India: A Boom on the Horizon
Step into any Indian city, and you’ll feel an energy that’s contagious. The economic outlook for India is bright, with a recent study showing an annualized growth rate of 7.6% in the third quarter of 2023. Several international forecasters have upped their growth projections for India, with the National Stock Exchange vying for the rank of the world’s seventh-largest bourse.
However, when we take a closer look, we find a more nuanced picture. Despite the apparent growth, India’s labor-force participation remains low, and government subsidies are distorting the economy in some areas. Raghuram Rajan and Rohit Lamba explore these complexities in a new book that aims to reshape India’s development model.
The authors outline three key lessons for India’s future. First, they argue that India should shift focus away from an excessive emphasis on manufacturing, which has been prominent in East Asia. The move toward low-skilled manufacturing and away from value-added tasks has stifled the profitability of this sector, with automation further reducing available jobs. The authors believe that India should take a different approach to capitalizing on global demand.
Their second lesson involves the export of services, a trend that has continued to grow despite a decline in global trade for goods. Yet, India struggles to provide the necessary education and reform required to succeed in this space. Addressing these issues will be essential in capturing a larger share of the global value chain and propelling India’s service sector to new heights.
The authors’ third wish is for India to embrace both economic and political liberalism. They point out that protectionism and rising tariffs are working against the country’s exporters, and India’s refusal to join free-trade agreements is further hindering its global reach.
It’s clear that Rajan and Lamba have high hopes for India’s future, but they also acknowledge the political challenges in making their vision a reality. The potential benefits of open and better governance are vast, but the hurdles remain significant.
Despite the obstacles, the authors’ vision for India provides a ray of hope, suggesting that even if only a fraction of this ambitious plan is realized, the country’s boom may just be getting started.
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