State Holds Back Nation

At 75, India needs to recognise that only a market-based system will lift incomes for all its citizens

- Amiyatosh Purnanandam

India’s economic fundamentals and demographic composition are well-positioned to make widespread prosperity a reality in the next two decades or so. However, the road to mass prosperity has to run through a market-based economic system, which is not easy for a country that travelled too far down the socialistic lane in its first 30 years of independence.

Growth and distribution: A key metric of mass prosperity of any country is its per capita income. For India to come close to upper-middle-income countries on this metric, it needs a fourfold increase in its per capita income. To achieve that in the next 25 years, the country will need an average annual growth rate of 7%. Also, states like Bihar and Uttar Pradesh must grow at a much higher rate to catch up with more prosperous states like Gujarat and Haryana.

Therefore, the issue of mass prosperity in India boils down to two core issues: (a) Will India’s GDP grows at 6-8% over the next 25 years; and (b) How will that economic prosperity be shared across different regions of the country?

Drivers of growth: At its core, the long-run economic growth of a country depends on two key factors: technological progress and capital accumulation. Therefore, economic systems that provide strong incentives for productivity gains through technological innovation and remove barriers to large-scale deployment of physical and human capital are more likely to achieve sustained economic growth.