Last Updated: Jan 29, 2020, 05.42 PM IST|Original: Jan 29, 2020, 05.42 PM IST
With the Budget day almost at hand, economic narratives in India have come to be centred on the debate over GDP growth — or rather, the lack of it.
Whether or not will India be able to hit the $5-trillion GDP goal within 5 years is one of the questions that currently dominate public discourse in the country. It has assumed even more significance in the wake of new estimates that GDP growth for 2019-20 is likely to plunge to an 11-year low of 5%, primarily because of a poor show by construction and manufacturing.
The $5 trillion question was one of the main features in ET Online’s pre-Budget survey which drew over 10 thousand responses from some of India’s most avid followers of business/economy news. The response patterns were varied — some said it was highly likely, some rejected it as a pipe dream, and many thought such a feat can be pulled off only after radical reforms.
The biggest chunk of respondents consisted of those who believed that while $5 trillion was possible, doing so in just 5 years was not.
In the backdrop of the deep divergence in public opinion on the issue, here’s a recap of how the debate — whether $5 trillion is possible or not — has shaped up over the past few months.
The story so far
PM Narendra Modi said at a recent meeting, “The idea of $5-trillion economy is not a sudden development and it is based on a deep understanding of the strengths of the country,” adding that “the strong absorbent capacity of Indian economy shows the strength of basic fundamentals of the country’s economy and its capacity to bounce back.”
However, given the protracted growth slump, it warrants a look at the economy’s current trends to find out what all Modi needs to do to make this GDP dream a reality. According to basic economic estimates, it will require India to grow on average at 8% per year in real terms from the fiscal year 2020 to 2024 to meet this goal. Some estimates put the required rate at an even higher 9%.
India’s GDP is currently estimated at around $2.8 trillion, so reaching almost double that in half a decade is likely to be a tall order. And as if this isn’t a big enough challenge in itself, the decline in growth shows no sign of abating. GDP growth in Q1 of 2019-20 was 5%, which fell further to 4.5% in the quarter that followed.
Modi govt had set itself the $5 trillion target soon after it assumed office a second time. The economy, however, went into a tailspin almost immediately after that, raising a barrage of questions about whether this target was really achievable.
The world has also taken note: IMF has just cut its estimate on India’s 2019 growth to 4.8% from the 6.1% it projected in October. Various other global agencies have also pared their forecasts in view of the acute slowdown in demand and the fear of an NBFC contagion effect. The UN cut its India forecast to 5% from 5.7%, the World Bank too has brought down its projection to 5% from the earlier 6%.
Bumpy ride? Like as not
Few outside the government have vouched for the economy’s ability to hit this goal. Analysts and businesses alike have mostly taken a cautious stance on the issue, with lots of ifs and buts.
Our survey finding that the goal was achievable but not in five years, is an endorsement of the views of SBI chairman Rajnish Kumar. The chief of India’s biggest lender said in early January that “the country can become a $5-trillion economy, but there are doubts whether it is achievable by 2024-25 as envisaged by the government.”
Kumar added another significant rider. According to him, government investments alone cannot achieve the goal.
Eminent economist R Nagaraj recently termed Modi govt’s $5-trillion by 2024 as “unimaginably ambitious”. According to him, the hope of a reversal in declining trends looks very unlikely.
There are some economists who believe India should reconcile with the fact that its heady days are over, and that it should accept around 5% GDP growth as the new normal. This view, however, did not find too many takers in our Budget survey. Most respondents said that whether India hits this goal will depend on what kind of reforms or enablers Modi brings in.
Kumar suggests one such enabler: Invest hugely in infra and watch the economy reap serious benefits on the GDP front.
All eyes on February 1
Industry captains says that for this goal to be a reality, Modi government must urgently focus on credit expansion, exports growth, governance of public sector banks, increasing consumption and job creation.
Over the past few months, Modi govt has acted on some of these demands to bring growth back on track. These include cutting corporate tax, a realty stress fund for stuck projects, and a national infrastructure pipeline. The road to $5 trillion will depend on structural reforms from here on — the ones that remain untouched till now and will involve making politically fraught decisions. All eyes are now on the Budget, and feverish speculations are on over whether or not will Sitharaman take these difficult calls on February 1.
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