India will overtake Germany in 2022 as the world’s
fourth-largest economy and push Britain out of the top five, based on analysis
of growth projections by the International Monetary Fund. But the challenges
the country must surmount to get there are many. These include executing a
wide-ranging overhaul of the tax system, sorting out the biggest pile of
distressed assets among major economies, reviving lackluster productivity,
substantially increasing employment opportunities, encouraging corporate
investment and overcoming a significant infrastructure shortfall. India’s
economy is still recovering from a cash ban that sucked out 86 per cent of
currency in circulation near the end of last year. And then there’s the likely
near-term disruptions from the implementation of a nationwide goods and sales
tax; indeed the government has already missed an April deadline for putting the
tax in place and is now working against the clock to meet its new July 1 goal.
While there is little doubt the GST will be beneficial in the long run,
economists are concerned about India’s banking system and the overall health of
its public finances — both seen as lightning rods for global credit agencies
that already rate Indian debt just above “junk’’ status. Bad loans,
restructured debt and advances to companies that can’t service their debt have
risen to about 16.6 percent of total loans, government data show. That spike in
bad loans has forced banks to focus on recovering bad debts. As a result, loan
growth has fallen to near record lows, posing a challenge to Prime Minister
Narendra Modi’s government as it seeks to revive investment and boost
employment. Apart from slowing investment, India’s labour productivity has been
weakening, limiting growth and employment opportunities. Labour productivity
per person employed eased from 10 per cent in 2010 to 4.8 per cent in 2016 as
reforms sputtered. According to the International Labour Organisation, output
per worker is projected at $3,962 for India in 2017, a fraction of Germany’s
$83,385. Still, the potential remains. Ranking countries and regions on their
gross domestic product, for 2017 and 2022 based on International Monetary Fund
forecasts, India, growing at 9.9 per cent a year in nominal terms, will surpass
Germany by 2022 as the world’s fourth largest economy, with the UK dropping out
of the top five after 2017. Some seven decades after independence, India may
outshine its former colonial master.
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