India could be the third largest economy by 2026-27, says Arvind Panagariya

India could become the third largest economy by 2026-27 if it continues to grow at the current pace in the forthcoming years, though it is more likely in 2027-28, 16th Finance Commission chairperson Arvind Panagariya said on Friday.

Panagariya said, “We have grown in the last 20 years at about 8 per cent in real dollars. During this period we had to deal with the global financial crisis, and then with COVID…A lot of what we see today has actually transpired in the last two decades.”

Speaking at the Confederation of Indian Industry Annual Business Summit, Panagariya said that India had almost ended extreme poverty, but it needs to move its workforce out of agriculture into industry and services in order to achieve the transformation towards prosperous existence of the rural population.

Panagariya stressed that in order to achieve this, it was important to reform labour laws and for markets to release capital to more labour-intensive industries.

He said that India still has 45 per cent of its workforce employed in agriculture which produces 15 per cent of Gross Domestic Product. “Average labour productivity in agriculture is one-third of the average productivity in the economy,” Panagariya added.

“India's workforce is still employed in a sector, which has a relatively very low productivity, and that is what I call the problem of underemployment…You have to create, facilitate, create a pathway for the movement of this workforce into larger enterprises,” Panagariya said.

With about half of the land holdings in India less than half a hectare, Panagariya highlighted that land per worker currently is simply too little to give a high average labour productivity in agriculture.

He said that about 76 per cent of the rural population, which is also 52 per cent of the total population, lives in habitations of fewer than 5,000 people, which meant that fewer industries were going to go there.

Panagariya said that for industry to be productive, there is a need for larger habitations. “That simply means that you got to either urbanise what is rural today, or you need to have part of this agricultural rural workforce migrate out of those habitations into the urban areas.”