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NEW DELHI – It is not often that I get to wear two hats at once. But that is exactly what happened earlier this month, when I spent a few days in New Delhi.
I was in India primarily as part of my current role as Chairman of a review for the British prime minister on anti-microbial resistance (AMR). But my visit coincided with the presentation of India’s 2015-2016 budget, the first under Prime Minister Narendra Modi. Given some of my other interests and experiences, I found what was presented to be very interesting.
Following recent revisions to its GDP figures, India’s economy has recently grown – in real terms – slightly faster than China’s. A key feature of my research into the BRIC economies (Brazil, Russia, India, and China) more than ten years ago was that at some point during this decade, India would start to grow faster than China and continue to do so for dozens of years.
The reasoning is straightforward. India’s demographics are considerably better than China’s, and the size and growth rate of a country’s workforce is one of the two key factors that drive long-term economic performance – the other being productivity. Between now and 2030, the growth rate of India’s workforce will add as much to the existing stock of labor as continental Europe’s four largest economies put together.
India is less urbanized than China, and it is in the early stages of benefiting from the virtuous forces that normally accompany that process.
But there is a catch. When it comes to productivity, India has been a laggard. Unless it finds a way to improve, the country’s demographic profile could become a burden rather than a benefit.
In this regard, Modi’s first full budget did not include anything dramatic. But if a number of initiatives are successfully implemented, the economy should receive a real boost. Indeed, the budget’s main feature is its commitment to investments in public-sector infrastructure, even at the expense of raising next year’s deficit from 3.6% to 3.9% of GDP.
I have argued for several years that India should emphasize investment spending, so I welcome this shift. The budget also includes a number of other helpful measures, such as the reduction of the corporate-tax rate and efforts to improve the business environment.
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