Can India become a developed nation?

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Mayank Goel, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur


The definition of developed nation always has a vagueness and debate hovering around it. While from the perspective of an investor developed nation is the one which possess advance economic structure such as capital access, regulations, monetary stability while from the perspective of an economist a developed nation is the one exhibiting high level of GDP, GNP, per capita income, robust tertiary and quaternary sector and from the perspective of a social advocate a developed nation is the one which has high levels of Human Development Index and low level of poverty. Developed nation can’t be characterized by a single definition; IMF identifies 37 nations to be developed, World Bank identifies 74 countries to be advanced or developed while OECD considers its 34 members to be developed.
Let’s not hung up upon arbitrary definitions the whole concept of developed nation is relative in nature i.e. how matured and evolved a nation stands with respect to others. One needs to look into the chronology of nations which have crossed the barrier to become developed. Nations such as United Kingdom, Netherlands had amassed substantial wealth during the colonial expansion by leveraging upon the wave of industrial revolution and are growing at a very sluggish rate post industrialization era, other first world countries such as United states have greased their economy over a long period of time reaping from every era, firstly as an supplier of raw materials to British empire and Ottoman empire, then as one of the centre of capitalism and industrialization then as centre of technological leader, countries such as Israel , Taiwan, Japan have become developed in pursuit of their existential challenges and shaping their economies in most robust way as an feedback to external threats and stimulus. But the major turning point in history of world was World War II which implicitly drew the line between the nations. On one side there were those riding the wave of rejuvenation and on other hand there were those who were marinating in their blissful ignorance.
Economy of India has a history of perpetual down beating starting from colonial exploitation then License raj, emergency. Hysteric from more than 250 years of colonial exploitation it was only in 1991 that India finally embraced the globalization after 44 years of independence and economy started rolling from its slumber.

Albeit the Nominal GDP of India being $2.3 Trillion standing at rank 7th in the world, the huge population base of 1.2 billion makes per capita GDP come down to $1808 at a dismal rank of 131st in world. Almost all the advanced or developed economies of the world share a common characteristic i.e. their economies cater to a relatively very small domestic population. Now if we focus upon demographics of India there are around 502 million labor force as of 2014 estimates of which 49% are engaged in agriculture sector, 20% in industrial manufacturing, 31% in services and contrastingly the contribution of these sectors is 17% by agriculture, 26% by industry and 57% by services. Evidently agriculture sector being the least productive and engaging 250 million labor force needs the most of revamping. If we compare some of developed economies all of them have minimal dependence on agriculture for employment. All major developed economies like US has only 0.7% labor force in agriculture sector, Germany has 0.9% labor force in agriculture, Japan with only 3.9% have minimalistic agriculture dependence and major labor force employed in service sector with moderate and robust manufacturing sector.
Now from the experience of major developed economies the countries which maintained to cross the barrier of being developed is by enabling its entrepreneurs, who in turn create employment for others. Silicon Valley in US, Toshiba, Fujitsu, Sony and Mitsubishi in Japan, Daimler, SAP and Siemens in Germany are empirical examples. Same can be corroborated from the ratio of contribution of service sector in GDP and percentage of labor employed in service sector. Ironically according to latest World Bank report India ranks 132 in ease of doing business among 185 economies.
Looking back at economy of India the major retarding factor for Indian economy has been long dependence on agriculture. Simple mathematics here that If we need 250 million people raising farms for 1200 million peoples than either food prices should sore up or farmers remain in poverty. But if 50 million are engaged in agriculture then their earnings will grow up by 5x times without changing the price of agro products. But where these 200 million will go? For that we need National level skill development. Government of India’s latest adventure with ‘Make in India’ campaign may look however promising but for a strong building a strong foundation is fundamental. With only 2.3 per cent of the workforce in India trained in formal skill compared to 68 per cent in the UK, 75 per cent in Germany, 52 per cent in the US, 80 per cent in Japan and 96 per cent in South Korea. A technologically-illiterate people, the logic goes, will remain at best technology-consumers but not active participators.
Tantamount to development of economy is human capital. Composite statistic of life expectancy, education and per capita income indicators which is called as Human Development Index (HDI) accounts the people-centered policies in addition to national income. While Norway tops the list of HDI with 0.944 HDI for year 2014 all the developed countries fills the top echelons of the list and India sits at end of deck with 135th rank. Major benefactors of HDI are life expectancy at birth, mean and gross years of schooling and per capita GNP. India faring equally dismal in all factors owning to inefficient education system, incapable health and sanitation system, huge population. As of 2011, enrollment rates are 58% for pre-primary, 93% for primary, 69% for secondary, and 25% for tertiary education. Despite the high overall enrollment rate for primary education, among rural children of age 10, half could not read at a basic level, over 60% were unable to do division, and half dropped out by the age 14. Indian government allocated 1.58% of GDP currently to Healthcare in contrast to global median of 5%.
One devastating problem which is plaguing the growth of India for always is shoddy infrastructure- power, electricity, roads, railways, ports, airways, public health, education institutions all are in continuous abysmal state of despair. India has 11 major ports, which are managed by the Port Trust of India. Five of these ports are on the east coast of India and six are on the west coast. These ports handle 82% of cargo and are operating beyond their capacity. India has a road network of over 4,689,842 kilometers of which only 54% is paved. Example of South Korea is illustrious enough to emphasize the importance of infrastructure development which brought it from one of the poorest economy in 1960’s to world 11th in 2014.
Undoubtedly recent endeavors by Government of India such as GST bill, Land reform bill, Make in India are quintessential to revamp the economic structure and reinstate the lost faith in economy after perpetual down beating but all these economic reforms highlight only one facet of being developed country. A country without its population feeling an upliftment in its standard of living and happiness cannot claim to be developed only on macroeconomics indicators as it is the peoples who define economy not vice versa. In a long road towards being developed there has to be a felt sense of upliftment in quality of living. Be it access to power and energy, education, healthcare, opportunity to work, regulations, civil rights etc all these are intertwined and organic to development. There is a urgent need to dismantle the rigid system of bottleneck regulations and multiple clearances for aspiring entrepreneurs to breath in and prosper, reforming the agriculture sector with more productive and rewarding technological revamp and leverage upon huge human capital by establishing more goal oriented skill development institutions.

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