Growth at 6%, India will remain lower middle economy till 2047: Raghuram Rajan

Former RBI governor Raghuram Rajan said India will still remain a lower– to middle-income country if the potential growth rate remains at 6 per cent annually, without any rise in population by 2047 (the Narendra Modi government's stated boundary of Amrit Kaal)—and will be reaching the end of its demographic dividend by then.

Speaking at a programme organised by Manthan in Hyderabad on Saturday, 16 December, the economist said that if the country does not grow at a faster rate, it will grow older (demographically) before it gets richer, which means there will be the burden of a larger ageing population to deal with also at that point.

Rajan said the GDP growth in India for the past two quarters was in the region of 7.5 per cent. If one looks at labour force participation, he said, it is very low; when it comes to female participation, "it is the lowest in the G20".

"India's growth potential is today about 6 per cent a year GDP growth. If you do the math, at 6 per cent a year, you double every 12 years and therefore in 24 years, we'll be at four times our per capita income," he said.

"Today, the per capita income in India, as you know, is just a little below $2,500 per person. Multiply by four, we get $10,000 per person. So if you do the math, at our current rate of growth—you know, strong as it is, highest in the G20—we don't get rich but we stay lower/middle income till 2047," he continued.

The former RBI chief said some southern states are growing with regards to population being at below the reproduction rate. In other words, the fertility rate has fallen below the reproduction rate in those states, thus slowing the growth of the population—a good thing—but also increasing the median age of the population as a result.

"In other words, we will start the process of ageing (for the overall Indian population) at some point around that time (2047)," Rajan said, "which leads to the alarming (situation that) if we don't grow faster, we will grow old before we grow rich—which means we will have all the burdens of an ageing population to deal with also at that point."

According to him, the current pace of growth is not enough to employ all those who are entering the labour force and is thus insufficient to make the country richer before it gets older.

Discussing Prime Minister Narendra Modi's vision of 100 years of Independence by 2047 as "Amrit Kaal", he said that it should still be a year of plenty.

Speaking of the road ahead for India in comparison to other nations, Rajan said some of the developed nations had moved their focus from manufacturing to services as part of moving up the value chain after they became richer.

Those countries are largely services economies now, with 70 per cent of the workforce in rich countries typically being in the service industry and 20 per cent in manufacturing, only 5 per cent each in construction and agriculture, he noted.

Based on PTI inputs