5 Trillion Economy – Is it possible for India? While the Vision is laudable, Economists point to the rapidly slowing India economy. India’s gross domestic product (GDP) growth has dropped to 4.5% in the July-September quarter of 2019-20, a free fall from the government’s ambitious call for a double-digit growth not so long ago. The International Monetary Fund cut its estimate for India’s growth this year to 6.1% from 7% projected in July, calling on the country to use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
5 Trillion Economy – Is it Possible for India?
- Prime Minister Modi had announced an ambitious target of a $5 trillion economy for India by 2024. If achieved, India will become the third-largest economy in the world.
- The focus is on boosting services sector contribution to $ 3 trillion, manufacturing to $ 1 trillion and Agriculture to $ 1 trillion.
- However, the recent economic slowdown has made critics question the ambitious target.
What is a $5-Trillion economy?
Before we move forward, lets understand the term clearly.
- Simply put, the $5-trillion economy is the size of a national economy as measured by the annual Gross Domestic Product (GDP).
- What is GDP? The GDP of an economy is the total monetary (rupee) value of all goods and services produced in an economy within a year. GDP is a way among countries (economies) to decide who is the largest and so on.
- In 2014, India’s GDP was $1.85 trillion. In 2018, it is $2.7 Trillion, and India is the sixth-largest economy in the world.
Comparison with Major Economies of the World
- India is the sixth-largest economy. But this does not necessarily means that Indians are the sixth-richest people on the world! Look at GDP per capita chart below for better understanding.
In the chart below, which the first column is country, next is GDP of the respective country and third columns is “per capita” income of a country. Per Capita income is a more accurate picture of the level of prosperity in the respective country. For example, while GDP of India and UK is nearly same, but a UK resident’s income was 21 times that of an average Indian in 2018!
How to achieve $5 Trillion Economy Target
Going forward what steps can Government take to get closer to its target. Niti Ayog CEO Amitabh Kant recently outlined these steps.
1. Increase Ease of Business and Ease of Living to promote private investments
Over the last four years, the government has scrapped over 1,300 antiquated law! It has done away with a lot of archaic procedures, rules and regulations.
Through a series of reforms, India has jumped up 65 positions in The World Bank Ease of Doing Business. No other large country has been able to do this. India has jumped up 65 positions, but our challenge is that in the next two years India must reach the top 50 and in the next five years reach the top 25.
2. Urbanization – a big driver of growth
Cities account for less than 5% of the earth land mass, but they account for over 75 % of the global GDP! So, Urbanization in cities is important as they are centers of economic growth.
While the process of urbanization has ended across America and Europe, and matured in China, it has just begun in India. In the next 5 decades, India should see more Urbanization than what we’ve done in the last 500 years. While there will be many challenges, India needs more Urbanization to grow rapidly.
3. Globalization for growth
India exists in a globalized and interdependent world. Like in Japan, Korea and China, Globalization has helped large sections of population to be lifted above the poverty line. India’s share in global export is less than 2%. So, India must learn the art of size and scale, of manufacturing to size of scale and to penetrating.
4. Women Participation is key
India cannot grow at high rates over a 3-decade period without gender parity. In India, only 26% of the women work; the worldwide average is 48%. If such a major chunk of the population is not working and we consciously don’t put women into positions of power, it will be very difficult for India to grow.
5. Agriculture Reforms in vital
It’s not possible to grow over long periods of time without some very major structural reforms in the agriculture sector because that’s where close to 60% of India lives. You can’t keep growing on subsidies, you can’t keep going on just giving assistance to farmers without ensuring better markets, without putting technology, without contract farming and so on. Agriculture sector reforms are critical.