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In 1947, India gained independence with a per capita of around $2000(adjusted with inflation)
But over the next few decades, the govt adopted socialist policies, emphasising self-sufficiency and state-led development.
As a result, India’s economy grew at a slower pace of 3.5% per year, much slower compared to the 7% growth rate of Asian countries like Korea, Taiwan, and Singapore.
By the 1970s, India’s policies became even more restrictive. The top income tax rate was a staggering 97.75%.
By 1991, the situation got so bad that the per capita GDP was down to $304, leading to a severe economic crisis and nearly depleted foreign reserves.
The policies were no longer sustainable. India needed change. The USSR's collapse showed socialism wasn't working.
So, in 1991, India introduced a series of reforms— liberalisation, privatisation, and globalisation.
These reforms allowed foreign investment, eased private business restrictions, and lowered import duties, which had previously been as high as 300%.
India’s growth rate picked up, and by 2023, India’s per capita GDP was back to $2,600, driven by market-friendly policies and increased global trade.
In fact, India’s foreign exchange reserves, from around $1 Billion in 1991, grew to $580 Billion by 2023.
India is currently the third-largest economy in the world in purchasing power terms, after China and the US.
Experts believe with 8% real growth each year and inflation at 5%, India’s GDP could grow by 13% annually, doubling every 6 years to potentially reach $55 trillion by 2047.
In this episode of the NEON Show, Krishnamurthy Subramanian, Executive Director at the IMF, talks about how India can become a $55 trillion economy by 2047. He explains the power of compounding, breaks down the rule of 72, and discusses the impact of past socialist policies and why capitalism is important for India’s growth.
Connect with Krishnamurthy Subramanian:
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Timestamps
0:00 - Trailer
03:29 - The power of compounding in GDP
07:04 - Chess game story that explains the power of compounding
08:28 - Rule of 72 to understand how money doubles
11:15 - How India will become a $55 trillion economy by 2047
14:42 - Thalinomics to understand inflation
16:29 - What is money in economic terms?
19:31 - Why was the inflation-targeting regime introduced post-1991?
22:39 - Inflation's effects on currency
28:51 - How does a currency react to economic shocks?
32:43 - India’s GDP in 1947 vs today
33:37 - How socialist policies potentially held India back
36:49 - Capitalism has always been in India's DNA
46:40 - How socialist policies have hurt Indian farmers
59:31 - Is agriculture a state subject?
02:08 - How India's growth is linked to productivity
01:11:39 - China’s GDP vs India’s GDP
01:19:57 - Why India is a top investment destination
01:28:19 - Indian startups should innovate differently
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This video is for informational purposes only. The views expressed are those of the individuals quoted and do not constitute professional advice.
