Toward India 2020: Challenges and Opportunities

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People sometimes ask Montek Singh Ahluwalia questions loaded with “aspirational objectives,” such as when India will “get rid of poverty.” Few are as well equipped to respond as Ahluwalia, one of the architects of India’s breathtaking economic transformation.

The current income of an average Indian citizen is about 1/15th that of a U.S. citizen. Ahluwalia envisions increasing India’s per capita income ten fold. He sees this as a matter of “simple arithmetic.” To achieve this advance, India must sustain GDP growth of 9% a year (which corresponds to a 7%/year growth in personal income) -- for 32 years. By 2040, India’s 1.5 billion people could be living more like Americans. “Regrettably, I won’t be around to see it,” says Ahluwalia.

By 2020, though, assuming such sustained economic growth, he would be around to witness “more modest results.” Indians would double their annual income to $6,600, and the nation would be able to “provide a basic level of services to the vast majority of its population,” essentially leaving behind its problems of poverty. This kind of growth, “an extremely worthwhile objective” for India, would also leave its mark on the rest of the world. It would inspire other emerging economies, for one thing. It would also shift the balance of power in global trade, with the combined economies of India and China taking on the U.S.

So can India really achieve this kind of relentless economic progress? Ahluwalia’s not sure, but invokes the successes of Japan, Korea and China, and sees reasons for optimism. Over the past eight years, India’s averaged a 7.2% GDP growth rate, and looks likely to land on its feet after the current worldwide recession. On the other hand, the nation’s vibrant democracy (420 million voted in the most recent elections) can make agreement on economic policy and its implementation difficult. Ahluwalia is “not complaining,” but acknowledges that this kind of participative society “means we’re taking longer to get done what needs to be done.”

He sees institutional strengths that will enable India to push its development agenda forward: a sense of confidence pervades Indian society; past reforms have “unleashed tremendous energy in the private sector;” the economy has opened up to greater domestic and foreign markets; and in spite of changes in government, the general economic policies continue to evolve. Ahluwalia acknowledges that defeating poverty may not address everyone’s goals for success. The true objective for India, he believes, is “inclusive growth,” an equitable and constructive distribution of economic gains via market forces, government and public means.