Why is the Indian economy not booming as expected?

 

Thanks for A2A.

Let’s leave Modi, Rahul, BJP, Congress, etc. out of this discussion. I will keep it boring.

Slightly modified question: Why is the Indian economy not booming as much as we would like it to?

We would like to grow at 8–10%. But we are stuck at 6%. We have been stuck at this level of growth for the last three decades except for brief periods.

Before liberalization, India failed to prepare itself. Japan, and then China, grabbed the opportunities that were available during the Cold War period, while we kept missing the bus, and walked at a pedestrian pace of 2–4% annual growth, barely keeping up with population growth.

Liberalization was a rare revolution that India pulled off (but only under extreme pressure of impending bankruptcy, it must be mentioned). The fundamentals of the Indian economy have been improving incrementally ever since. Quality of governance, education levels and efficiency of capital formation - these have seen steady improvements across changes in Governments and leaders, despite some setbacks now and then.

Given sustained incremental improvements, our economic resilience and stability have visibly gone up over the last 30 years. We could not have handled Covid, and now the global slowdown, without that strength built up over the years.

But we have also not pulled off any new revolutionary changes after liberalization. The steady improvement in fundamentals by themselves won’t deliver the booming growth that we desire.

What this means is that for us to go beyond the 6% steady-state growth, we are dependent on a new external ‘opportunity’ to come knocking.

30 years back, we got the IT outsourcing global trend as a new opportunity. We managed to catch that bus. That sector created upper-middle class jobs. Higher income levels. More aspirational consumption. More taxes. More visible boom.

Now that sector has run its course, with hardly any growth in the number of jobs and in salary levels. No new global sectoral trend, which can create upper-middle class jobs at a mass scale, has emerged to replace that.

What we are still getting is domestic market-based growth. Earlier we had the telecom penetration boom, that created sales and service jobs. Now we have the gig economy. But these can only create lower-middle class jobs because the domestic market, unlike foreign markets, cannot pay much.

The Government is pushing the semiconductor sector, and manufacturing in general. But these are leviathan, legacy industries. Not easy to effect a mass shift. Meanwhile, the world is becoming more insular. Less trade. More protectionism.

Every Government has tried to give a boost to tourism. While domestic tourism is increasing, we just can’t attract high-value foreign tourists for reasons that are well-known. The ‘cleanliness’ revolution is another failed attempt over the last ten years.

What we are finding are tactical opportunities. Push refined fuel exports. Get deals to sell defense products. And so on. But these are not enough for an economic boom to happen.

That big strategic opportunity to create a new high-paying, mega-sector hasn’t turned up yet.

What should we do? Unless we get a leader who knows how to pull off revolutionary changes. stay the steady course of incremental improvements, so that we can take advantage of a global trend as and when it comes up.

We are an elephant, not a tiger. Stability gets priority over speed. We are a better elephant today than we were two generations ago, but we are still an elephant.