In 2021, Indian Prime Minister Narendra Modi promised his citizens a gift for the first centenary of independence: reaching 2047 as a developed country. A threshold that in the World Bank’s categorization, more accessible than that of the IMF, would be reached by multiplying the country’s per capita income by more than six. Difficult but not impossible, if we take into account the 55% improvement in per capita income that India registered between 2014 and 2023, when GDP rose from 90th place to fifth position in the world.
The prime minister has just renewed his mandate this week for a new five-year Government, this time in coalition and without the majority he enjoyed during the two previous legislatures. How much closer can he bring the reality of his country to the developed India that he promised for 2047? Both his supporters and his detractors recognize the importance that in that race he has played and will continue to play his commitment to improving infrastructure, adding 10,000 kilometers of roads per year since 2018; doubling the number of airports in a decade; and taking the cargo capacity of the country’s twelve main ports from 745 to 1,600 million tons in the same period.
Ten years in which the Government has also been able to capitalize on the proliferation of cheap mobile phones manufactured in India, where almost 1,000 million people already have an internet connection, deploying a digital identification system (Aadhaar) and a digital payment tool (UPI ) that have contributed to the banking of more than 500 million people.
With a 70% increase in digital transactions over the last five years (official figures), digitalization has helped both the development of the domestic market and the improvement of infrastructure and the standardization of consumption taxes throughout the country. As Raghuram Rajan, professor of Finance at the University of Chicago and governor between 2013 and 2016 of the Reserve Bank of India (the central bank), says, the advantages of digitally recording commercial operations are evident: from increases in collection for state coffers; to the greater possibilities of obtaining loans for entrepreneurs.
But the high informality of many Indian companies, he says, has also had adverse effects. “Small companies that managed to survive by moving in a gray area without paying all their taxes now have it much more difficult,” he explains. “It’s a good thing in the long term, but in the short term, the exit of these companies creates an employment problem, because the larger corporations that replace them usually need fewer workers.” In any case, to multiply GDP per capita by six, something more than developing the internal market is needed. Especially in a country where per capita income remains below 3,000 dollars, and where only 60 million inhabitants (of the more than 1,400 that the country has) earn an amount greater than 10,000 dollars a year.
The export of software and services for companies has served as a starting engine for the Indian economy. Although the sector only employs two million people (of the 410 million that make up its active population), it contributes 10% to GDP. In recent years, large service providers, such as Infosys and Tata Consultancy, have been joined by branches of multinationals that use India as cheaper service centers.
In search of a more generous source of jobs, and taking advantage of the West’s attempt to reduce dependence on China, India has launched industrial promotion plans, a sector in which some 35 million people now formally work. One of those is that of the State of Karnataka (Bangalore), where labor legislation has been relaxed, inspired by the Chinese model, and where millions of dollars in public money have been allocated to attract investors such as Foxconn, which is already producing their iPhones there.
The Chinese mirror
In 2023, Rajan published the book with Rohit Lamba Breaking The Mold: Reimagining India’s Economic Future (Breaking the mold: reimagining India’s economic future), where the two economists argue against imitating the Chinese model. In India, land cannot be expropriated and dismissal is not so simple, they maintain. Furthermore, the automation of the industry has reduced its ability to generate work. “Not to mention growing protectionism, both for security and commercial issues, no country wants its production to go far away,” explains Rajan.
Rajan disagrees with the “idea that services cannot be employment intensive.” “The salary of a security guard, a sweeper, or a store clerk is equivalent to that received in lower-skilled industrial jobs,” he says. “And it is not only exportable services that can grow, but also those required by a country of 1.4 billion people in need of teaching, nursing, medical, or commerce professionals.”
Another radical difference with China is the quality of education and health care. In the 2020 edition of the World Bank’s Human Capital Index, India scored 0.49 (out of a total of 1), below poorer countries such as Kenya or Nepal. In the opinion of Ashoka Mody, a professor at Princeton University, the difficulty in giving another chance to the 46% of workers who now work in the very inefficient agricultural sector has to do with deficiencies in education and the low participation of women in the labor market. “Only around 30% of women of working age have a job, while in China or Vietnam that percentage is higher than 60%,” he denounces. Cultural obstacles that leave women at home and cause them to receive lower salaries for jobs identical to those of men explain this low representation, says economist Swati Narayan.
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