The show must go on: Push agriculture, make states fiscally responsible, avoid the middle income trap & stick to the PoA

The Indian voter has disproved punters and experts of their idea of ‘certainty’. Which doesn’t change the economic agenda before India and the incoming government. The economy has made impressive strides since 1991. Growth has become more resilient, too. Yet, India remains a low-middle-income economy with a per-capita income of about $2,600. Here are some policy priorities for the country during the years ahead, regardless of what shape the new government takes:

City Lights
Prosperity will follow continuous migration of rural populations to the cities. For this, existing cities need to be expanded and managed better, and new cities need to be developed. Internal migration needs to be internalised as an important economic force. Host states ought to see the benefits of migration and deflect political resistance, initially gently and perhaps at some point through a call for ‘one nation, one people’.


More Aggro in Agri
Even as the share of agriculture in GDP has declined, it accounts for a much larger share of employment, indicating low incomes earned per person and low productivity. Due to population growth rate slowing to less than 1% a year, rise in per-capita income and urbanisation, demand for agricultural products has shifted from cereals toward fruit and vegetables, proteins, health and organic foods, and convenient processed and semiprocessed food. Yet, India’s agriculture has not evolved to keep pace with these shifting trends in demand. Increasing the farm size, making it more productive and commercially viable, and mapping its output to domestic shifts in demand and global markets would increase income levels and make agriculture less fiscally dependent.

Big Job on the Job Front
Despite a very low unemployment rate overall, a large fraction of the population is employed in the informal sector, barely earning subsistence wages. India’s population is projected to grow until 2045, making employment a challenge for years to come. It will necessitate generation of more employment-intensive and skill-intensive activities, as also greater outward and internal migration. India needs to project domestic and global demand in the years ahead and build capacity in activities with projected increase in demand, such as health, hospitality, personal care, elderly care, education, data, software, retail, research and aviation.

States, the Obvious
Indian states exhibit a great deal of heterogeneity in their levels of income, growth rates, quality of human capital, ‘ease of doing business’, demography, comparative advantages, and in their understanding or commitment to economic growth. Their transition toward high-middle-income economies and beyond would require different states to tailor their own policy pathways and manage them politically, similar to how Chinese provinces implemented some of the harder reforms early on. Some of the states have a very high ratio of public debt to respective GDP levels, leaving little fiscal room to spend on developmental priorities. A commission could be set up by the new government to look into state finances. It could consider debt relief to states in distress, with in-built incentives for raising revenues and wise spending.

Avoid the Trap
It’s easier to grow at India’s current levels of income, than when per-capita income levels increase to about $5k-10k. Most economies slow down when they attain middle-income status. To avoid such a fate, India will need to continue to find new drivers of growth. It will also need to simultaneously prepare for emerging global challenges such as an ageing population, climate-related events, technology and skills replacing labour in erstwhile labour-intensive activities, a heavily indebted world in need of deleveraging, and an increasingly geo-economically-fragmented global order. Regardless of what the new GoI shapes up to be, carrying along different shades of political opinion, its economic flight path remains the same.