The Great Indian Dream of a Five Trillion Dollar Economy

With India’s unemployment rate rising to a 45-year high at 6.1% in 2017/18 fiscal year, slowdown in the agriculture growth rate, and the GDP growth rate at 6.7% in 2017-18, can the country achieve the great Indian dream of five trillion US dollar economy by 2024?

The reports of slowdown in the global economy cast a shadow on the government’s target. The Department for Promotion of Industry and Internal Trade (DPIIT) Annual Report 2018-19 states that India has received the highest-ever FDI inflow of $64.37 billion which ended in March 2019, and that it had a FDI worth $286 billion in the past five years. This presents India as a bright spot for investment, and vindicates the government target of a five trillion USD economy by 2024. Economists and subject matter experts termed the target as ambitious, but achievable with reforms and higher growth rate.

Chief economic advisor to the government of India, K. V. Subramanian said: “Even though the target looks ambitious, it is realistic and achievable considering notable successes in all domains of governance in the last five years.” Addressing assistant collectors and senior officers at Dr. MCR HRD Institute in Hyderabad, Prof. Subramanian said that investments and the GDP growth of 8% per annum would be the key driver in realizing the $5 trillion economy by 2024. He also reflected that India took 55 years to reach the first trillion dollar economy mark, and then grew rapidly from $ 1.7 trillion to $ 2.7 trillion in the last five years (2014-2019).

Prof Subramanian said that many enterprises prefer to stay small to gain the benefits of government incentives, and that, as a result, their growth is lower than their real potential. Subramanian pointed out that larger firms can generate more employment opportunities in the long run, while the micro, small, and medium enterprises may become less impactful in generating employment.

Talking to InsideOver, Dr. S. P. Sharma, Chief Economist at the PHD Chamber of Commerce and Industry (PHDCCI) said: “Current GDP growth rate is 7%, and the anticipated GDP growth over the coming years is 8%. If we assume the inflation rate to hover around 4%, India can achieve the five trillion dollar target even with a nominal GDP growth rate of 11-12%.” Dr. Sharma said that his logic is based on the government’s announcement of spending INR 100 lakh crore on infrastructure over the next five years. Infrastructure spending produces a multiplier effect on economic growth and enhances GDP growth by 1%. For better results, the government needs to spend INR 20 lakh crore on infrastructure each year over the next five years. On agriculture slowdown, Dr. Sharma is hopeful that the agro sector would revive and increase its contribution in GDP. The government is working on supply chain and developing infrastructure facilities – with a check on wastage and development of irrigation facilities, farmers’ income will increase in the coming years.

A Delhi-based economist, who was an Economic Advisor to the Ministry of Finance, Department of Economic Affairs, India and the International Monetary Fund, said that the target is achievable with sustained economic growth. The government’s focus on development programs and upliftment of poor coupled with the various economic reform programs, like the GST, the Insolvency and Bankruptcy Code 2016, and others, will result in a five trillion US dollar economy. The only concern is whether India can sustain that growth rate or not. He added, “India’s GDP was higher than China in 1980, but they are now four times than India, as China began growing rapidly at annual rates of 8% to 10% per year. We can become a five trillion dollar economy by doing the same.”

According to other economists, 8% to 9% GPD growth rate is a must over the next five years for the realization of the target. The government has to encourage exports and open more sectors for foreign investment. The agriculture and allied sectors’ growth rates have to be 4.5%, though they were 2.9% in 2018-19. The economists surmised that the government needs to attract foreign investment in the infrastructure sector, and encourage investment via build-operates-transfer (BOT), toll-operate-transfer (TOT), and public-private partnership (PPP). According to them, the model of equi-focus on both large as well as small enterprises should be the recipe of development in the coming years. Micro, small & medium enterprises (MSME) play a substantial role in generating employment and contribute to GDP.