After winning elections for the second time, the Modi Sarkaar set a target of making India a 5 trillion-dollar economy by 2024. Essentially the reference is to the size of the economy, which is measured by the annual Gross Domestic Product (GDP). The GDP of the economy is an index of the total monetary value of all goods and services produced within a country in a period of one year. GDP acts as a parameter to compare the economies of different countries. The greater the GDP, the greater will be the prosperity of the citizens. Currently, India stands at the sixth position of the largest economies in the world with an evaluation of $2.6 trillion, and it is only because of our vast population. In fact, our GDP per capita (GDP per person) is 2,099 USD as of 2019, which is much lower compared to other developed and developing countries. For instance, an Indonesian earns twice as much as an Indian although Indonesia’s GDP is only one-third of that of India’s GDP. Now, the government is talking about doubling the value of our GDP in just a period of 4 years, is it practical?
To hit the target, India’s GDP has to grow faster than ever, 12% nominal growth ( 8% real GDP and 4% inflation) is a necessity. Inflation rate has been on a decline since the Modi government came to power, it has reduced to 3.8% in 2019. The nominal growth as of last year was only 6% and is expected to grow by 7% this year further causing a setback for India. The Coronavirus pandemic is one of the biggest obstacles on our way to the 5 trillion-dollar economy. The domestic economy marred by the pandemic is expected to fully recover by 2022 onwards.
Infrastructure development plays a crucial role in the growth of the Indian economy. Better infrastructure would generate employment and improve the ease of doing business. If India has to grow at 8% of real GDP, it will require an upliftment of investment rates to nearly 38% of GDP as against 31% in FY19. The collapse of Yes Bank in recent times shows that the financial system is not in order. The banking sector’s ability to boost credit growth has been limited by non-performing assets(NPAs). As the target is in dollars, the Rupee-Dollar exchange rate will also play a crucial role in achieving this target. The Rupee-Dollar exchange rate needs to be in check to make India reach the desired target. The Prime Minister’s vision is challenging but still achievable if proper reforms are introduced and implemented. India will have a different identity in the world with the size of 5 trillion dollar economy, but with a population estimated to be around 1.43 billion in 2024( by the UN population projection), our per capita income would be 3,727 USD, which is still considerably low.
How can India become a 5 Trillion Dollar Economy?
1. Increase ease of doing business and standard of living:
Through many reforms, India has reached the 63rd position in the world bank’s ease of doing business, our country jumped to the 63rd position among 190 countries. The eastern districts in India are comparatively backward in terms of ease of doing business, and in education, health, maternity, infant mortality, skill set, agriculture, and nutrition. Developing these districts will surely help India grow at high rates.
2. Globalisation
India has a vast domestic market and we are buying and selling majorly within this market. We live in a globalised world, where countries miles away can engage in trade activities. A vast number of countries have prospered due to globalisation. Poverty would not have been eliminated in China if not for globalisation. India’s share in the global export was only 1.6% in the year 2018. The investment climate in India has improved since we opened up our economy to Foreign Direct Investment(FDI). The total FDI inflow received in the last 5 years was $319 billion which amounts to 50% of the total FDI for 20 years. FDI provides a win-win situation for both the host and the home country, as it helps in raising output and production.
3. Urbanization
Developed cities occupy only 3%-4% of the total landmass, but account for more than 80% of the GDP. It's our cities that are the center of growth and dynamism. Unlike America and other developed countries, the process of urbanization has just begun in India, and it's up to us to make sure that it's planned well. Cities are the engines of our economy; they will be the ones to take it forward.
4. Active Participation of Women in Economic Activities:
When a woman cooks for her family out of affection it will not be counted in the GDP even if she is technically rendering a service, this is because she isn’t charging a fee for it. But if she had cooked for her neighbour and the neighbours cooked for someone else, then it would have been a different scenario. Only 26% of women in India work, while the worldwide average is 48%. If such a large population of India is not working, it will be very hard for India to grow. Government has to actively encourage women to engage in economic activities.
Investments:
According to the 2019 economic survey, private investments are the key contributors of jobs, exports, and demand. Investment is a component of aggregate demand and increased investment will help boost aggregate demand which will in turn result in economic growth. Also, consumer spending makes up more than 70% of the economy. The government should take vital steps to increase consumer spending.
India still continues to remain one of the fastest growing economies in the world. It is an attractive country for outsourcing and cheap labour. The country has enormous advantages in its young population and its entrepreneurs. It has strength as a democracy, a growing IT capability, and a majority of them are an English-speaking workforce. It seems poised to grow into a strong economic power.
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