India shaping the new G3

By 2025, Prime Minister Narendra Modi told global leaders assembled at Davos last week, India will be a $5 trillion economy. India’s nominal GDP today is $2.50 trillion. To meet the Prime Minister’s ambitious 2025 target, the Indian economy will have to grow at an annual rate of over 9 per cent. With inflation factored into the computation of nominal GDP, the target is entirely achievable, positioning India ahead of Germany and on a par with Japan as the world’s third-largest economy.

There was criticism at the Davos summit for relying on GDP as a key criterion to measure a nation’s progress. There is some merit in the argument. GDP in India in fact underestimates the role of the informal economy by a factor of at least 20 per cent. That apart, nominal GDP at current exchange rates doesn’t capture the low cost of living in India compared to advanced economies in the West and Japan.

When adjusted for cost-of-living indices across a basket of goods and services, India’s real GDP, measured by purchasing power parity (PPP), shoots up to $8.72 trillion, according to the latest World Bank figures. That places India’s economy today in third place, well ahead of Germany ($4.04 trillion) and Japan ($5.27 trillion) and behind China ($21.45 trillion) and the United States ($18.62 trillion). The GDP gap between China and India narrows from around 4.5:1 (China’s $11.20 trillion against India’s $2.50 trillion in nominal terms) to 2.5:1 ($21.45 trillion against $8.72 trillion by PPP norms).

The problem in all this, of course, is India’s abysmal per capita income. Even by PPP, India’s per capita income is among the lowest in the world. Poverty remains endemic. The challenge, therefore, is to raise income levels at a faster clip. Throughout the 1960s, 1970s and 1980s, India’s poverty rate reduced glacially. It was only after economic liberalisation in the 1990s that poverty levels began to fall rapidly. Yet even today, by most computations (including the late economist Suresh Tendulkar’s), poverty levels remain at around 20 per cent. Over 250 million Indians thus still live on subsistence level incomes.

Why then does the rest of the world regard India as the future? Leading think tanks are already forecasting a new G3 — the United States, China and India — taking shape over the next 20 years. For decades the world has been shaped by the G7 — the US, Canada, Britain, France, Germany, Italy and Japan. As an afterthought, the G7 decided to include a broader group of emerging countries and called it the G20. Both groupings are outdated. In the G7, countries like Italy have a limited global role. In the G20, the presence of Saudi Arabia hardly inspires confidence.

In a future G3 India has the opportunity to be the balancing pivot around which the world’s three largest economies in the 2030s will revolve. China and the US are natural competitors. They have diametrically opposed geopolitical, social and economic concerns. As an increasingly heterogeneous society, the US (where the number of non-white Americans will exceed white Americans by 2050) contrasts sharply with homogenous Communist China which in effect is the world’s wealthiest dictatorship. America teems with religious and ethnic diversity, a free and fierce media, a checks-and-balances democracy, and accountable government. China has none of these.

As a putative member of the emerging G3, India thus has a historic opportunity to influence the ebb and flow of world events as this century unfolds. But to do that, Indian policymakers will have to achieve three objectives over the next 20 crucial years.

First, education. India is creating millions of graduates every year. Many are unemployable because they have been taught to learn by rote, never question, and always be obedient. To create an ecosystem of innovation as the US has done and China is doing, Indian education must be reformed from the bottom up. Primary school infrastructure needs to be modernised, teachers better paid and exams restructured to measure creative, questioning minds rather than those who memorise learning by rote.

Second, India’s diplomatic outreach needs a larger foreign office presence. For a country that will inevitably be a part of a future G3, Indian diplomatic strength globally is woefully inadequate. China has 4,500 diplomats working abroad. The US has over 20,000. India has just 2,700 of whom less than 900 are IFS officers. That is one reason why India often punches below its geopolitical weight. Lateral appointments of talented professionals to the diplomatic corps from outside the IFS cadre is urgently required.

Finally, governance. The strength of America lies in its institutions — an independent judiciary, a powerful legislature, strong law enforcement and ombudsmen at every level of government. Corruption exists despite this in the US as it does in China. The difference is swift justice. In China, President Xi Jinping has purged an unprecedented number of officials accused of corruption. In the US, justice is firm, fair and fast.

To shape a new G3 twenty years from now, India has to grow economically, mitigate poverty, reform education, strengthen diplomacy and focus unsparingly on good governance. If it does not, the G3 too, like the G7, will have a short lifespan.

The writer is author of The New Clash of Civilizations: How The Contest Between America, China, India and Islam Will Shape Our Century