The idea of Viksit Bharat is facing huge challenges

INDIA is dreaming of becoming a developed country by 2047. Recently, the CEO of NITI Aayog BVR Subrahmanyam recently predicted that India was on track to achieving the targeted $30-trillion economy by 2047. Arvind Subramanian, former chief economic adviser, has projected that even a $50-trillion economy is well within India’s reach.

The claims are supplemented by various global governance institutions and corporate think tank organisations that have thrown up a variety of arguments and presumptions. It seems that India is poised to become a developed country by the stipulated date. This projection is reinforced by the media, warding off critics.

However, some business leaders and policymakers have started questioning the current model of governance and fixing long-term targets without facing the real challenges. Infosys founder Narayana Murthy recently said that India’s governance system has failed to be innovative. Problems are recurring with no viable and sustainable solutions in sight. Murthy used Delhi’s pollution to vindicate his point. He urged the government to change its system of management and take the challenges of the Indian economy head on.

As the Indian rupee, in comparison to the US dollar, has depreciated and the growth rate in the second quarter of 2024-25 nose-dived, Chief Economic Adviser V Anantha Nageswaran has warned businessmen against being complacent. He has cautioned them to not take advantage of the depreciation of the rupee in increasing their exports. Rather, they should concentrate on increasing productivity and innovations to be competitive in the international markets.

He also proposed some structural reforms, especially at the state and local levels of governance, to make India’s growth rate sustainable. Pertinently, the Commerce and Industry has proposed to dismantle the facility of ease-of-doing business's single-window system because captains of the Indian industry have not shown much interest in this policy instrument. This clearly brings out the fact that the idea of a developed India (Viksit Bharat) is facing gigantic challenges. There is need to clear the long bumpy road ahead.

The first and foremost challenge lies in the evolution of the economic structure and its disconnect among the three sectors of economy. One must keep in view the development experience of the developed countries, including East Asian countries, which have had a dynamic and leading industrial sector at the centre of transformation of their economies. The industry, as an engine of growth and transformation of these economies, had provided new products to the world, raising productivity and was the main source of employment.

It is the services sector that has remained predominant for generating income. But the largest proportion of the workforce continues to derive livelihood from the agriculture sector. The agriculture sector, during the last three decades of economic reforms, has borne the burden of the promised transformation of the Indian economy. The workforce currently employed in this sector is as high as 45 per cent. This work engagement comprises low productivity and subsistence wage income, making the agriculture sector as one in distress.

Another feature of the developed countries’ experience has been the strong intersectoral linkages during the process of structural transformation, including the agriculture, industry and services sectors. Studies examining the sectoral linkages of the developed economies and the Indian economy show that weak intersectoral linkages have prevented the Indian industry from realising the economies of scale.

The services sector of India, instead, has remained predominant, standalone, adding low value and not much employment opportunities. Instead of providing new products to the world, it has remained a subservient service office of the western developed countries.

These structural weaknesses have resulted in a long-term chronic deficit in the balance of trade and a stressed foreign exchange rate. This deficit has forced for the compensation to be derived from the capital account. This has further burdened the economy with a rising debt-GDP ratio. These challenges are formidable and can act as a stumbling block in the realisation of India’s goal of becoming developed.

The recently published World Development Report 2024 has examined the causes of why countries fall in low- or middle-income traps. The report has also attempted to provide some way forward. The most important factor that allowed the smooth transition of a country to become developed has been the discipline on ‘capital’. The second most important factor has been investment in research and development and become a leader in innovation.

On both counts, India has remained not only deficit but also lagging. A large number of billionaires has emerged in India in a short span of time, but their contribution in introducing new products in the world is almost nil. Low investment in innovation is a violation of the expected ethics/code of conduct of capital for a developed country.

Studies on domestic innovations since the July 1991 economic reforms show a decline in domestic share of innovations. This supports the fact that the Indian polity and policymakers have failed to make the Indian capitalists to invest in innovations to become a leader in high productivity and competitive globally.

If the dynamics are changed, they can generate higher job opportunities and more income in the hands of the workforce. This will ensure upward mobility of the workers and generate adequate demand for goods and services. This multiplier impact is needed for the business as an incentive to be innovative for a sustained economic activity.