by the govt\u2019s fiscal discipline and the remarkable flow of household savings into equities (through systematic investment plans, and insurance and pension funds) worth nearly 2% of GDP annually. The significant expansion in financial system capacity to provide credit now needs channels to facilitate flows to where credit is needed, like to MSMEs, via frameworks like OCEN (open credit enablement network).Policy must also prioritise easing real estate supply via regulatory changes and construction of urban infrastructure. Real estate and infrastructure form a major part of capital stock in developed economies \u2014 their construction creates demand for labour and materials and are an important driver of growth.India must also maintain its current rapid pace of productivity improvement. Individual prosperity cannot be achieved without productivity growth.Among other requirements (like better health and education), this needs significant investments in science and technology. Unlike what Japan, Taiwan, Korea and even China saw while they grew, India cannot hope for an \u2018assisted\u2019 rise and instead must prepare for a \u2018resisted\u2019 rise, where it must develop its own critical technology. This is also important to prevent getting stuck in the middle-income trap, which has plagued many Latin American and eastern Europeans. Building a risk-capital and innovation ecosystem well in advance is important to make the transition from middle-income to high-income.While new technologies like artificial intelligence (AI) and robotics will improve productivity globally, we believe they can help India much more, by bringing down unit costs across a range of critical sectors, breaking through vicious cycles that slow progress.Lastly, some of the societal shifts that Joel Mokyr emphasises in his book \u2018A Culture of Growth,\u2019 drove the industrial revolution in Britain, seem to be underway in India. Entrepreneurship is becoming socially respected and is now getting rewarded, the seeds of an innovation system are now falling in place, and the govt is beginning to see itself as a partner of business instead of viewing it with distrust.If we focus relentlessly on building a high-trust society (enabled by a modernising judiciary), with higher risk appetite (not just for entrepreneurs and investors but also policymakers), a high-income India by the late 2040s is not an unachievable dream.The writer is chief economist, Axis Bank<\/span><\/div>\n
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Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Over millennia, philosophers have struggled to clearly answer the question: \u2018who is rich?\u2019 A useful metric, easy to measure as well as compare, is income. The somewhat subjective factors that affect happiness (Good health? Freedom? Control of one\u2019s time? Leisure?) also correlate well with it: People in high income countries also tend to have more […]<\/p>\n","protected":false},"author":1,"featured_media":29634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[133],"tags":[],"class_list":["post-29633","post","type-post","status-publish","format-standard","has-post-thumbnail","category-country"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/posts\/29633","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/comments?post=29633"}],"version-history":[{"count":0,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/posts\/29633\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/media\/29634"}],"wp:attachment":[{"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/media?parent=29633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/categories?post=29633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/banitoday.com\/hi\/wp-json\/wp\/v2\/tags?post=29633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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