What Ails Indian Economy
-N K Tripathi
One narrative is well me I’m entrenched- India is the fastest growing major economy. The GDP growth in last fiscal year, despite US tariff confusion, is expected to be 7.6%. For the current FY 2027, IMF has projected growth of 6.5%, in spite of energy crisis due to Iran war. India’s growth story of the last three decades is basically because of the political stability and a few attempted liberal policies. Should India be satisfied with that?
India needs more foreign capital and many more highly skilled workers to stay and not emigrate. Due to dearth of these, our manufacturing is weak. This shrinks India’s exports. More imports than exports results in permanent current account deficit. No wonder corporate ( industries) revenue is much less compared to the GDP growth. The biggest weakness, therefore, of Indian economy is that it is losing more skilled people and attracting less capital from outside. 6,75,000 people emigrate outside every year, mainly skilled workers and university students. Famous American Silicon Valley has one third Indian tech workforce.
India is getting less capital from outside as FDI and FPI. The reason is simple; legacy of license raj in India makes it prohibitively expensive to acquire land, and hire and fire workers. While other Asian countries like China, Vietnam, South Korea get FDI up to 4% of their GDP, in contrast India gets just .1% of GDP. Clearly, in spite of, all tall claims, India is a difficult place to do business.
India is very timid in R&D. South Korea spends 5% of its GDP and China 2.5% of its GDP on R&D. With all efforts to spend more, India has reached to .7% of its GDP in R& D. The result is we only assemble.
Indian stock market is seeing more outflow of foreign capital than attracting foreign capital for stocks. Indian share market is managing with the investment by the ordinary Indian middle class. India needs to attract more foreign capital as our domestic capital is very hesitant. FDI also brings new technology.
India has brought in many reforms like recent labour codes, simplifying bankruptcy rules, digitising many public services and efforts to cut red tape. These have improved the situation, but there seems to be no political consensus for big ticket reforms. If there is no consensus in coming years, then it will be a lost opportunity for 21st century.
