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In 2011, Harvard economist Ricardo Hausmann,
Massachusetts Institute of Technology's (
MIT) Cesar Hidalgo and others wrote The Atlas of Economic Complexity: Mapping Paths to Prosperity. In this book, the writers explained that countries grew prosperous when their economies became more complex. The collective productive knowledge boosted the productivity of nations, as opposed to merely the innovations of a few. The adoption and application, and further innovation by the collective was critical in helping countries make crucial jumps in productivity that helped grow their GDP and, importantly, their per-capita income.
The way to understand complexity here is the manufacture and export of goods of higher levels of technicality - of greater value, more processed, more engineered, so to speak. How does the
Indian economy fare when viewed through this parameter?
Based on the concept of economic complexity, the Harvard Growth Lab has an online tool (bit.ly/3jdEl6C) measuring the various aspects of the economic complexity in countries using data from US Comtrade (Harmonised System 1992) and the World Bank's World Development Indicators. Its last ranking for
India is noted for 2019 when the country ranked 43rd of 133 nations in the economic complexity index (ECI). India's economic complexity rank has improved by 12 rungs in the last decade (till 2019), according to the Atlas of Economic Complexity country profile.
'India's improving complexity has been driven by diversifying its exports. Moving forward, India is positioned to take advantage of many opportunities to diversify its production using its existing knowhow. India is more complex than expected for its income level. As a result, its economy is projected to grow rapidly,' says the Atlas. Signs of this advancing complexity of the Indian economy are all around us. From more advanced mobile phones to greater numbers of hi-tech vehicles (including electric vehicles), India makes and exports a more diverse basket with each passing year.
The deep digitisation of the Indian economy has created space for new products and services that have added layers of complexity to the country's product offering. From chemicals to electronics, vehicles to minerals and machinery, from agriculture to textiles, India has significantly boosted the intricacy of what it sells with initiatives like Make in India, the production-linked incentive (PLI) scheme, and its vast digital architecture that continues to throw up new products and services in health, education, retail, etc.
It is because of the growing complexity of its manufacturing in textiles that the country could swiftly go from not really manufacturing any personal protective equipment (PPE) kits to becoming an exporter within weeks during the first wave of the Covid-19 pandemic.
The two big economic numbers in recent weeks - India hitting $400 billion in merchandise exports and crossing $500 billion in
foreign direct investment (FDI) - also underline the complexity argument. Engineering goods, for instance, which are of a higher order of value-addition, are one of the key constituents of India hitting $400 billion export landmark.
This is likely to heighten. As digitisation percolates into every layer of the Indian economy, India will create even more complicated products that will enable digitisation in other parts of the world in areas like fintech, artificial intelligence (AI) and defence. Even in agricultural exports, processed food items have been growing steadily.
The growing formalisation of the Indian economy is assisting this process of complexification. Making products of higher technology involves the coming together of an evolved ecosystem and supply chain that needs formal access to finance. This cannot happen if a majority of firms are of an informal nature.
So, what the Indian economy is going through is a historic transition to what could be a more mechanised, technologically evolved and complex state. As more and more complicated public and industrial architecture using digital technologies is built and deployed, the country's growth prospects shall further expand. This is why the Harvard Growth Lab projection also puts India among the top quartile of fastest-growing countries till 2029
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