India’s trajectory broadly positive...there is no way any math would support us becoming a developed economy by 2047, says Ruchir Sharma

It may not be mathematically possible for India to become a developed country by 2047 with an annual GDP growth rate of 6%, said Ruchir Sharma, Chairman, Rockefeller International, and advised measures such “micro economic reforms” such as reducing the regulatory and compliance burden on businesses as well as controlling investigative agencies to improve private sector business confidence that could boost the economy.
 
“India’s trajectory is broadly positive. But there is no way any math would support us becoming a developed economy by 2047,” he said at the BT India@100 conference on Tuesday.
 
Addressing a session on ‘India@100: The State of Capitalism in India’, Sharma said, “Growing at 6% a year, which is what the growth rate seems to be as there does not seem any reform on the anvil to boost growth to 10%, we will struggle to be a middle income country by 2047.”
 
“For us to become a developed country by 2047, we will have to grow at 10-12% real GDP per year, or even to be a middle income country. Our per capita income today is $ 3,000...you do the math...,” he said, while agreeing that 10%-12% GDP growth on an annual basis is not possible in the current economic situation.
 
He pointed out that China benefitted enormously from globalisation but they built a huge exports system and also carried out ruthless capitalism and was able to grow at a much higher GDP rate.
 
Meanwhile on a question on the Indian stock markets, Sharma said that the classic models are not working for India as of now. “The domestic flow of money or the financialisation trend that we are seeing has taken a momentum of its own. India has been the most expensive stock market in the world for a while. It is the one market in the world which is more expensive that the US in terms of valuations despite the US market being at record highs. This is a market which is functioning on its own dynamics. The good thing is that it is so far broadly supported by fundamentals,” he said.
 
A true bubble is where the fundamentals are deteriorating but the prices are going up, he pointed out but said that in India’s case, there has been earnings growth in the stock markets. “There has been wealth creation on a genuine basis as well as far as India is concerned. The economy is doing relatively well today in terms of what the growth rates are across the world. The good thing about India is that there is no other emerging market which offers the diversity of companies that India offers,” he said, adding that this entire boom has been driven by domestic money. Foreign money has been largely absent from the stock market until the election.
 
“Across the world, the big trend I have noticed is that people are overly concentrated on the US stock market today. The US economy today is about 26% of the global economy. The US stock market is more than 50% of the global stock market value,” Sharma said, adding that this is bound to break. “The US dollar is bound to weaken and the capital flows are likely to come back to emerging markets and India will be a beneficiary of that de facto.
 
On the US elections, he said that the Trump programme is scarier for India as he wants to impose tariffs across the board. “But I think he is more of a deal maker and these are only negotiating tactics,” he said.
 
He further said that he believes the US has become very overvalued, the US Dollar has become very expensive and the economy is taking its success for granted. He also raised concerns over the US Presidential election campaign and pointed out that today the US is running a budget deficit in the middle of a major economic recovery of 6% of GDP. “Yet, both the candidates are saying deficits don’t matter,” he said.
 
On the possibility of a recession in the US, Sharma said that the effect of the stimulus is wearing off. “Recession may be too strong a word but the economy is slowing down. The Fed seems all set to cut interest rates and I think that is good for markets like India and other places as the cost of capital around the world is likely to come down and lead to greater capital flows in emerging markets in general,” he said.
 
He however, said that the US will have to confront its problems of running its high deficits and will have to be taken up by the new President in 2025. “I think 2025 could be quite a breakthrough year in which capital begins to leave the US because of the domestic problems and finds its way into other countries,” he said.
 
He underlined that the NDA government in the last 10 years has been very good in its macroeconomic management and has managed to bring down inflation and also not go overboard on stimulus measures during the pandemic. He however, said that he disagreed with some of the steps taken by the government such as demonetisation and many issues during the roll out of the goods and services tax. He also pointed out that there has been little success in privatisation over the last few years and doing business in India for foreigners continues to be fraught with difficulties.