India's
GDP to Grow at 9.6
pc in
Next Decade
A
broad-based economic
study conducted
by Indicus Analytics
and presented
by New Media has
projected an annual
growth rate of
9.6 percent GDP
for the decade
2010-2020. This
economic assessment
study looks at
how various economic
and demographic
parameters are
evolving. It predicts
conditions in
India by 2020
if these trends
continue to move
in the 2010s the
same manner as
they have been
over the 2000s.
This is not a
general equilibrium
analysis and takes
a sector by sector
and area by area
approach. However,
without making
any strong assumptions
about the future,
both Indicus Analytics
and New Media
are fairly confident
that conditions
by 2020 will not
be very different
from that revealed
in the study.
The
trends of the
2000s will continue
but growth will
be much faster
Agriculture investment
will finally resume
after many decades
of relative sparseness,
but this sector
could well grow
much faster than
the expected 3.4%
- a rural road
network has been
built up, high
agri commodity
prices would improve
terms of trade
towards this sector,
rural human capital
has improved tremendously
in the 2000s,
new technologies
are about to enter
on a mass scale,
agri reforms such
as the APMC acts
are being overhauled.
However, we would
need to wait till
the 2020s for
the full impact
of these changes
to be felt for
the time being
agriculture (including
forestry and fishing)
would barely sustain
its 3.4% growth.
Manufacturing
opportunities
would improve
on account of
rapidly growing
domestic market
as well as international
markets however
energy and wage
price inflation
will play a role.
The labour problem
has not been solved
yet, and expect
a resurgence in
labour unrest
in 2010s. Transport,
storage and communications
will be the driving
force of growth
in the country
in the 2010s A
large road network
is going to be
operational, ports
are rapidly improving,
air transport
infrastructure
is being overhauled,
and most important,
a strong ecosystem
has been created
for the telecom
sector.
Overall GDP growth
will be around
9.6% annually,
even if the government
does not do anything.
It would be higher
if agriculture
and electricity,
gas and water
supply are able
to break through
their long term
institutional
constraints. It
would be lower
if inflation eats
into macro-economic
stability and
law and order
conditions get
out of hand.
Agriculture
Agriculture will
become a far smaller
part of the economy,
and will finally
account for less
than 10% of the
Indian economy.
Together agriculture,
mining and manufacturing
would account
for barely 25%
of the GDP services
would be three
fourths of the
Indian economy.
The utilities
(electricity,
gas and water
supply) will grow
but not that much;
the momentum has
just not been
generated yet.
Some electricity
projects will
go on stream,
some gas pipelines
will get extended,
and some water
related projects
will be instituted
- but this growing
economy will become
thirstier for
energy and water.
This will continue
to constrain manufacturing
growth. But a
combination of
investment in
the 2000s, reforms,
technology improvements,
and an institutional
structure have
been put up in
the 2000s for
the transport
and communication
sectors. This
sector will drive
the Indian economy
in the 2010s.
Even without any
further reforms,
the stage is set,
the tipping point
reached.
Per Capita Income
Growth
Higher economic
growth at about
9.6% will lead
to a per capita
income growth
of close to 8.0%
per annum that
is households
will earn about
double that they
do now by 2019-20.
This extra income
will also reflect
in a changed household
budget. Household
expenditures will
grow by more than
8.0% per annum
in the next decade.
The overall household
budget would be
about two times
higher than now
in real terms.
The share of food
and related products
would fall from
40% now to 34
% in 2019-20 (though
in absolute amounts
it would be about
1.8 times higher).
Transport, education,
health and recreation
would all be among
the most rapidly
growing items
of consumer expenditures.
Depending upon
how international
energy prices
evolve (it is
likely that energy
would be among
the major subsidy
items in the coming
decade), the overall
budget share may
actually fall
not in real terms
though.
The term miscellaneous
goods and services
includes a range
of items ranging
from durables
to FMCG to household
help, as incomes
grow, these items
would be among
the fastest to
rise reflecting
the evolution
of aspirations
of ensuring basic
consumption to
enjoying better
lifestyles. The
tipping point
is not so much
in health or education
in the aggregate,
but in goods and
services that
promise better
lifestyles.
What will Indians
eat in 10 years?
Despite the current
high inflation
in food products,
the trends are
quite unambiguous.
Indians will spend
more on food,
but not that much
more in real terms.
As governments
are likely to
ensure long term
food inflation
is kept under
check through
various mechanisms,
the food component
will fall in household
budgets. But lifestyle
changes will show
up in a major
way in our eating
habits. That is
the next tipping
point cooking
at home will continue,
and we will not
do away with kitchens
as in Thailand
but processed
foods and eating
out will emerge
as the among the
most rapidly growing
component of household
budgets.
