The upcoming decades will see the steepest rise in living standards for the common man making it a period-defining era for an Indian to live in and this is being achieved with declining inequality, Union Finance Minister Nirmala Sitharaman said Friday. Citing data from the International Monetary Fund (IMF), she said India will be able to increase its per capita income by $2,000 in the next five years.
“While it took us 75 years to reach a per capita income of $2,730, as per IMF projections, it will take only five years to add another $2,000. The upcoming decades will see the steepest rise in living standards for the common man, truly making it a period-defining era for an Indian to live in. This is being achieved with declining inequality, as the Gini coefficient for rural India declined from 0.283 to 0.266, and for urban areas it declined from 0.363 to 0.314,” Sitharaman said at the Kautilya Economic Conclave organised by the Ministry of Finance and the Institute of Economic Growth.
The Finance Minister said she expects these improvements to continue as the effects of the last ten years of economic and structural reforms are expected to manifest more thoroughly in the data in the coming years as the Covid shock fades from the economy.
Referring to India’s economic rise amid ongoing geopolitical conflicts across the world, she said it will be unique in a way since India seeks to double its per capita income in a matter of a few years for its 1.4 billion population, which makes up 18 per cent of the global total, in a fragmented and fractured world where several persistent conflicts may worsen, posing a threat to global peace that is the bedrock of prosperity.
While India will continue to grow over the decade, the global backdrop is not the same, she said. “In the early 2000s, emerging markets like China grew relatively more easily due to a favourable global trade and investment climate…India must develop its domestic capacity to develop sustainably,” she said.
By 2047, the new Indian era will have core characteristics similar to developed countries, she said. “Viksit Bharat will usher prosperity not just to Indians but to the rest of the world by becoming central to a vibrant exchange of ideas, technology, and culture,” she said.
Sitharaman underlined twin challenges of dealing with the legacy emissions of the developed world and managing India’s energy transition. The balancing act requires a “whole-of-government” approach and contextualised solutions unique to India, she said.
She also raised concerns over the impact on labour from the advent of new technologies, Sitharaman said it may leave a more lasting impact on labour, including workers at all levels, than previous industrial revolutions did. “The resulting economic and social impacts may be more profound than the world has experienced. While this is a global phenomenon, it is more acute for India, given its vast young population and the need to create livelihoods for millions,” she said.
She listed demographic dividend, increase in consumption and rising middle class, innovation ability and well-capitalised financial system as the factors that will shape India’s growth era moving forward. While India’s share of the young is set to rise over the next two decades even as several other developing economies are past their demographic peak, Sitharaman said India’s core policy priority would be to ensure that the youth are cognitively equipped, emotionally strong and physically fit.
There will be “organic growth in consumption” since as of now, 43 per cent of Indians are younger than 24 years old, and they have yet to explore their consumption behaviour fully, she said. “There will be organic growth in consumption as they become full-fledged consumers. Simultaneously, a rising middle class will pave the way for strong consumption, inflow of foreign investment and a vibrant marketplace,” she said.
Stating that nearly 56 per cent of the revenue of Global Capability Centres (GCCs) is coming from research and development services, she said there is a case for maturing of India’s services sector exports and a rise in innovative potential within this sector.
On the government finances front, Sitharaman said the government will continue to uphold its commitment to reducing the fiscal deficit. “Aided by buoyant revenue generation, restrained revenue expenditure growth and healthy economic activity, the fiscal deficit is estimated to decline further from 5.6 per cent of GDP in FY24 (provisional actuals) to 4.9 per cent in FY25. The commitment to fiscal discipline will not only help keep bond yields in check but will translate to lower economy-wide borrowing costs,” she said.
She said a larger proportion of fiscal deficit is not accounted for by capital outlays indicating an increasingly investment-oriented deficit financing. Capital expenditure is budgeted to increase by 17.1 per cent to Rs 11.1 lakh crore in financial year 2024-25.