How India can be a USD 5 trillion economy?

While Prime Minister Narendra Modi has promised to make India a USD 5 trillion economy by 2025, significant challenges still stand in way of India and its goal.

For starters, the Indian economy has a size of USD 2.98 trillion (nominal GDP 2019 estimates). It needs to add 2.02 trillion more to its economic size in the coming 6 years. However, the current rate of economic growth is barely 6-7%.?

Can India become a USD 5 trillion economy?

  • In a report prepared by the international audit & accounting firm, Ernst & Young, it has been estimated that the Indian economy will have to grow by over 9% in each of the upcoming five years to attain a size of USD 5 trillion.
  • Going by current estimates and assuming a 9% rate of growth, the Indian economy will increase to USD 3.3 trillion at the end of FY21, USD 3.6 trillion at the end of FY22, USD 4.1 trillion by the ending of FY23, a figure of USD 4.5 trillion by the ending of FY24 and USD 5 trillion in FY25.
  • India will also need to raise an aggregate investment equal to 38% of GDP (currently 31.3%) to attain the USD 5 trillion economic target.
  • However, the report has also stated that if the rate of inflation is lower than 4% and the US-Rupee exchange rate depreciation is higher than 2% per annum.?

What role does the Central Government play?

A major growth component for economic growth is the spending by the Central Government which it can do by any of the following 4 components- investing back in the economy by capital expenditure budgeted in the annual budget, expenditure by the Public Sector Undertakings, policy initiatives which induce private investments and coordination with the various state governments of India.?

However, the current expenditure by the Central Government is very low and the share is barely 1.6% of the GDP in current FY 2019. This needs to be increased.

 

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