Sanjeev Sanyal: 'To say India is growing faster because it is poor is utter rubbish...simply having population doesn't get you there'

Economist Sanjeev Sanyal, in a latest podcast, rejected arguments that India was growing faster because it had a large population and was still a very poor country. He called this argument "utter rubbish" and countered that India had a large population and even poorer in the 1960s-70s, yet it didn't grow. "We only began to get going serious about growth in the 90s. Why? Because we began to have sensible policies," he said in a podcast - Think School.
  
In 2014, when Prime Minister Narendra Modi assumed charge, India was the world's tenth-largest economy. In ten years, India has become the fifth largest economy (3.7 trillion) after the US (26.8 trillion), China (19.3), Japan (4.4), and Germany (4.3). PM Modi has repeatedly said that in his third term, India will be the third largest economy. 

However, the Congress argues that it is bound to happen no matter who is the Prime Minister. In April this year, former Finance Minister P Chidambaram said India would achieve this feat given the size of its population. "Narendra Modi is a master of exaggeration. He is turning an arithmetical inevitability into a guarantee. It is inevitable that India will become the third-largest economy in the world," he said in an interview with PTI.

Sanyal, member of Prime Minister's Economic Advisory Council, dismissed the hypothesis, saying simply having population doesn't get you there. He backed this up by saying there were several poor countries around the world but they were not growing. "Sensible policies matter. Simply having population doesn't get you there. Simply being poor and therefore having a catch up, doesn't get you there." 

"Forget India's own history of being very poor, there are many countries in the world which are much poorer than us. Much of Africa. There's Pakistan, Afghanistan. Why aren't they growing faster than us? So to make this case that we are growing faster because we are poor is utter rubbish. We have been even poorer in the past and we didn't grow," he said. 

The economist further explained how India became the 5th largest economy from 10th in the last 10 years. He said this happened becuase of the "power of compunding". "When we began liberalising our economy, we were only a $270 billion economy. We were that small. It then took us 16-17 years till 2007-8 to become a $1 trillion economy. From there, it took us seven years to become a $2 trillion economy in 2014-15. Now, from there it should have been faster. But then, we we took about another seven years, partly because of Covid to become a $3 trillion economy in 2021-22. This year, we will be close to $4 trillion. So another trillion dollars being added in little over three years. People forget the power of compounding," he said.  

Sanyal said everybody talks about China, which is now a $19 trillion economy. Do remember that they got here through compounding, he added. "People learn compound interest rates in schools, but they forget how powerful it is in the first few years. It doesn't seem to matter, and then a few years later it just blows up. So this is the important thing. So this power of compounding what we are benefiting from."

The economist, however, noted that this number, of course, is a nominal number, not a real number. "But our economy last year grew by 8.2%. It is growing at double digits in nominal dollar terms and this year again will grow by 7% in real terms and probably over 10% in nominal dollar terms. This 10 percentage point compounding is massively powerful. So we are now at $4 trillion. It take us to a little over two year years - somewhere in 2007 or so, we will become a $5 trillion economy. Along the way, we will go past Japan, which we should do this year or early next year and then another two years from there to go past Germany to become the world's third largest economy. This is basically that compounding process."

As India continues to grow, Sanyal acknowledges that the country remains relatively poor in per capita terms, with income levels far below those of developed nations. "Now, of course, people will say that even when we are the world's third largest economy, we will be a per capita terms poor. No doubt about it. We will be the fifth largest economy now, then third largest economy. But we already are by some margin the world's largest population, so one divided by the other."
 
"Not surprisingly, the number is small. And it's barely about $3000 per capita. The US is at $80,000 per capita. Even if you adjust for purchasing power, we will still be at a little over $10,000 per capita. So we are a poor economy, not as poor as we used to be. We used to have barely $330 or something per capita in 1991. So from there we have grown a little less than 10 times. So no doubt that we are much less poor than we used to be." 

The economist noted that that extreme kind of poverty is now restricted to much smaller areas and a much smaller segment of society. "But yes, we are still very, very poor. And the solution to this is to keep this compounding process going. Everybody got here through compounding. We are not going to be an exception. China got through it. The West went through this compounding process. No matter how you think about this, this is about compounding and we have now reached a critical mass where that compounding is really beginning to count."