India needs a new way to measure growth, replace GDP with gross welfare products: Rajiv Kumar

So that is the weakness… We seem to be complacent about what we have achieved rather than saying that ‘look, this is where we need to now really get our act together’ and tackle all these challenges, so that we can become an exemplar for the rest of the world.
You say the hegemony of the US has been shaken. Are we approaching a world where America will no longer be the most powerful country?

In fact, it is quite amazing that when we started doing the work for this book about a year, year and a half ago, we had no such inclination but now it is becoming sort of clearer by the day. Under President Trump, the US has gone back to its historical position of being an isolationist and looking after its own interests rather than be responsible for the world order, which it had been since the World War, a responsibility it took upon itself. And there was a cost to it, which the US bore sometimes grudgingly but otherwise quite sort of happily because that gave them the right to run the world as they thought and the multilateral trading order. But that's all changed in the last year or two… because of the emergence of other economies, especially like China. I think the share of the Chinese economy and the world economy is just short of the share of the US economy, right?

We don't see a period where the US will recover its status as the only superpower in the world. I think those days are gone.

We should be prepared for a multipolar world and for India to be ready to play a much bigger, if you like, a more significant role in designing the global order.

Where do you see India in the new world order? How should India work with China?
The best foreign policy for India at the moment is to have laser-like focus on improving our domestic economy, on accelerating our rate of growth, on making sure that those at the bottom of the pyramid get what is due and have a better life, are more prosperous. I mean, in that sense, we can learn from what China did in 1990… If we do that, we will certainly emerge as the third pole in the world, third or the fourth pole if you count Europe.

It will be very beneficial for us to engage with China. We're to engage with China because China today, as we point out, leads 54 of the more than 63 leading technologies in the world. They now have the technological strength. They are five times our size. They have $3.1 trillion in reserves. They have huge amounts of capital surplus for investment in other countries, which they are doing.

Review Press Note 3, which has hindered the flow of Chinese FDI, the Chinese skills and technology into the country.

We don't need to be in any camp. I think, as our foreign minister has said, we have to adopt the approach of horses for courses, wherever, whatever we need to do and that's one part. The second part is to work with China and other intermediate economies and you can include Europe as well as Russia to try and frame or design a new world order, which has been completely disrupted by President Trump today and the US for some time.

Watch the full conversation here: https://www.youtube.com/watch?v=YnzXyveLlIM

Do you think maybe we should have joined RCEP?
Now, yes, I think we should consider rejoining the RCEP but prior to that, again, I'm saying we still need to focus on the competitiveness of the domestic economy. We have to ensure, for example, one of the things that we're saying in the book is that let every state of India have a distinct and well-worked out export policy for itself. It will encourage its exporters to become globally competitive or become part of the global supply-chain.

Once we do that, then we'll be ready to join the RCEP and take advantage of it.
You've spoken about a new measure of progress —a gross welfare product metric — to move beyond the singular focus on GDP. Why and what would be the gross welfare product metric?

Yeah, I think the GDP model developed by Simon Kuznets has outlived its utility. GDP today hides more than it reveals because you can have a country which is growing quite rapidly in average GDP terms but its people at the bottom of the pyramid or the lower-income segment could be suffering. They may not have the right kind of the desired levels of living, and it may be using up its natural capital in a manner, which is totally exploitative and unsustainable.

As more and more people point out, this average GDP growth and the focus on it is breaching planetary boundary conditions. We're saying let's have a new index called the gross welfare product. It is not something entirely new, because if you remember, President Emmanuel Macron had commissioned Professor Amartya Sen and Joseph Stiglitz to come out with the global happiness index or something like that.

But what we're saying is that there should be five components which should be included. One, of course, is the growth of income or GDP.

The second is the use of natural capital. How much are you using up natural capital? So the decline in natural capital, the less it is, the better off you are.

The third is how is your education doing? Is your population getting educated?
The fourth is about health. These are the two HDI indicators, which are important to be achieved.

Now is the time to take this bold step, a new step. We have the statistical strength to be able to compute this but if we take the lead here, we can become the exemplars for the rest of the world.

We're already working with the states… to make districts the fulcrum of development. And what we're doing there (Assam and Madhya Pradesh and now Maharashtra), is to estimate the GDP, the district GDP and use that as a baseline. We'll use that to give targets for ourselves to where the growth would be.

How do we encourage the private sector to invest more in the India story?
We have to trust our private entrepreneurs and our private enterprise to be able to take India forward. And the government must be seen as being supportive at all times of the efforts of the private sector and the key here is to develop a mutual trust…

Now, here the shoe is on both feet, the private sector as well as the government, because the private sector also should show they are deserving of the trust of the government, that they will not take shortcuts. The government also has to show that we are going to change from being a regulatory state to a promotional state.

And at that level, the private sector should feel that the government is not out there to sort of punish them but more to promote them.

As we talk about supporting industry, there are two views — one is of protectionism and the other is of opening up the economy further.

My view has been very clear that we don't need more protection for our industry. When we had the high levels of protection before 1991, we produced the most uncompetitive and the most inefficient products that we were forced to consume or work with. I therefore think that's not the way for us.

Given that we are only about $3,000 per capita economy, we need external demand to grow and to take our rate of growth from the current 6.5% to 8.5%, which is required if India is to achieve its aspiration of being Viksit Bharat by the centenary of our independence.

External demand will be achieved only if our exports grow much faster than what they have done so far. You can look at it, Vietnam, Bangladesh and China, I mean, their rates of growth of exports have been much higher than ours.

We have been an export-pessimist economy for a very long time, high time that we change that completely.

And if accessing foreign markets requires us to give up our remaining tariff barriers, so be it. In fact, it's not good to be known to be the highest tariff player in the world… our average tariffs have been very high. We should try and change that.

What's your growth outlook for the year? Will the Q1 momentum continue or will high tariffs bite?
Well, we should understand that Q1 figures do not project the future. I mean that's happened for whatever reason it has happened. And given that the other thing will play out, I see our growth at about 6.5%, 6.2 to 6.5% for the full year. What we need to do is to work towards raising this in the coming years to 8%, and, as I said, it is possible. For FY26, I think we'll achieve between 6 and 6.5%.

So, you're not reading too much into it 7.8% growth?

No, I'm not. There are there are several indicators which show that this might be like a flash in the pan and may not be sustained. You know the IIP data, the ASI data, the energy consumption data, the cargo, et cetera, et cetera. I think it's good that we've done it but I think we should not expect it to continue.