Modi’s developed-nation dream strains against India’s growth gap

India aims to become a developed nation by 2047, but its current economic growth rate is falling short of the ambitious target, according to Prime Minister Narendra Modi's vision. In a bid to lure international investors, two senior ministers recently presented India's growth story to global investors, seeking fresh capital from the US, Canada, and Japan.

However, despite record foreign direct investment, India has struggled to retain capital within its borders, with domestic firms increasingly investing abroad and foreign investors in Indian startups cashing out earlier.

Although India grew at more than 7% last quarter, that pace may still be too slow to achieve Modi's dream. To become a developed nation, India's economy would need to grow at 9.25% annually for 21 years, as per Ashok Lahiri, a senior official at the country's apex government-run think-tank. Economists highlight that sustained economic acceleration will become increasingly difficult as the economy expands.

India's per-capita income is $2,813, and it would have to increase sixfold to around $18,000 by 2047 to cross the high-income threshold. The current account and budget gaps, along with reliance on volatile capital inflows, pose significant vulnerabilities. Foreign investor appeal is waning, with India's rupee performing poorly in Asia and being named Asia's least-preferred stock market.

Boosting manufacturing and attracting international investors into the sector are key priorities. However, India's manufacturing share in GDP remains stagnant at around 16%-17% for over a decade, falling short of the 25% goal. Economists suggest expanding high-tech exports, encouraging private investment, and reducing energy import dependence to accelerate growth. India accounts for less than 2% of global goods exports, compared to China's more than 14%, highlighting the gap that needs to be closed.

The nation must also attract more domestic savings to finance growth ambitions. While India saves more than the global average, its savings rate lags behind several Asian peers and is far below China's. A sustained decline in savings would leave India more reliant on costlier borrowing or foreign capital. Moreover, India faces a demographic dividend challenge, with nearly 87 million Indians aged 15 to 29 neither working nor in education or training.

This shortage of quality jobs has pushed a large portion of the workforce into self-employment, particularly in agriculture.