In
2024, the United States and the European Union collectively contributed 39% to
the global GDP (measured in 2015 dollars). China followed with a 19% share,
while India accounted for 3.5%. Combined, these four economic giants
represented 62% of the world's GDP. Remarkably, over the next 36 years, by
2060, the global economic landscape is projected to undergo a dramatic
transformation. This shift will occur within the lifetime of today's school
graduates, potentially altering the balance of economic power worldwide.
Assuming
the world continues its average annual growth of 3% in real terms, similar to
the trend since 1960, by 2060, China’s aging population could see its share of
global GDP rise to 22%, just behind the US. Boosted by immigration, the US
economy is projected to grow at a steady 3% annually, reaching a 23% share of
global GDP. India, with its robust growth rate of 6.5%, could capture 10% of
global GDP, closely trailing the EU, which is expected to grow at a modest 2%
per year, achieving an 11% share. Combined, these four economies could account
for 67% of global GDP in 2060, an increase from 62% in 2024. This projection
aligns with the ongoing trend of economic power concentration among these four
economies, whose combined share in global GDP has risen from 57% in 1989 to an
anticipated 67% in 2060.
If
economies operated as rational and inherently collaborative entities rather
than competitive ones, these four powerhouses would pool their resources to
boost growth among themselves. However, political economy factors complicate
this ideal scenario. Leaders often vie for global dominance, cater to domestic
political agendas, and posture to appear more influential in global affairs
than any one person can realistically be. This results in volatile geopolitics,
with flashpoints like the Russo-Ukraine conflict and the Israeli-Gaza wars,
driven mainly by the stubbornness of the respective leaderships.
Unfortunately,
among the four economies discussed, India is the most vulnerable to
geopolitical risks for two key reasons. Firstly, historically, India has not
invested enough in strengthening its support base within its immediate
neighborhood. While India has made significant conciliatory gestures, such as
backing China’s entry into the UN Security Council in 1949 and supporting the
People's Republic's replacement of Taiwan as a UN member in October 1971, these
efforts have not been sufficient to mitigate geopolitical sensitivities.
With
the United States firmly supporting China's inclusion, India had limited
options. However, the question remains: why didn’t India leverage this favor to
its advantage by negotiating a resolution to our border disputes in exchange
for backing China’s institutional privileges in the United Nations?
Secondly,
rather than focusing on creating a unified regional strategy for global
alliances, India chose to pursue global leadership of the developing world, as
evidenced by its stance at the Bandung Conference in 1955.
Prioritizing
global media attention over discreetly resolving bilateral or regional issues
has been a significant weakness for India, one that continues to this day.
India’s decision to stay out of the two major Asian trade agreements, RCEP and
CPTPP, highlights a misconception that India is large enough to manipulate
outcomes to its benefit from the outside. This stance also ignores the reality
that India lacks the institutional capacity to influence decisions effectively
from within such plurilateral agreements.
Despite
facing the challenges of a cumbersome bureaucracy and the distraction of
politically motivated social fragmentation, India has achieved the highest
growth rates in the post-Covid era. This resilience creates new opportunities
for deeper integration into global and regional partnerships. By maintaining
our current key asset—high economic growth—we can better seize these
opportunities and improve our standing in the global economy.
Is
India's policy framework adequately focused on fostering high growth, the
essential element for global recognition? The answer is a cautious yes. India
has shown both skill and bravery in using fiscal expansion to navigate the
economic turmoil caused by the 2008 global financial crisis, policy missteps
like the 2016 demonetization, and the 2021 Covid-19 pandemic, all while
effectively safeguarding tax revenue. However, efforts to carry out deep
reforms are still hampered by concerns over the potential negative political
repercussions from vested interests that stand to lose out.
The
middle class benefits from low property taxes compared to land values,
subsidized or free electricity and water, free bus rides for women, and
inexpensive rail travel. Large private corporations enjoy import protection and
access to influential government forums. Many entities in the extensive public
sector, including banks, manufacturing, and utilities, operate as unviable
enterprises, akin to zombies. Government employees with low productivity
receive inflation-indexed salaries, automatic promotions, tax-free perks, and
housing. Wealthy farmers benefit from free electricity, irrigation water, and
cheap fertilizers, while paying no income tax. They often use the plight of
small and marginal farmers, who make up 80% of the farming community with
average land holdings between 1.4 and 0.4 hectares, to justify these
advantages.
Although
there are numerous structural reforms pending to address low productivity, it
is feasible to achieve a real annual growth rate of around 6.5% by making
incremental improvements—such as increasing efficiency in fiscal spending and
boosting revenues through more effective tax assessments and strategic levies.
However, this rate will not be enough to drive growth to 8% annually over the
next 36 years until 2060. The question is, why is reaching this higher growth
rate so crucial?
To
effectively compete in Asia's challenging environment, where China presents
both an economic and security threat, India must build substantial fiscal
resources, infrastructure, and skills. The situation in Taiwan serves as an
early warning. GDP serves as a useful indicator of economic strength, political
influence, and military capability. With China's GDP at $18 trillion (2015
dollars)—about six times larger than India's $3.4 trillion (2024)—closing the
gap requires India to sustain a growth rate that exceeds China's by four
percentage points annually (in real terms). Currently, following the Covid-19
downturn, India enjoys a growth differential of approximately two percentage
points in its favor. Achieving near parity in GDP is possible but relies on optimistic
assumptions: that China's growth remains sluggish at around 4%, tapering to
3.5% per year, and that India achieves a robust growth rate of 7-8% annually
over the next 36 years until 2060.
It
is entirely possible for democratic India, with its vast young population and
strategic location in rapidly growing Asia, to seize the opportunity from a
stumbling China and lead future global GDP growth. China's choice of a
confrontational and poorly timed approach to asserting global dominance has
inadvertently created a chance for India to emerge as a more dependable major
economy. India could offer the world a market with rapidly increasing
purchasing power, globally compliant institutional standards, and competitive
suppliers. If India fails to capitalize on this opportunity, the responsibility
will rest squarely on its own shoulders.
(the
writer can be reached at dipakkurmiglpltd@gmail.com)
