Carnegie Endowment a US-based internationally recognised foreign-policy think tank states that India is likely to be third largest economy by the middle of century. In an article "The G20 in 2050",(November,2009) bulletin it says: "China, India, and the United Statesv:shapes="_x0000_i1025">

will emerge as the world's three largest economies in 2050. Their total GDP, in real US dollar terms, will be over 70% more than that of the other G20 countries combined.  In China and India alone, GDP is predicted to increase by nearly $60 trillion--the current world GDP--but the wide disparity in per capita GDP among these three will persist." Other main findings include, China will become the world's largest economy in 2032, and grow to be 20% larger than the United States by 2050. Over the next forty years, nearly 60% of G20 economic growth will come from Brazil, China, India, Russia, and Mexico alone.

This study is not the sole study to state so. Various other studies have shown that India could be 40 times bigger by 2050. To achieve this potential, however, the nation needs to implement many changes. However, to gauge the reality, it is imperative to realise the present situation.

The Present Scene

India is not one homogenous entity. It can be safely divided in two categories – India- the westernised progressive and affluent one and the other one that is still living may be in eighteenth century, where 540 million people do not have two meals a day, where pure drinking water is luxury, and where infant mortality is highest. As the two Indias continue to hurtle in opposite directions, one feeding off the other, State intervention is often resorted to rescue the deprived sections of society. The recently released UN Human Development Report has shown that India’s ranking in terms of the Human Development Index (HDI) is a miserable 134 out of 182 countries. In 2007, India ranked 126 among 177 countries. Today, we are sandwiched between Laos and the Solomon Islands. As we shall see in the succeeding paragraphs, there has been a decline in all sectors.

There is considerable euphoria in official circles over the 10.4 per cent growth in the index of industrial production (IIP). From the prime minister downwards, everyone is involved in creating an impression that the worst of the global recession is behind us and India is slated to re-enter its high growth trajectory. The IIP had grown by just 1.7 percent on a year-to-year basis last year. Hence, the current high growth rate is based on very low levels. This is like a political party claiming a 300 percent increase in its influence when its representation in Parliament grows from one seat to three.

While everyone wished robust economic growth leading to an improvement in the livelihood of the people, the grim ground realities cannot be ignored. The data base of the HDI report is for 2007. Thus, it fails to capture the ruination of millions due to the current global recession. Nevertheless, its hard data on India negates the high flown talk indulged in by some. They indulge in this pastime possibly to generate expectations of the euphoria of a high growth trajectory, reflected in the grandeur of an ‘emerging economy’ rubbing shoulders with the ‘mighty’ at the G-20 high table. It only confirms that there are two Indians in the making – a ‘Shining’ for the few and a ‘Suffering for the many.

India has registered a decline in all the parameters used to measure the HDI, other than adult literacy. Per capita income, adjusted to purchasing power parity, declined from $3,452 to $2,753 from last year. Life expectancy at birth declined from 63.7 years to 63.4 years. The combined gross enrolment ratio in schools declined from 63.8 percent to 61 percent. While considering this parameter, the HDI does not take into account the rate of drop-outs that is very high in India. Of the 100 students that enter Class 1, only 31 reach class 10. Of these, only around 16 pass Class 12. Of these, only about nine enter the portals of higher education. Once a student enters school unlike in many other countries, things do not proceed automatically in India.

This, is a way, captures the fact that India’s HDI, which stood at 0.427 in 1980, is now marginally higher, after nearly three decades, at 0.612. That India’s growth story does not translate to the vast majority of its people is yet again confirmed when we find that in 2009, the percentage of people living on @ 1.25 is 41.6 percent and 75.6 percent live on less that $2 a day. This latter figure, in purchasing power parity terms, confirms the findings of the prime minister-appointed Arjun Sengupta Report that 77 percent of Indians, survive on less that Rs. 20 a day. At the same time, this negates the fanciful estimates of the Planning Commission on sharply declining poverty levels in India.

Further, the HDI rankings show that India is six rungs lower than its ranking on per capita income based on purchasing power parity. Compare this with our neighbouring countries where the HDI ranking is considerably higher than their per capita income ranking. In Bangladesh, it is nine rungs higher, China 10, Sri Lanka 14, Nepal 21 and Myanmar 29. This once again confirms that the benefits of higher growth have only been confined to a few and have not contributed to the rise in the overall quality of life for the vast masses of our people.

Still more shocking are the figures released by Save the Children. One-fifth of the children dying in the world are Indian. A total of 2 million die before their fifth birthday. One child dies every 15 seconds due to neo-natal diseases. More than 4,00,000 new-borns die every year within a day of birth. One in three malnourished children worldwide are Indian, while 46 percent of Indian children are underweight.

