India requires 7.3% annual income growth to become developed by 2047

The objective of transforming India into a developed nation can be accomplished by 2047. The chairman of the 16th Finance Commission, Arvind Panagariya, informed that in the following 24 years, India's per capita income will have to increase to $14,000 which is $2,570 at present. In addition, he noted, “To accomplish this goal, the income growth will need to be increased to $7.3 percent on an annual basis.” 

During the 49th Civil Accounts Day celebration on Saturday, Panagariya stated that given the technology available today as well as Capital accumulation and skill formation, India has the potential to achieve the income levels of developed nations. In addition, Japan sets the mark for developed nations’ yearly per capita income at $14,005, a target which India will achieve in the next 24 years. 

Panagariya argues that says the United Nations has predicted India's population growth up until 2050 will be 0.6% a year. Based off these estimates, for such a level increase in per capita income, India’s GDP will need to grow at 7.9% for the next 24 years.

In the last 21 years, India's average growth rate in real dollar terms is approximately 7.8%. This can effortlessly be increased to 7.9%. The vision of a ‘developed India’ can become a reality. This has been stated by economist Arvind Panagariya. 

One of the areas that India has lagged behind is the need to undertake appropriate proactive reforms that would significantly expand the labour intensive sectors of the economy and provide good employment opportunities for the masses.

Panagariya states, “Look at the structure of our economy, and it will be clear that a lot of good jobs are available for skilled workers. We have a host of industries such as, pharmaceutical, machinery, which need a large number of trained engineers and other professionals. But for other sectors, the public remains a problem.” 

On capital account convertibility, he has expressed a cautious stance.

Replying to a question regarding capital account convertibility, Panagariya stated that India is managing its exchange rate, which has from the very beginning been advantageous to the country.

He claimed, “I am more onto the conservative side with regards to this issue and I do not support jumping straight into it. By fully opening the capital account, we will lose our ability to control the exchange rate. That is why I believe we need to get our per capita income to at least 8,000 – 10,000 USD before we start thinking about it." 

He further added that India’s policy regarding exchange rate since 1991 has, on the whole, been very good. He stated, “Once the capital account is open, there are no tools left for the government to manage the exchange rate. Such is my reasoning, that one should be careful rather than impatient.” 

According to Arvind Panagariya, India can use the US threat of imposing tariffs to its benefit. 

During the presentation of the 16th Finance Commission, cited Dr. Arvind Panagariya stated that it is possible for Indian traders to benefift from the tariffs by converting India US trade relations into an agreement that restricts tariffs from both sides. Still, the drastic alternative of a tariff war where both nations try to outdo each other with imposed tariffs would be disastrous.

The US has previously put high tariffs on several goods coming from India. While imposing restrictions, the US President Donald Trump referred to India as a 'tariff abuser' and said that both steel and aluminium come with a 25% tax when imported from India starting from March 12. Additionally, in 2019, India enforced a high import tax on 29 different goods coming from the US after being hit by tariffs on steel and aluminium products.

Pangariya claimed India’s policies in 1991 made them more competitive globally and increasing India’s business output efficiency. In his statements he also mentioned that such a mutual treaty on tariffs could boost the textile and clothing industry in the Indian market. While both distancing and engaging with a tariff – type of policy could spell disaster for the economies of both India and the US, it is, however, suggested that proper negotiation policies would benefit India.

While Prime Minister Narendra Modi was in the US recently, he agreed with the country that they would both work towards raising the trade value to $500 billion by 2030, and also agreed to commence negotiations on a Bilateral Trade Agreement (BTA) by 2025. As for total trade between the US and India, India exported goods worth $83.77 billion while importing goods amounting to $40.12 billion, making the total trade value $190.08 billion for the year 2023. The net trade surplus for India during this period was $43.65 billion.

India's total trade with the United States also increased during the 2023-24 period, reaching $119.71 billion. India’s exports stood at $77.51 billion and the imports for the period were valued at $42.19 billion. The trade during this period helped India have a trade surplus of $35.31 billion.

Now Commerce and Industry Minister Piyush Goyal is going on a US tour next week, where he will likely meet US Trade Representative (USTR) Jamieson Greer and Commerce Secretary Howard Lutnick. During this period, there might be discussions concerning trade relations and border policy changes between the two countries.