Modi’s $5 trillion economy dream has started to look impossible; will India miss the bus?
Even as the government strives to meet $5 trillion economy goal by 2024, the ongoing slowdown comes as a dampener to its hopes.
Experts estimate that real GDP growth of 8 to 9% for the next 5-6 years is needed to reach the target.
Even as the government strives to meet $5 trillion economy goal by 2024, the ongoing slowdown comes as a dampener to its hopes. Everything was on track for the economy which entered 2019 as sixth biggest globally, till consumption collapse hit it. In the last few months, the economy’s growth engine has slowed down substantially, with global concerns further adding to the woes. Most analysts have sharply cut their projections for FY20 growth. Before now, it was only in Q4FY13 that the quarterly GDP growth last slipped below a psychologically significant 5% mark. The GDP growth in that period was recorded at 4.3%.
Experts estimate that real GDP growth of 8 to 9% for the next 5-6 years is needed to reach the target. The required growth rate is almost twice of India’s current growth. With the economy recording a dismal GDP growth rate of 4.5% in Q2FY20, the future course appears challenging. If growth rate does not improve, Modi’s promise to deliver a $5 trillion economy looks uncertain, as of now.
WATCH | Video: What is GDP?
India may meet the target of $5 trillion economy but with a delay of a couple of years, Sujan Hajra, Chief Economist, Anand Rathi told Financial Express Online. India’s nominal GDP growth needs to be around 13% in constant currency terms to achieve the goal, Sujan Hajra added. The current slowdown is cyclical in nature and the economy may see some turnaround in the coming days, implying an improvement in the growth rate going ahead, he noted.
Quality of growth matters
However, there are some who disagree with the very idea of the debate. It’s the quality of growth which matters more in the current scenario, they say. The government should aim towards reducing income disparity and poverty, than running behind a GDP number which doesn’t matter much to many in the country, Indranil Pan, Chief Economist, IDFC First Bank told Financial Express Online. The government should work towards getting the economy moving, with further reforms, Indranil Pan said, adding that a lot more needs to be done to improve on the quality of growth.
Echoing Indranil Pan’s views, Madan Sabnavis, Chief Economist, CARE Ratings, said, “Reaching the ($5 trillion) mark is a number which will be attained over a period of time. Important thing is how many years will it take and what will be the quality of growth. We need to have jobs created. Now 15% nominal growth on a sustainable basis looks unlikely given that we are nowhere close to the growth of 8-10% in real terms. This is the only way to accelerate the process”. It is expected to take a much longer time of 6 to 7 years to reach the target which current rate of growth, he added.
$5 trillion goal seems difficult
Stressing on the drastic need for the government to change its policies, Abhimanyu Sofat, Head of Research, IIFL Securities said, “We need a drastic change in government policy to achieve such growth rate.” It’s difficult for India to attain a $5 trillion dream in such a short duration of time, looking at the current state of the economy, he added.
“I certainly think the $5 Trillion economy goal is achievable and there is no need to think of impossible means to get there like incredible 15% year on year growth rates. What is needed is just the following important components: active and aggressive monetary policy, slashing direct and indirect tax rates to the lowest in Asia, and closing the rural-urban infrastructure gap by drastically improving urban and rural planning. Infrastructure includes education in India’s case These steps will bring the as yet excluded 70 percent into the economy as participants,” Ranjan Chakravarty, Economist, MSE told Financial Express Online.
These measures are expected to add a sustainable 3% to growth so the net effect is a clear 9% over and above the base rate of growth that we have at the moment: so from 10.5% onwards as a year on year rate is fully achievable, he added.
Delivering a lecture on ‘Indian Economy: Challenges and Prospects’ at prestigious Columbia University’s School of International and Public Affairs in October 2019, finance minister Nirmala Sitharaman herself said that India’s GDP needs to go faster than what it grew at an average of 7.5% in the last five years to become a $5 trillion economy. The inflation has to be at 4% to ensure a commensurate increase in purchasing power. Even as inflation in the last five years been in check and in fact on a declining path, the falling GDP growth rate may be giving sleepless nights to the government.
Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.
Even as the government strives to meet $5 trillion economy goal by 2024, the ongoing slowdown comes as a dampener to its hopes.
Even as the government strives to meet $5 trillion economy goal by 2024, the ongoing slowdown comes as a dampener to its hopes. Everything was on track for the economy which entered 2019 as sixth biggest globally, till consumption collapse hit it. In the last few months, the economy’s growth engine has slowed down substantially, with global concerns further adding to the woes. Most analysts have sharply cut their projections for FY20 growth. Before now, it was only in Q4FY13 that the quarterly GDP growth last slipped below a psychologically significant 5% mark. The GDP growth in that period was recorded at 4.3%.
Experts estimate that real GDP growth of 8 to 9% for the next 5-6 years is needed to reach the target. The required growth rate is almost twice of India’s current growth. With the economy recording a dismal GDP growth rate of 4.5% in Q2FY20, the future course appears challenging. If growth rate does not improve, Modi’s promise to deliver a $5 trillion economy looks uncertain, as of now.
WATCH | Video: What is GDP?
India may meet the target of $5 trillion economy but with a delay of a couple of years, Sujan Hajra, Chief Economist, Anand Rathi told Financial Express Online. India’s nominal GDP growth needs to be around 13% in constant currency terms to achieve the goal, Sujan Hajra added. The current slowdown is cyclical in nature and the economy may see some turnaround in the coming days, implying an improvement in the growth rate going ahead, he noted.
Quality of growth matters
However, there are some who disagree with the very idea of the debate. It’s the quality of growth which matters more in the current scenario, they say. The government should aim towards reducing income disparity and poverty, than running behind a GDP number which doesn’t matter much to many in the country, Indranil Pan, Chief Economist, IDFC First Bank told Financial Express Online. The government should work towards getting the economy moving, with further reforms, Indranil Pan said, adding that a lot more needs to be done to improve on the quality of growth.
Echoing Indranil Pan’s views, Madan Sabnavis, Chief Economist, CARE Ratings, said, “Reaching the ($5 trillion) mark is a number which will be attained over a period of time. Important thing is how many years will it take and what will be the quality of growth. We need to have jobs created. Now 15% nominal growth on a sustainable basis looks unlikely given that we are nowhere close to the growth of 8-10% in real terms. This is the only way to accelerate the process”. It is expected to take a much longer time of 6 to 7 years to reach the target which current rate of growth, he added.
$5 trillion goal seems difficult
Stressing on the drastic need for the government to change its policies, Abhimanyu Sofat, Head of Research, IIFL Securities said, “We need a drastic change in government policy to achieve such growth rate.” It’s difficult for India to attain a $5 trillion dream in such a short duration of time, looking at the current state of the economy, he added.
“I certainly think the $5 Trillion economy goal is achievable and there is no need to think of impossible means to get there like incredible 15% year on year growth rates. What is needed is just the following important components: active and aggressive monetary policy, slashing direct and indirect tax rates to the lowest in Asia, and closing the rural-urban infrastructure gap by drastically improving urban and rural planning. Infrastructure includes education in India’s case These steps will bring the as yet excluded 70 percent into the economy as participants,” Ranjan Chakravarty, Economist, MSE told Financial Express Online.
These measures are expected to add a sustainable 3% to growth so the net effect is a clear 9% over and above the base rate of growth that we have at the moment: so from 10.5% onwards as a year on year rate is fully achievable, he added.
Delivering a lecture on ‘Indian Economy: Challenges and Prospects’ at prestigious Columbia University’s School of International and Public Affairs in October 2019, finance minister Nirmala Sitharaman herself said that India’s GDP needs to go faster than what it grew at an average of 7.5% in the last five years to become a $5 trillion economy. The inflation has to be at 4% to ensure a commensurate increase in purchasing power. Even as inflation in the last five years been in check and in fact on a declining path, the falling GDP growth rate may be giving sleepless nights to the government.
Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.
