India’s services sector could help propel the country’s economic growth in the future as globalisation of services has only just begun, according to Nobel laureate Paul Krugman.
“India’s growth story is quite unique,” Dr. Krugman said while speaking at an event in the national capital on Saturday. “Services [have been] propelling growth to an extent that hasn’t been seen anywhere else in the world and the possibilities of service globalisation has only just begun. Globalisation of services trade has a huge potential. That’s one reason to be especially hopeful of India’s progress. It has the first-mover’s advantage.”
Reasons for optimism
Dr. Krugman said there were three reasons why he was optimistic about India, including the potential of the services sector.
“The first one is people,” he said. “Both numbers and qualifications. There is clearly a cultural reservoir of creativity and entrepreneurship on a level that I think back in the bad old days of slow growth nobody could have imagined. The widespread fluency in English is an important thing. Even as the U.S. gradually loses its preeminent status, nonetheless English is the language of global commerce and that’s going to matter.”
This demographic potential, he said, was something China had taken advantage of, but the effect of which had reached its zenith.
“If you try to think about national economic destinies, it matters a lot how many people of working age you have,” Dr. Krugman said.
“There was a time when Japan was poised to become the world’s leading economic superpower, which never happened. The biggest reason why Japan has receded on the world stage is due to demography. It has low fertility rates, a cultural aversion to immigration, and a working age population that is shrinking by 1.5% a year.”
“China is starting to look a little bit like that,” he added. “It cannot continue to grow at the pace it did simply because of population. India doesn’t look at all like that. India’s working age population is projected to grow substantially. It will substantially exceed China’s working age population in just a few years and will continue growing for quite some time, which is potentially the source of a lot of economic growth.”
‘Potential problem’
However, the economist also said that demographic advantage could also be a source of potential problems in terms of employment.
“India’s lack in the manufacturing sector could work against it, as it doesn’t have the jobs essential to sustain the projected growth in demography,” Dr. Krugman said. “You have to find jobs for people.”
“There is... artificial intelligence that you should be wary of,” he added. “In future, while diagnosis may be outsourced to a doctor in India, it could also go to a firm based on artificial intelligence.”
The second source of optimism for India, Dr. Krugman said, was India was still quite poor and far from the technological cutting edge, which, while not a good thing, does represent an opportunity.
“You cannot expect to have the kind of growth that emerging Asia has had if you’re already at the technological frontier,” he said.
The Nobel laureate was also critical of India’s economic performance in the first three decades following Independence, saying that per capita income barely grew in that period.
“For about 35 years after Independence, India was extraordinarily disappointing,” he said.
“Per capita income grew around 1% a year over that period. So, India was slightly richer in the 1980s than it was at the time of Independence. But not a lot. And the gap between India and the world’s wealthiest nations grew wider, not narrower.”
“At the beginning of that period, India’s per capita GDP was about 6% of the U.S., by the end it was down to 4.5%,” he added. “From the point of view of the world stage, India was falling behind, not making progress.”
This has since changed, he said, adding that he felt the world’s focus would increasingly shift away from China and towards India over the coming years.
