By Sanjeev Sharma
Achieving the ambitious target of a $5 trillion Indian economy is a challenging task now, as the country will have to nearly double its GDP growth rate from 6-7% to reach the milestone.
India is famously, the fastest-growing trillion-dollar economy in the world and overall the 5th largest. The GDP of India for FY 2019-20 is $2.9 Trillion. To answer the question of whether ‘India’s dream of $5 trillion economies by 2024-25. Is it still alive?’, we need to take a look at the history of the country’s economy and gradually trace it back to the present time.
In 1947, the GDP of India was a mere 2.7 lakh crores. It was only after 60 long years of independence that it crossed $1 trillion. The next trillion dollars came in after 12 years and we were at $2.94 trillion in 2019-20 with per capita income of $1,800.
As of today, India is the third-largest economy in terms of purchasing power parity. Before the Covid-19 pandemic hit the world, the government of India was ceaselessly working towards the target of a $5 trillion economy by 2024-25. With the offset of the pandemic, the situation of the domestic as well as the global market became extremely volatile with markets facing regular corrections.
While the complete economic impact of the Covid-19 is still to be crystallised, the early forecasts are out. The International Monetary Fund (IMF) recently projected that while the GDP of India will contract by 10.3% this year, the economy might rebound with an 8.8% growth rate for FY 2021-22.
Now, for India to achieve the ambitious target of a $5 trillion economy, it will have to nearly double its GDP growth rate from 6-7%. As per the former RBI governor C. Rangarajan, “the required rate of growth to achieve that level is in excess of 9% per annum”. This seems like a humongous task, glancing from where we stand in the current times.
Today, we can see that the key factors that will contribute to the growth of Indian economy are – large availability of skilled, young, English speaking and competitive manpower, abundant natural resources, global leadership in services, manufacturing opportunity due to the desire of MNCs to reduce dependence on China, low penetration of consumer goods and improving affordability over the long term and significantly large unmet needs of infrastructure.
Surely, all the above factors will help in accelerating the growth of the economy. But the question is what’s the way to achieve the objective and where exactly does one start? Recent studies done by economists and think tanks show that to bring the Indian economy back on track, infrastructure creation is extremely vital.
A $5 trillion Indian economy by 2024-25 is a very ambitious objective aiming to provide a growth stimulus in the economy while raising several practical challenges to achieve it.
In a detailed analysis, multiple studies have concluded that infrastructure building would have the much-needed acceleration effect in today’s time. It would “generate employment and demand across sectors, improve the ease of doing business, and improve competitiveness as well as the quality of life,” one of the studies emphasised.
These studies also shed light on other factors that will play a huge role in gearing up the process. In addition to the creation of infrastructure, sustainable policies and reforms that would “buttress the long-term prospects would be critical,” one of the studies stated. Adding to that it also stated that, “the aspiration of becoming a $5 trillion economy would have to be led by infrastructure creation, which necessitates heavy investments for the same.”
As per the National Infrastructure Pipeline (NIP), the investments for infrastructure creation which amount to Rs 59 lakh crore during 2020-21-2024-25 would come from the Centre and State governments, while the remaining financing of the infrastructure investment and non-infra investment would have to come from the financial sector i.e., from banks, corporate bond markets and by way of foreign capital.
However, the journey to infrastructure building is no cakewalk. The paper pointed out that although the government has initiated a series of measures to stimulate the investment cycle, there are several issues such as – environmental clearance, land acquisition, delays in project implementation, procedural delays, enforcement of contracts, and availability of funds among others, that come in the way of infrastructure building.
Resolving these issues would be necessary for the achievement of the set targets for infrastructure, and the $5 trillion Indian economy goal eventually. It is clear as day that the unexpected Covid-19 pandemic has left a grave impact on the world economy. The unprecedented impact of Covid-19 adds to the issue and makes the $5 trillion GDP target by 2024-25 dreamlike, pushing it at least 3 years further.
For now, the dream of $5 trillion Indian economy by 2024-25 seems like a challenging task to achieve.
A $5 trillion Indian economy by 2024-25 is a very ambitious objective that aims to provide a growth stimulus in the economy while raising several practical challenges to achieve it. This high flying objective can be achieved by providing an appropriate boost to the growth of productive sectors that are drivers of the services-led Indian economy. Analysis of factors contributing to GDP reveals that the growth attained by present GDP growth patterns is far from the growth target required to attain the $5 trillion objectives.
To get back on the $5 trillion Indian economy target – agriculture, industry and services sectors have to recover post-Covid-19 and at least exhibit their respective 5-year growth average of about 7.5%, 9% and 11.4% respectively. One can see from this growth pattern that the service sector is the leading contributor to the country’s GDP. It can also be noted that historically, the services and industry sectors showed a high correlation with the overall GDP growth rate. Both of them, however, need consistent stimulus for growth.
It is paramount that the policymakers focus on all the 3 sectors equally without getting biased towards any particular sector. This can be achieved by attracting FDIs (Foreign Direct Investments), pursuing reforms aggressively and ensuring heavy infrastructure spending. It’s vital that we execute on all three fronts in order to put India on a high growth trajectory.
Detailed analysis of data shows that it is possible to attain this target by 2027-28 when there is a recovery of the economy during the post-Covid-19 period, coupled with consistent growth in productive sectors over the years.
For now, “India’s dream of $5 trillion economies by 2024-25” seems like a challenging task. Although one can say with certainty that whether or not we will be able to achieve the $5 trillion mark, will be heavily dependent on the pace of economic & policy reforms. In. In addition to that the factors that will influence it, are the FDI attractiveness, and the heavy infrastructure spending over the course of the next 3 years.
(Sanjeev Sharma is the Co-Founder of Sqrrl Fintech.)
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