India will become a $5 Trillion Economy – Attainable or a Pipe Dream?
India, a behemoth economy with a great civilisation, heritage and the immense possibility of creating global influence, has been attaining the status of being one of the most formidable nations in recent times. In accordance with the latest GDP estimates, India is exhibited as the fifth-largest economy in the world with a nominal GDP of $2.9 trillion. The Modi-led government has set an exalted yet magnificent objective of seeing India maturing into a ‘Five Trillion Dollar’ economy by the end of the ‘Modi 2.0 era’.
This goal might seem a little intimidating or a bridge too far, but the fact is that every developing nation needs an ambitious target so that every sector, company and all other essential stakeholders align themselves and put emphasis on reaching it. Before we examine the attainability of this ambition, let us know how much of a growth rate and GDP value would be required for the target. With inflation of 3.5% and keeping rupee depreciation under check, a nominal growth of 11.5% is paramount for realising the 5 trillion mark to reap a real growth rate of about 8-9%. Sustaining such a significant rate of growth is very challenging for any economy and substantially arduous for India owing to its high unemployment rate of 6.1%, additionally over three hundred thousand people have lost their jobs due to the crumbling auto sector coupled with growth rate hovering around just 5% in the April-June quarter.
However, since Independence, India has become a $2 trillion nation and within the last five years, it has added a feather of $1 trillion to its cap of GDP value. Therefore, acquiring that 5 trillion mark seems pretty practical. India has shown a fairly robust and persistent record of healthy growth drivers and the recent leapfrogging of 23 notches to rank 77th in the Ease of Doing Business index paves the way for reaching that goal. While no one can deny the reality that certain industries are facing downswing or recessionary conditions, there exist many sectors like IT and BPO service exports which are doing exceedingly well amidst the low global growth of 3.2%.
Another question is the possibility to expand at 9%. Well, it is conceivable and other countries have made it possible. For instance, Russia developed exponentially between the 1950’s and 1970’s at over 10% per annum. Even China (in the early 1990’s) and USA (1965-1975) are a testimony to the fact that growth over 10% is plausible. To accomplish this grand vision, every Indian state must demonstrate healthy signs of progress and this is seemingly true for the BIMARU states (Bihar, MP, Rajasthan and UP). In 2017-18, Bihar outran other states by displaying 11.3% growth, which was way above the overall economic growth of 6.7%. In fact, all but one of these ‘poor BIMARU states’, grew more than the national average implying enhanced law and order conditions and business-amiable government. Thus, the likelihood of unleashing the potential of every state is apparently pretty high.
Furthermore, India’s stable inflation rate (around 3%) and low global inflationary trends is a favourable situation for the country. If the rupee-dollar foreign exchange rate is also maintained and the rupee does not depreciate considerably, achieving the target is credible. The government is set to pump in $1.4 trillion for infrastructure investments to make developments in highways, railways, airports, power sectors, etc. Funding will also be backed by international players. For example, the UAE will invest $75 billion and the Abu Dhabi Investment Authority (ADIA) will supposedly spend $1 trillion for boosting the Indian infrastructure sector.
At the same time, in order to become a 5 trillion economy, India needs to make remarkable structural and sectoral moderations and initiate various reforms. Reforms like the latest corporate tax cuts (from 35% to 25%) proved fruitful for the economy as the stock market reacted positively, strengthening exports and enticing investors. With the ongoing economic tussle between the US and China, MNCs are on the lookout for a substitute manufacturing hub. Currently, holding just 2% of the global trade market share, India can reap the benefits of this war by minimising trade barriers and leveraging such opportunities by upgrading trade value chains. In fact, the manufacturing sector has the capability to absorb surplus labour from the agricultural or any informal sector.
The service sector has been on the rise lately with a contribution of up to 56.5% of GDP but employing only 30% of people. With automation around the corner and chances of loss in jobs in export-intensive IT sector, development of expertise in IoT, AI, Machine Learning, etc. will definitely boost the economy. Even the travel and tourism sector with 10% GDP share, providing 40 million jobs, can grow manifold by project-driven investments in medical tourism, tourist safety and budget hotels. Healthcare sector also calls for overall transformation as over 100 million workers would be desired globally in the coming years. Service and industry sectors have the greatest possibilities of value additions, and, therefore, skilled labour and strategic investments would assist heavily in economic expansion. Along with this, various land reforms would be necessary to facilitate growth. Major Indian cities, such as Bangalore, Mumbai have high potential to become global hubs, hence, tactical budget allocations and investments can boost the overall economy.
The focus should also be placed on establishing environment-friendly ways as it is an impediment to the 5 trillion economy dream. According to the World Bank report, environmental degradation costs India $80 billion per year. To tackle this, the creation of green jobs and community development through various already existing organisations can be done. Environmental or carbon taxes prove advantageous. Also, cutting down on oil imports can serve the dual purpose of opening up a ₹400 billion domestic market in the aviation sector whilst simultaneously mitigating environmental pollution by the usage of biofuels. According to the Union Road & Transport Minister, Nitin Gadkari, his Ministry is already taking crucial steps in this regard. Investments would entail a demand boost, creation of capacity, the introduction of new technologies, generation of jobs and enhanced labour productivity.
The Bottom Line
India cannot prosper if certain states and sectors (like the construction sector) with high untapped potential do not start developing. In fact, state-wise spending must grow. The government’s $5 trillion goal is definitely ambitious but this intent can only be executed through a concrete plan of action. All that is required is a target-based approach, meticulous elimination of all the policy shortcomings and unclogging stalled projects. The aspiration to fulfil the quest with sustained growth can open up employment for over a million young people. A more balanced approach towards development and making sure that the government is able to run a clean, harmonious and efficient mechanism is all that will take to make the dream come alive.
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