India is an exception in a world facing a worrying trend of declining long-term growth, World Bank Chief Economist Indermit Gill has said.
“I think that India right now is at its peak potential in terms of its demography,” Gill said in an interview with businessline. Externally as well, India’s prospects are better than most of its peers, he added. The ongoing geopolitical turmoil offers many more opportunities to the country than it does to other emerging market economies.
Elaborating on the worrying trend of declining long-term potential growth across the world, Gill pointed out that for emerging markets, growth had come down from 6 per cent in the first decade of the millennium to 5 per cent in the second, and then to 4 per cent. Some of this is because China’s potential growth rate has gone down from 9 per cent to 7 per cent to 5 per cent over the last 25 years, he added.
“This is also the case with advanced economies. They grew at more than 2 per cent in the first decade, then less in the second, and now it is close to 1 per cent. So they are roughly half of what they were growing at two decades ago. For the global economy as a whole, the potential has fallen from 3.5 per cent in the 2000s to 2.2 per cent today. This is what should worry every policymaker,” Gill said.
India, however, is an exception because its potential growth has remained steady at around 6 per cent in both the first and second decades, the Chief Economist said.
“If you look at dependency ratios, India will have low dependency ratios for the next two decades. I don’t think they will ever be lower than what they are now. So for India, the potential growth part is not a bad story at all,” he said.
Last fiscal year, India’s economy grew at an estimated rate of 8.2 per cent, higher than the global average, and growth is forecast to remain strong at 6.7-7 per cent over the next two years.
The ongoing geopolitical crisis around the world might actually create new opportunities for India.
“There is the China-plus-one strategy that businesses in advanced countries have to consider. It is a potential opportunity for a growing market like India. It is not likely to go away two years from now,” he said.
However, policymakers need to realise that time is of the essence and act accordingly, Gill added.
On why countries like Vietnam had scored over India in attracting investors who wanted to diversify from China, Gill said it was because Vietnam was already in the process.
“I think it’s correct to ask questions about why Vietnam has got more of this. It is largely because Vietnam was already doing quite a bit to attract manufacturing from countries like Korea, Japan, and others, and now is attracting a lot from China as well. So, quite a few Chinese companies have moved there,” Gill said.
The question of why they didn’t move to India is being debated in the country, he added.
“I think that one should not expect all of India to improve all at once. But some States should probably grow faster, and they are. For example, the southern States are doing very well, and that will help all of India. So, I am optimistic about that,” he said.
Gill said that there should be more focus of policymakers on improving conditions so that more investments are attracted. “I have started to worry a little bit because when you look at the discussions in India, they are not often about these things. They are about other things — things that appear to be tangential to this. So the real question is, are Indian policymakers realising the urgency of this? Because, you know, I think the window will be open for some years, but not forever,” he said.