The round of downgrades in India’s projected growth rate continues, the latest being the IMF which significantly reduced India’s expected growth in 2021-2022 from 12.5% to 9.5%. This follows the economy’s massive 7.3 percent contraction in the past fiscal year. This, of course, raises concern about the speed of the economy’s recovery in the near term. However, there is also great concern about the long-term outlook for the economy which we cannot eliminate.
There aren’t many noticeable economies of size outside of North America and Western Europe that have entered the high income category. The few exceptions are in Asia, including Japan, South Korea, and a few island nations. China is not there yet and India is barely in the middle-low income bracket. But, there was hope: hope that India will be able to do it – provide a decent standard of living for over a billion people, lift millions out of poverty, end malnutrition, preventing millions of premature deaths. The question is can India still do it?
However, that does not mean the exodus of low-tech production, as much of the change has already happened in countries like Bangladesh and Vietnam. And, more importantly, the world might simply lose its appetite for cheap, shoddy goods with rising inflation and shifting consumption patterns across the globe. Competition between countries is now focused on high-tech manufacturing. And, recent flaws in the production line caused by the chip shortage have made this urgent. The US is also in this game and is making big investments. So, there is a change in the relationship between the US and Chinese economies, it is now entering a stage where potentially they are in competition.
What needs to be done in the long term is much clearer, but no less urgent: to invest heavily in education and training. While the private sector has a big role to play in this regard, governments, both state and central level, will need to do a lot to ensure that citizens have a chance to escape the low income trap. . This must start from school education, both in terms of quantity, but also very important in terms of quality. If this happens, there is still hope.
The author, Dr Partha Chatterjee, is Professor and Head of the Department of Economics at Shiv Nadar University, Delhi-RCN. The opinions expressed are personal.
(Edited by : Kanishka Sarkar)