India displaces UK to emerge 5th largest economy in the world
It took more than 150 years for the Indian economy to get past its former ruler, Great Britain and it is reason enough to celebrate. As per IMF prediction, India was to emerge as the 5th largest economy by 2020 but UK’s decision to BREXIT has resulted in the British Pound devaluing and thus India now stands 5th in global rankings after the US, China, Japan and Germany.
Several studies have predicted that if India continues to maintain a growth rate of 6.5% and above, it will surpass Germany and Japan to emerge as the 3rd largest economy by 2030.
Interpreting the rankings
It must be understood here that India’s 5th rank is by GDP calculated under ‘Nominal’ method i.e. based on current exchange rates. The fact that the British Pound has devalued since its decision to BREXIT, which in turn has resulted in a higher GDP ranking by Nominal method for India. This is not to take away the fact that irrespective of the currency fluctuations, India was on a path to replace UK as the 5th largest economy, anyways.
GDP by ‘PPP’ method is arrived at by comparing economies and incomes of people by factoring the difference in pricing in various countries. By this method, India ranks 3rd after China and USA.
While this is great news and cause for celebration, the nation must also be circumspect in noting that India currently ranks 144th by GDP ‘per capita’, calculated by Nominal method and 126th by PPP.
GDP ‘per capita’ of a country is arrived at by dividing GDP by its mid-year population. It is interesting that China ranks 75 (Nominal) and 81 (PPP), respectively. So, in terms of GDP per capita, both India and China have a long way to grow and improve further. Luxembourg currently ranks No#1 by Nominal method and Qatar No#1 by PPP.
What does this mean for India?
India’s potential as an economic giant has been well recognized, so while this is great news for the country, it doesn’t come as a surprise. In fact, many economists would be asking “what took you so long?”
Part of the answer to that lies with the British rule in India while the other part lies squarely on our own shoulders. The British drained India of its resources to feed its own industries, while our own socialist policies held back the nation from realizing its true potential almost four decades.
The fact that India has grown to becoming the 5th largest economy in 2016, opens up larger possibilities for the nation but this must be seen in the emerging global situation and India’s possible role in it.
Changing geo-politics and India’s emerging role
The world is witnessing a transformation from the old order that was dominated by the US, Russia and Europe, to one where China, India and other emerging economies will play a greater role.
Post-cold war, the world was expected to emerge a safer place but today the world is more dangerous and unstable with no clear signs emerging on the new order.
On one side, there is the United Sates which triggered instability in the Middle-East through its poorly planned military involvement in Iraq and Afghanistan, on the other, we have an increasingly aggressive China trying to position itself as an equal to the US.
American involvement in Iraq and Afghanistan has now resulted in a major global Islamic backlash across Middle-East, which is also beginning to threaten Europe’s relatively stable social order.
In Asia, China is becoming more aggressive in pursuing its own geo-political interests with complete disregard for international law and opinion.
In this scenario, India presents itself as a relatively stable nation with a fast growing economy. With India now emerging as the 5th largest economy in the world, it is well placed to play a larger role in establishing a more stable world order.
India continues to enjoy greater trust and confidence than most other ‘dominant’ nations, including China, and it must leverage this goodwill in providing global leadership that complements its rapid economic growth.
Why did India take so long?
The answer to that lies in the fact that India won its independence from British rule only in 1947 but thereafter, the nation’s decision to pursue a socialist path through central planning, resulted in India underperforming to its potential. This was further impacted by a fast rising population that continued to strain national resources and negate any advantage of rising agricultural and industrial production. And this continued till 1991, when India finally unshackled itself and moved towards reforms and accelerated development.
But reforms did not come fast enough as the political system did not keep pace with global change, as Asian tigers like China, South Korea and Japan continued to surge ahead with dramatically improving economies.
A historical setback
When the British first arrived in India, the Asian giant had a rich economy and was a major exporter of commodities and rich textiles to the world. The British changed all of that that during their rule by destroying traditional industries by channelizing local producers to produce only raw materials that would feed factories in Great Britain. This, in turn, helped the British produce finished goods thereby creating wealth for the kingdom but left India a poor economy.
The negative impact of these policies resulted in severe famines and lop-sided industrial development that left the Indian economy crippled for a long time.
Post-independence, India has made slow but steady progress on the back of a stable democracy. It is in this context that the news of India surpassing UK assumes significance. The ruled has finally gone past its ruler.
Where next for India?
India must focus on emerging as the 3rd largest economy sooner than 2030 and it is entirely possible if only it can take up pro-active measures to control population through education and voluntary participation, step up the pace of reforms of its institutions, speed up the disinvestment process of PSUs, increase spending on education, health and infrastructure, and most of all, improve the quality of political leadership, across party lines.
India has set itself on a path of rapid development and improved quality of life and therefore all stakeholders must commit themselves to achieving this through collective participation.