Ranked at 60th place among emerging economies on the Inclusive Development Index for 2016, India has suddenly dropped a further two places on the World Economic Forum 2017 report this year.
Announced just hours before Prime Minister Narendra Modi’s keynote speech to international corporate leaders at the WEF plenary session at Davos, Switzerland, it may have been a disappointment. In the meantime, Lithuania attained the title of the world’s most inclusive emerging economy, while Norway topped the ranking as the most advanced economy.
As gross domestic product has increasingly been considered an insufficient parameter for measuring economic progress, in recent years economists have brainstormed over options that could serve as an alternative. Measuring the progress of 103 economies on the basis of three main pillars of achievement, namely the general standard of living, sustainable environment and effectiveness of measures taken to protect future generations from rising debt, the WEF has focused on inclusive growth instead of considering just GDP.
Having released an Inclusive Development Index (IDI) over the past two years, the WEF assessment is that most countries have missed vital chances to reduce inequality and raise economic levels, while it has recommended that outdated growth models followed by most policymakers be readjusted. More structural reforms and policies to improve education, healthcare and infrastructure are also needed for sustainable long-term growth.
“Designed as an alternative to GDP, the Inclusive Development Index reflects more closely the criteria by which people evaluate their countries’ economic progress,” the WEF has said.
Observing that considering GDP as a measure of growth only results in more inequality and a relatively transient achievement of targets, it is imperative that world leaders change their focus to more “inclusive development” and improve their policies.
Having unexpectedly hit a three-year low in economic growth in the April-June quarter of 2017, India has lately faced criticism on account of such recent economic reforms as the national sales tax and demonetization, which resulted in sluggish growth, chaos and disruption.
Abheek Barua, chief economist of India’s HDFC Bank, said last August: “The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetization and GST.” He added: “We have to revise our GDP outlook numbers for the full year.”
Discouraging social inequality, the IDI gives optimal priority to poverty alleviation, sustainability and an improved standard of living instead of GDP growth. The stark inequality and poor distribution of wealth continue to lower India’s rankings
Another valid point raised by the WEF is that corruption, poor access to financing and increased tax rates remain the major impediments for successful business in India. Even technological levels have remained low as the “benefits of innovative activities are not widely shared,” the report continued.
Discouraging social inequality, the IDI gives optimal priority to poverty alleviation, sustainability and an improved standard of living instead. The stark inequality and poor distribution of wealth continue to lower India’s rankings, including in 2017, as just 1% of the population owned 53% of the riches – this figure stood at 36.8% in 2000 – while in the US the richest 1% only hold 37.3% of the wealth.
Having been unsuccessful in lifting its masses from extreme poverty, today India has one-third of the world’s poor living on less than US$1.90 a day, so it urgently needs to broaden its tax base to achieve more inclusive growth targets. According to Oxfam, just stemming the inequality in India could lift 90 million people out of abysmal poverty by 2019.
Despite its low overall IDI score, the redeeming factor is that India is among the 10 emerging economies in the report that are showing an “advancing” trend. In parallel to the main index, the WEF report also classified countries into five sub-categories based on five-year trends, namely advancing, slowly advancing, receding, slowly receding and stable. Though an advantage, this would not remedy India’s drawbacks, as the WEF report goes on to note, “This wide disconnect between innovative strength and technological readiness will prevent the emerging-market darling from fully leveraging its strengths across the wider economy.”
Significantly, it is economic stability that has come to matter a lot more than a higher growth rates in the world today. Thus both rich and poor nations need to concentrate on sustainability and reducing poverty to protect future generations, and India needs to adapt. New metrics adopted by the WEF point toward these new indicators of economic progress, and determining national economic performance via GDP is no longer feasible. More economic prosperity, a vibrant middle class and a safer economy for the future are the new goals.
As a result, poverty alleviation is the first priority for India now as opposed to all other progress. The sustainability of its government spending has also come into question as the debt-to-GDP ratio remains high.
Catching up with the GDP of other countries should not be the main target when a majority of the population lives below the poverty level – relying on GDP as an indicator of economic prosperity has only proved very short-term and raised inequality in society. Not only does India need to change its focus, it also needs to provide a more conducive environment for business and development if it wants to attract more long-term foreign investment.
Surprisingly, most of India’s neighbors rose in the ranking as emerging economies, particularly Pakistan, which moved up five places on the list to 47th since last year. Not only that, most of the other BRICS members ranked higher than India on the IDI, with Russia at 19th, China at 26th and Brazil 37th, while only South Africa clocked in lower than India, at 69th.
Various other factors also make a difference to stable economic growth. Identifying countries expected to be the drivers of economic growth in the next decade, a BMI Research report in 2016 named 10 countries as emerging markets of the future that would together add approximately $4.3 trillion to global GDP by 2025. Development, construction and manufacturing are the main drivers giving impetus to the growth of Vietnam, the Philippines, Pakistan, Nigeria, Myanmar, Kenya, Indonesia, Ethiopia, Egypt and Bangladesh.