In a survey of 29 countries battling hunger, anti-poverty agency Actionaid ranks India at 22. Apart from Socialist China and Vietnam, Brazil, Ghana and Malawi constitute the top five that have achieved reasonable successes in battling malnutrition that has grown by 20 percent globally since 2005, pushing an extra 170 million people into hunger. All these countries retained or reclaimed a central role for the State in agriculture to ensure the production and distribution of staple foods. Within six years, Brazil reduced child malnutrition by 73 per cent and child deaths by 45 per cent through concerted State intervention.

Clearly, such interventions, rising above rhetoric, are required urgently in India. Instead of the current situation where ‘Shining’ India exists because of ‘Suffering’ India, a meaningful inclusive growth focusing on the common man can come about only through vastly expanded public investments that will, on the one hand, generate jobs and build the much-needed social and economic infrastructure on the other, will be accompanied by concrete measures for ensuring food security.

Parameters for Growth

Considering the abject situation, it is worthwhile considering the possibility of really achieving the expected heights. It is possible in case some clearly defined parameters are met. In one of its latest papers, Goldman Sachs outlines ten crucial steps that India must take in order to achieve its full potential.

“In our latest annual update to our Growth Environment Scores (GES), India scores below the other three BRIC nations, and is currently ranked 110 out of a set of 181 countries assigned GES scores. If India were able to undertake the necessary reforms, it could raise its growth potential by as much as 2.8% per annum, placing it in a very strong position to deliver the impressive growth we outlined,” it says. The suggested parameters are:

Improve Governance

India’s governance problems are predominantly the most insoluble ones. Without better governance, improved delivery systems and effective implementation, it is well nigh impossible for India to educate its citizens, build infrastructure, increase agricultural productivity, and ensure that the fruits of economic growth are well-distributed.

Governance problems stem from the increasing inability of the government and public institutions to deliver public services in the face of rising expectations. A large gap between physical access to services and the quality of services provided is leading to a citizen satisfaction gap.

India’s governance problem is primarily because of the malpractice of democracy—or the ‘democracy deficit. The majority of the legislators have criminal records.

A well-functioning democracy should allow citizens to have more voice in evaluating the quality of services they receive, for governments and service providers to be accountable, and for citizens to pay directly for services received

Raise Basic Educational Achievement

Many international observers tend to see education as one of India’s biggest advantages. This is primarily because they tend to meet only the best and the brightest. Agreed, that India has a large number of highly educated people. But it has a population of 1.1bn and also has probably the highest absolute numbers anywhere globally receiving hardly any education.

There is evidence that the amount of time spent receiving secondary education is important for economic growth and productivity. India scores poorly relative to the other BRICs, and even below the average of all emerging market countries. The actual amount spent on education is low, and its efficiency is weak. It is important that India improves the amount and quantity of money spent, and that the quality is improved

Increase Quality & Quantity of Universities

There is also significant need for better higher education. The likely numbers seeking higher education can be expected to grow by three of four times by 2020 from the current number of around 10mn.

The National Knowledge Commission has proposed an increase in the number of universities from 350 today to 1,500 by 2016. It has also proposed an increase in the 18-24 age group — to be educated to university level from 7% to 15%. India plans to quadruple the number of its universities in the next ten years—an admirable goal and a huge challenge. Its goal should also probably be that at least 20 of these are the world’s best. Shanghai University has become recognised as the authoritative voice on leading universities. What is the level of Indian Universities? The emergence of private colleges and universities has further compounded the problem. The mal practices are increasing and the real education is at a discount.

The latest ranking of global universities does not show a single Indian university in the top 300. China itself has six. In order to achieve this kind of ambition, just as in other spheres of life, India’s leadership needs to have strong and imaginative goals. Perhaps India can share ‘best practices’ with leading universities from elsewhere around the world.

Control Inflation

Although India has not suffered particularly from dramatic inflation, it is currently experiencing a rise in inflation similar to that seen in a number of emerging economies.

A formal adoption of Inflation Targeting (IT) would be a very sensible move to help India persuade its huge population of the (permanent) benefits of price stability. To effectively control inflation, it is important to free the Reserve Bank of India from the yoke of Finance Ministry and there is also requirement of abolishing foreign exchange controls. IT has given major benefits to a broad variety of countries, ranging from ‘developed’ countries (such as New Zealand, Sweden and the UK) to ‘developing’ ones (such as Brazil, Korea and South Africa). For India, there are probably broader powerful benefits,” it says.

Introduce a Credible Fiscal Policy

India’s gross fiscal deficit remains one of the highest in the world and, recently, government liabilities have been increasing at an alarming rate. Goldman Sachs estimates that the overall government deficit stood at just under 6% in FY2008. In FY2009, this may accelerate to above 7%, due to a large debt-waiver for farmers, a big wage hike for civil servants, increasing fertiliser and oil subsidies, and higher exemptions on income tax. At such high levels, government borrowing crowds out private-sector credit, keeps interest rates high, adds to already high government debt, and becomes a key source of macro vulnerability.

