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Road To A $5-Trillion Economy Is Hazy


IN the next five years India aims to become a $5-trillion economy. It is a nice round number, although the word ‘trillion’ is not quite folksy enough. It actually equals Rs 1 lakh crore, the preferred coinage of our bureaucrats, ministers and bankers. It’s basically five followed by 12 zeros, a number large enough to make your eyes glaze over. Interestingly this target is set in dollars, a foreign currency and metric, not in Indian rupees. It gives it the stature of a global milestone, which it is, since it would officially make India the third largest economy.

There is much work to do to get to that milestone. In addition to all the huffing and puffing needed to get the economy to that size, we also have to ensure that the rupee-dollar relationship does not slide precipitously. For if that happens, we might get to $5 trillion in today’s exchange rate, but if the rupee slips say by 20 per cent in the meantime, then it needs to be 20 per cent bigger, to be called a $5-trillion economy in dollar terms.

So, the strategy calls for a million (or billion things to do), and also make sure that the exchange rate remains relatively stable.  This is certainly an ambitious, if not audacious goal. For in the past five years we have grown by less than $1 trillion in size. In the next five, we have to grow at twice the speed at the very least, not to forget the exchange rate risk. The first of these five years already is likely to be a tepid speed of 7 per cent GDP growth, as projected by the economic survey. So, we have to accelerate in the remaining four years. To be fair, Finance Minister Nirmala Sitharaman in her speech said the aim is to reach $5 trillion in a “few”, not “five” years. So, it could be eight or ten years too. But the goal is admirable.

It is worth recalling an anecdote from September 2001. A globally renowned multinational consulting company, made a presentation to prime minister A B Vajpayee about achieving double digit growth. The word BRICS was still to be coined, and the world was grappling with a recession. The projections were fantastic and the vision of 10 per cent growth leading to a developed economy was alluring. Vajpayee sat patiently through the slick powerpoint presentation, and in the end smiled, and asked, “Par yeh sab hogakaise?”  (Yes, I understand the vision, but how will we get there?). This was a typical pithy comment fittingly from the poet PM. The same can be said about the $5 trillion  goal. Unlike that rather unrealistic goal of double-digit growth, the good thing about the $5 trillion target is that the destination is inevitable. Sooner or later we will get there. Even if we grow at 6 per cent, a rather conservative estimate, we will reach the goal in 11 years.

The Finance Minister’s Union budget proposals were expected to be about boosting growth to get to that ambitious goal. She made the reference to $5 trillion in her speech. There were general and broad indications in the budget about the big-push in roadways, Sagarmala (linking various ports), railway and airways, as also a national grid for gas and electricity.   All this growth in infrastructure will undoubtedly promote growth, and may also crowd in, rather than crowd out private investments. 

But if you look at the overall capital spending in the budget proposal, it is actually falling. In the last three years the government’s capex to GDP ratio has fallen from 5.2 per cent  in 2017-18, to 4.6 per cent  in 2018-19 to now only 4.2 per cent  in 2019-20. This includes investments made through public sector enterprises too. Hence the inference is that maybe growth is expected from a much higher level of capital spending from the private sector. This has been stagnant for several years.

This is the biggest challenge on how to revive private sector investments if we have to get to $5 trillion fast enough. Of course, there were many smaller measures that can be considered pro-growth. For instance, the slew of measures to enable the startups to function and grow away from the unfriendly scrutiny of the taxman, and free of the permit raj, is welcome. The facility to let non-profits and social enterprises to also tap into public fundraising is a great step. The various measures to ensure growth of corporate bond markets will ease the financing constraint for small and medium enterprises. The infusion of Rs 70,000 crore as fresh capital into public sector banks will hopefully allow greater credit flow, after netting the capital provisioning for non-performing loans. The lower income tax rate of 25 per cent on all companies with a turnover of less than Rs 400 crore is also a much-needed step.

The road to $5 trillion needs to be broken into smaller and more immediate milestones. The metrics by which to measure progress have to be much more specific and granular. And, of course, we need a strategy on how to achieve these. It will need sectoral targets, but not in the sense of central planning. For instance, how can India regain its position of a leading garment exporter, after having fallen behind even Bangladesh and Vietnam? How can the agro-processing industry be vitalised to increase exports and value addition? (The budget did mention a target of another 10,000 farmer producing companies, which is laudable). How can we revive the leather industry, which has been adversely affected? How can we attract at least a million Chinese foreign tourists? How can we enable at least a hundred new billion dollar private sector greenfield projects, in mining, chemicals, metals, automobiles, and other areas of manufacturing? Perhaps this is the work cut out for the think-tank Niti Aayog, and it is unfair for the budget to contain all the details. The budget is after all merely a statement of accounts and credible projections. We however do need more clarity on the roadmap to $5 trillion.

The Billion Press

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