Did India do well to quit the China-led RCEP?
Emphasizing in the book that “all eyes are on India to see if it can overcome its challenges and realize its potential”, Jha said: “Since the GFC of 2008, the international investment community has hoped that India will serve as a key engine of global growth. After all, it is in an environment of rapid economic growth that one is likely to find a range of financial opportunities with appreciable returns. Given that India has been a a chronic net importer (as evidenced by its persistent current account deficits), its domestic consumption-led economic growth was also seen as a major market opportunity for beleaguered Western and Japanese businesses.”
“However, today India is seen as more than a market by the West. Decoupling with the Chinese worker due to concerns about disruption, technological security and military competition will lead to sustained inflationary pressure unless the Indian worker steps in. The pandemic has laid bare that the cost of disruption can outweigh the cost of a supposedly efficient dispatch of manufacturing capacity.
“It also convinced advanced economies that they needed to ‘relocate’ parts of the supply chain and recreate domestic capabilities for certain key sectors. But as I explain in the book, there are strict limits to relocation and a more resilient supply-chain will ultimately have to be affordable. Additionally, America’s and Japan’s success in the Fourth Industrial Revolution depends on the availability of a manufacturing fleet that can ultimately match the scale China for network equipment. Despite its impressive performance, Vietnam cannot fulfill this role and it is in any case very much in China’s industrial and geographical shadow,” Jha argued.
But before that, India has to overcome various challenges to serve as a key center of global production.
“On the one hand, it must improve its logistics performance, which currently puts it at a disadvantage vis-à-vis China and Vietnam, thanks to sustained investment in infrastructure. Even before the pandemic due political missteps like demonetization duly complemented by a complex GST framework and the RBI’s own rate hikes in 2018, India was in a structural slowdown in growth.
“The corona shock has further shaken domestic demand as well as supply. The government will need to focus on upskilling manufacturing workers previously employed in the informal sector and preparing them for what promises to be India’s last window. to industrialize quickly,” Jha said.
How optimistic is he about Finance Minister Nirmala Sitharaman’s statement that India is set to become the world’s third-largest economy by 2029, ahead of Japan and Germany? Given the level of industrialization of these countries, how is India going to overtake them?
“On this point, I am actually quite optimistic. In fact, there is almost an arithmetic inevitability. The FM statement basically refers to the fact that India is overtaking Germany and Japan in terms of nominal GDP (c i.e. the current market value of goods and services produced in an economy during a given period) expressed in terms of the dollar exchange rates prevailing at that time, i.e. 2029. Even at present, India’s nominal GDP is already around 70% of Japan’s and 80% of Germany’s in 2029 dollar terms,” Jha said.
Explaining that the nominal GDP growth rate is simply the sum of the real GDP growth rate (i.e. inflation-adjusted GDP) and the inflation rate, he said: “Although India’s growth potential is not what it could have been, there is still a lot Although consumer price inflation in Germany is currently faster than in India, it can be expected that may it ease as weaker global demand pushes energy prices down despite the Russian-Ukrainian conflict and supply chain. Naturally, I expect inflationary pressures in India to ease as well, but it may well be that the European Central Bank’s monetary policy tightening will push the German economy back into pre-war lowflation mode. pandemic.
“Japan, of course, had been close to deflation since the bursting of the Hesei bubble in 1991 and the lost decades of very weak or no real GDP growth. Consumer price inflation, but not as much It is currently only around 2% compared to 7% or more in India and Germany.
“So as you can see, on both counts, i.e. real GDP growth and inflation rate, India is likely to overtake Germany and Japan in the future. So if the relevant dollar exchange rates stay where they are now, India will emerge as a “bigger” economy in dollar terms than either by 2029. Given the performance India’s relatively better growth and possibly increased competitiveness, the rupiah could even strengthen against the dollar against the euro or the yen, which will contribute to India’s relative position against Germany or Japan in the nominal GDP draw,” Jha explained.
“Having said that, it should be clear that both Japan and Germany will have much higher per capita incomes than India in 2029, and here India will need two more decades of appreciable growth to to catch up with them. Although in the meantime, there is a lot of latent productivity growth that India can harness to surpass them in overall economic size,” he asserted.
And then ? What will his next book be about?
“My next work is a joint effort with Dr. VK Saraswat, former DRDO chairman and current member, NITI Aayog. This is a technical-economic history of the integrated guided missile development program that laid the foundations of the Indian military-industrial sector,” Jha concluded.
(Vishnu Makhijani can be contacted at [email protected])