Therefore, a medium-term strategy for fiscal policy, which reduces the overall deficit to a sustainable level, is critical for India

Liberalise Financial Markets

India’s financial sector remains small and underdeveloped. The state still dominates the sector, holding 70% of banking assets, a majority of insurance funds and the entire pension sector.

Additionally, markets are lacking in corporate debt, currency and derivatives. This leads to a lack of credit and low financial savings. Total credit, at 50% of GDP (although increasing rapidly in recent years), remains well below that of its Asian neighbours (an average of over 100% of GDP) and especially low as compared to China (111% of GDP).

Within this, consumer credit remains abysmally low (at 11% of GDP) compared with an Asian average of over 40% of GDP. Household savings tend to be in physical assets and gold, and risk diversification channels are not available.

To meet its growth potential, India needs to pursue financial reforms to channel savings effectively into investment, meet funding requirements for infrastructure and enhance financial stability. Savers need to have access to a broad range of financial instruments, while borrowers should be able to access local debt and equity

Increase Trade with Neighbours

In the past decade or so, Indian trade with the rest of the world has ballooned. Lower tariff barriers encouraged by Indian authorities have been key to this growth. This impressive development needs to be kept in perspective, however, as it has come from an exceptionally low base. India currently accounts for no more than 1.5% of global trade.

On Goldman Sachs’ GES scoring system, India still ranks below the average of all developing countries. India’s trade with China is rising sharply, and China now ties with the US as India’s biggest trading partner.

Again, however, it is important to recognise that trade with China remains very low. India takes just 1.93% of China’s exports and provides just 1.46% of its imports. Total trade with the US in 2007 was just $42bn. For comparison, total US trade with China in 2007 was $405bn. Similarly, total Indian trade with China was just $37bn.

Thus, in terms of international trade, India continues to be much less ‘open’ than many of its other large emerging nation colleagues, especially China. Given the significant number of nations with large populations on its borders, India has to target a major increase in trade with China, Pakistan and Bangladesh.

Increase Agricultural Productivity

Increasing agricultural growth is critical not only for India to sustain high growth rates, but also to move millions out of poverty. Currently, 60% of the labour force is employed in agriculture, which contributes less than 1% of overall growth.

India’s agricultural yields are a fraction of those of its more dynamic Asian neighbours. For instance, rice yields are a third of China’s and half of Vietnam’s. Agriculture will have to contend with two other problems. First, the loss of arable land for non-agricultural uses as India industrialises and urbanises.

Second, soil erosion due to intensive farming and environmental degradation has further reduced production. Since there are limits to enhancing area under cultivation, as forest cover is already dwindling, raising agricultural productivity will be key factor in growth of economy.

Improve Infrastructure

India’s constraints in infrastructure are obvious to first-time visitors as well as the long-term residents. The problems of clogged airports, poor roads, inadequate power, delays in ports have been well-recognised as impeding growth. Indian companies on average lose 30 days in obtaining an electricity connection, 15 days in clearing exports through customs, and lose 7% of the value of their sales due to power outages.

Incremental demand for infrastructure will continue to increase due to economic growth and urbanisation. Thus, there is both a stock and a flow problem. If India’s economic growth were to continue, it will fuel demand for energy, transport, logistics and communication. Imagine even in metro cities, there is no electricity for 8 hours a day. Imagine that all skyscrapers have basement that have generators of huge reserves of oil and diesel that are almost time bombs ready to explode.

The success stories in the past few years need to be replicated. India has built more than 3,600 miles of highways for the Golden Quadrilateral Highway project, whereas in the previous 50 years it had built 300 miles; parts of New Delhi metro were completed earlier than envisaged; and the privatisation of the telecom sector, and its rapid growth and penetration, are all success stories that demonstrate that India can build infrastructure.

The ability to continue to do so will be critical for the growth of the economy.

Improve Environmental Quality

India’s high population density, extreme climate and economic dependence on its natural resource base make environmental sustainability critical in maintaining its development path.

History is replete with instances of societies that have depleted their natural resources in the course of their development, thereby leading to severe loss of growth, and in some spectacular cases (e.g., Easter Island) a complete collapse of the civilization. Although such dire prognostications are premature, urbanisation, industrialisation and ongoing global climate change will take a heavy toll on India’s environment, if not managed better.

India is well-placed to deal with environmental issues. It has a strong policy and institutional framework—including a separate ministry for environment and forests; state and local pollution control boards; a vocal media; and of late a very active judiciary.

The political commitment to a sustainable environment is, however, still lukewarm, and significant segments of the population may profess to have other, more pressing priorities. If not given the right priority, environmental sustainability has the potential to become India’s greatest challenge.

In case India has to become a growth that is all pervasive and is not confined to a select few; in case the nation has be deemed a cohesive unit where there is economic growth as well as social justice, then the authorities better remove their blinkers and face the issues. Adopting an ostrich like attitude is going to be self defeating.