Already, not just
the middle class
and the affluent,
but the poor as
well are eating
out. Nuclear families,
greater demand
for entertainment,
women's education
and expected rise
in their entering
the job market
all are long term
trends that will
combine and create
a demand. And
the supply response
will not be far
behind.
Healthcare
Health care expenditures
will grow rapidly,
and so will those
for education.
But it will be
recreation and
communication
that will drive
household expenditures
the most. The
Indian household
will move more
and more towards
lifestyle enhancing
expenditures.
This same theme
will get reflected
in all forms of
the budget. Within
education and
health care however,
expenditures would
rise dramatically
at the tertiary
level the government
would have more
or less withdrawn
as an important
player servicing
the masses in
vocational and
even higher education
as well as hospitals.
A few islands
in the form of
IITs and IIMs
will remain and
some more may
also be created.
A few more district
hospitals may
be set up, and
all these are
expected to be
priced much lower
than what the
market would dictate.
But these will
not be able to
service a large
share of the demand.
That growth in
demand for health
and education
will be serviced
by the private
sector and another
tipping point
will be reached
in terms of the
expenditures on
tertiary education
and health.
A surge in durable
ownership by households
is one of the
most unambiguous
trends. Large
numbers of both
rural and urban
households will
benefit from access
to electricity
as well as financing
to purchase and
operate electric
appliances. The
only threat to
this scenario
- Electricity
supply.
The Copenhagen
talks notwithstanding
India will need
more and more
energy to service
the demands of
a growing economy.
However, India
will not become
an energy intensive
economic power
in the coming
decade. India's
GDP in 2019-20
would be about
4.5 times what
it was in 2001,
however, total
energy requirement
would have barely
doubled since
then. Why? First
endemic lack of
energy has created
an economy that
is not as energy
dependent as (say)
China. India's
growth relies
more on services
that are typically
less energy intensive
than manufacturing.
Moreover, we should
expect lesser
energy intensity
in the emerging
economy of tomorrow
as was required
in the past.
The demand for
wheat will surpass
that for rice
on account of
increased incomes
and changing preferences,
not to mention
higher population
growth in the
northern part
of the country.
But this will
not be at the
cost of coarse
grains. Consumption
of meats will
stagnate and may
even fall on account
of higher relative
prices. The consumption
of cash crops
will continue
to rise and the
demand for milk,
and fish is likely
to grow rapidly.
Overall agriculture
will steadily
but slowly move
towards being
more of a cash
crop sector. That
is subsistence
in agriculture
is likely to become
less and less
important.
Poverty Level
Currently almost
300 million people
are expected to
be living under
extreme poverty
as defined by
the Planning Commission.
And this figure
has been more
or less stagnant
over the last
four decades.
It is well known
that the rate
at which poverty
rates are falling
is reducing in
other words, if
the current trends
continue as many
as 260 million
persons would
remain under extreme
poverty even by
the end of the
decade. Rapid
reforms can however
dramatically reduce
these numbers
these reforms
would generally
be oriented towards
ensuring that
the demands of
a growing economy
are well met by
appropriate skills
and human capital.
However, creating
human capital
takes a long time,
and especially
among those who
are the least
privileged. Hence
even in very good
scenarios almost
200 million persons
are likely to
remain extremely
poor by the end
of the decade.
Consequently expect
that social safety
nets would remain
critical for India.
Depending upon
whether youth
would like to
study more or
work earlier,
to what extant
women enter the
workforce in larger
numbers, and what
income earning
options exist
between 126 to
255 million additional
Indians will enter
the workforce
in the period
under consideration.
Urbanization
About 32% of India's
1176.7 million
people reside
in Indian cities
currently. This
will increase
to about 35.4%
of the total population
of 1326.2 million
by 2019 an addition
of about 100 million.
The bulk of this
new urban population
will comprise
of recent migrants.
The 244 million
households would
have increased
to about 288 million
cross rural and
urban India. India
will progressively
become less poor
but by no means
be able to eliminate
the ranks of the
extremely poor.
Those households
earning less than
75,000 per annum
will fall from
23 million to
less than 12 million
in urban India
and from 96.7
million currently
to less than 77
million in rural
areas. At the
same time the
number of households
that can be classified
as highly affluent
(> 10 lakh
per year) will
rise from 4 million
currently to 12.5
million in urban
areas; and from
barely 1.5 million
to 3.6 million
in rural areas.
But the greatest
increase is going
to be among the
middle classes
the great Indian
middle class will
finally become
a reality in both
rural and urban
India.
