Sanjeev Ahluwalia | Can India be a developed nation before it gets rich?

Prime Minister Narendra Modi advocated India becoming a developed nation by 2047, as the new national aspiration, on Independence Day this year. This brings to the fore the chicken and egg question -- is the relationship between development and becoming rich sequential, does one lead to the other, and if so, which one comes first? More pertinently, does being developed mean being rich or being sustainable?

A developed economy has four characteristics. First, competitiveness –a country that is able to fund its infrastructure needs whilst retaining fiscal stability. Second, human capital with the bandwidth to generate sustainable, economic growth. Third, respect for human rights, the principle of equity (including gender equity) and deeply institutionalised mechanisms to hold the State accountable. Fourth, security deterrence and the institutional capacity to participate effectively in international forums and networks.

Going by this definition, being rich is not the same as being developed. Many economies dependent on the export of oil and gas, for instance, might be rich today, but their economies are unsustainable, many lack human capital and import basic skills, nor do most conform to human rights protection standards or contribute effectively to international networks.

Conversely, China is an upper middle-income economy at the cusp of becoming a high-income one. India is a lower middle-income economy that could become upper middle-income before 2040. But both have, albeit varying, attributes of developed economies as do several others in South and Southeast Asia, Africa, and Latin America.

Rich nations (formally high-income economies) are defined by the World Bank as those which have a per person Gross National Income slightly above the global average level. For 2023 this is fixed at $13,200 (Atlas method, which converts GNI data from national currencies to current US dollars by averaging exchange rates over three years to cull out volatility and local inflation spikes). India is at $2,170 (2021).

Over the last 25 years, till 2021, India’s per capita GNI grew at seven per cent per annum. Over the next 25 years, we should double our per capita growth momentum over the four per cent per year that we achieved in the period between 2012 and 2021. Slowing population growth leading to a stable population by 2047 will also help by keeping the denominator low.

Sadly, even a relatively high growth rate of eight per cent, relative to an assumed growth of just two per cent per year in the global economy (which grew at 3.2 per cent 1996-2021 and 1.3 per cent in 2021-21) will still not take us across the income divide into the rich world by 2047. This conundrum also faces similar or poorer economies or those mainly dependent on the export of fossil fuels.

The Prime Minister knows this well. Possibly that is why “being rich is glorious” -- a paradigm that China embraced in the early period of its liberalisation, is being junked by India for “being developed (viksit) means more than just being rich”.

This resonates with everyone, particularly at a time when riches acquired by plundering the planet are causing havoc. Pivoting to development rather than wealth creation could be fingered by some, as “the grapes are sour” gripe of a never-to-be rich economy. But much depends on the pattern of development that we follow.

Consider, for example, if we diverted resources to a comprehensive greening of our economy, well before 2070, by when we have committed to Net Zero; overhauled our education system to provide high quality future compatible services to the bottom half of our population, including through a massively extended State-funded scholarships programme for technical studies while Ayushman Bharat targets cheap insurance cover for pervasive, quality healthcare, we could score high on development metrics, despite remaining a upper middle-income economy.

The future is all about technology-led innovation, as the Prime Minister stressed on August 15. However, innovation is about open borders and international collaboration. It does not sit well with fractured silos (friend-shoring, near-shoring) which constrain the flow of risk capital for financing innovation and reduce opportunities for scaling up new processes and products, both essential for sustained commercialisation.

It is possible that the existing fragile international order might settle into some kind of an uneasy settlement between the United States, China and Russia. A tripartite understanding to cut their losses and cooperate to stem further economic damage, could be statesmanlike for an American President; suit an empowered President Xi Jinping, in his third term starting November of this year, and give an out with honour to President Vladimir Putin. The European Union, already too old and too comfortable to bear prolonged conflict, would sigh with relief and revert to business as usual. It is debatable, however, whether that would just be a breather or a stable arrangement.

The messages emerging from international forums point to the need for self-preservation in an uncertain and fractious world. The multiplicity of deep diplomatic links with an eye to extract advantages need sustained engagement and a tradesperson’s instincts. An enabling, risk-taking private sector is a huge enabler as is an upgraded, institutional architecture with broad banded skills. Both are still nascent, though Prime Minister Narendra Modi’s government has been sure-footed on this score, with the added advantage of longevity of tenure.

India, acting internationally as a pragmatic, non-preachy, middle power would be new for its citizens. The public reacts best to news feeds of our political masters seemingly overawing foreigners with our spectacular past or outwitting foreign governments in high-profile negotiations. Collegial deal-making, where favours are traded for good team play, rather than individual brilliance or ideological consistency, make poor copy.

At home, deepening democracy by empowering local governments – which was Mahatma Gandhi’s dream -- remains unfulfilled. “Sabka Vishwas, Sabka Prayas” -- awakening the spirit of participative nationalism – requires grassroots, elected political leaders to be substantively integrated into the national power-sharing architecture. Less than one-third of the current members of the Lok Sabha started their political life in local bodies -- which speaks for itself. China’s success owes as much to the pervasive Communist Party system as it does to the virtues of a meritocratic, career growth path from local politics through provincial assemblies to the National Assembly.

We must anchor national programmes in local participation for organic growth and embed national aspirations in regional and international priorities, if we are to be a valued global partner embodying the mantra of frugal development before riches -- an option that is suitable for most nations today.