Even as Prime Minister Narendra Modi-led BJP government has set itself an ambitious target of achieving a $5 trillion economy by 2024-25, the target can only be achieved by 2032-33, says Kaushik Basu, former World Bank chief economist.
Even as Prime Minister Narendra Modi-led BJP government has set itself an ambitious target of achieving a $5 trillion economy by 2024-25, the target can only be achieved by 2032-33, Kaushik Basu, former Chief Economist of The World Bank, wrote in the Indian Express. “Compute the size of the GDP and it becomes clear that the target of $5 trillion will be reached not in 2024-25, but in 2032-33,” he wrote in the national daily. India’s GDP is growing at a rate of 4.5%, according to the latest official figures and in 2018-19, its GDP stood at $2.75 trillion. “Clearly, in 2019-20, the GDP will rise to $2.87 trillion, which is $2.75 trillion plus 4.5% of 2.75,” he added.
Amid India’s current economic slowdown, business-as-usual is unlikely to fulfil the $5 trillion economy dream. In order to achieve the target, the government can look into doing “reverse arithmetic” and calculate the growth rate required to reach a $5 trillion economy. “We have to get the nation growing faster than the abysmal performance seen in recent times… Compute the implicit growth rate that will get us there. This turns out to be 10.48% or, approximately, 10.5%,” Kaushik Basu wrote. However, even this turns out to be an ambitious target with only one example of China when the nation grew for six consecutive years at an average annual rate of over 10.5% from 2003 to 2009.
Further, the government also needs a clear roadmap and it should lay out the details to achieve the target. “For international observers and particularly investors, not to see these creates doubts about professionalism,” Kaushik Basu said. More information is also needed as to what $5 trillion economy will mean for granular indicators such as annual growth and inflation.
India’s own track record also throws some light over the matter. From 1947 till now, the country’s economy registered over 10% growth only twice. The first instance occurred because in the previous year, the economy had grown very slowly, by 3.5%; meaning a large part of the subsequent growth was catch-up. Another example of remarkable growth was in 2007-8, which also brought massive FDI’s in the country. For now, the two best shots for India are — “a huge policy initiative to boost real growth or the luck of a dollar depreciation,” Kaushik Basu wrote.