Road-Map To Recovery: $5 Trillion Economy

India, the fifth largest economy by nominal GDP and the third largest by the Purchasing Power Parity, is characterized as a developing market economy. Currently, swinging at an economy of $2.936 trillion, on July 05, 2019, as the Union Budget was presented by Ms. Nirmala Sitharaman, Minister for Finance and Corporate Affairs, Government of India, in the Parliament, mentioned that the second cabinet of the present government is all about making India a $5 trillion economy by 2024. This jump of $2.064 trillion is nearly a 70.29% increase in the economy in the coming 5 years. To achieve this target put forward by our government, India will have to grow at a pace of 9% (in real terms). Contrasting to the current growth rate of 4.8%, the target looks unimaginably over-ambitious.

For the past few months, the country has unfortunately camouflaged among dark clouds and the targets that are to be achieved, look daunting, if not impossible. The country’s exports have gone down to 6.57%, the unemployment rate has been strikingly hitting a 6.1% - a four decade high percentile, an estimated fiscal deficit is considered to be as high as 5.5% in 2020 along with a drastic revenue shortfall of 1.6 trillion rupees.

Unsurprisingly, India falls well below its potential in production capacity, due to justifiable reasons like fast growing inflation due to the selling of assets by the government and contrary recession in the lower part of the country that inhabits a major population.

In 2014, India was a $1.7 trillion economy and in 2019, it rose to a $2.9 trillion economy, having added a little over one trillion US dollars in the last 5 years with relatively a more stable economy than it is, in the present.

The country, at present, is following a growth recession, which means that even though the economy is still growing at a rate of 4.5%, lowest in the past few years, it is also experiencing a high inflation rate of 6.7% with people losing their jobs, loss of income leading to decline in consumption and investment, and a further loss in employment. It is a viscous circle that the economy is supposedly trapped in. 

As Kenneth Boulding once said, “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist”, very well describes the foreseeing unattainable target that has been set.

Though, foreign direct investments have seen a happy picture in the first half of the current fiscal year of 2020 and rose by 15%, mostly in the services sector but still lag behind to reach the $5 trillion mark and needs to continue growing sharply if India wants to enter the $5 trillion economy.

I, as a student of economics, in no way believes that the target is impossible, but the path that needs to be followed to get through the target and the measures that need to be acted upon, seem far distant from the current growth scenario and the economic condition. With most of the younger generation, flying outside of the country to settle or to attain higher education first and find a job next, the competency of the country has already started seeing a downward curve. As of 2019, 1.75 crore people from India were settled abroad; that is 1 person in every 766 people is an international emigrant, with many other’s waiting in line. To top it up, almost every citizen who flies out of India is one of the most competent individual that this nation creates and eventually, loses. With the quality population drifting away from the country, the quality production capacity reduces too, shifting away the focus from domestic production to increasing imports. In order to achieve this goal, there are 5 main tings India must focus on –

1.     Increase ease of doing business and quality living to enable the private sector to create wealth over a longer period of time: Over the last 4 years, the government has scarped about 1300 laws. Through a series of reforms in the first tenure of the BJP government, India did see a jump of 65 positions in The World Bank Ease of Doing Business. But the real challenge lies in, jumping furthermore and saving a seat in the top 25 position in the next 5 years.

India is a large country; bigger than 24 countries of the entire Europe plus an additional 30,000 kilometers, which makes it even more difficult to grab a spot in the top 25. This will only happen if the country’s focus for the next 5 years is plainly on foreign direct investment, supporting start-ups, easing out rules and regulations for commencement of new companies in the country, and creating more job opportunities by providing for basics of quality education and health.

2.     Focus on urbanization: Urbanization is a major contributor in growth not just in India but all around the globe. In totality, cities only account for about 3% of the total land mass but 82% of the global GDP. This itself shows how important cities are and that a major focus should be on urbanizing the country. Cities are big centers of growth, development, dynamism, innovation, and the largest indicator of economic growth.

The process of urbanization has completely ended in America and Europe, almost ended in China, but has just begun in India. For a big country like ours, urbanizing must come with planning. The government shall focus on recycling waste, water, and every other precious resource to fulfill every man’s basic needs. Only through urbanization will the country rapidly flourish. The backward regions need to be focused on and should be given enough attention, to prosper.

Looking at the current scenario, urbanization is undoubtedly increasing and as every minute passes by, almost 30 Indians are shifting from the rural to the urban. But to cater them all and to see an extravagant economic boom, the country definitely needs more than 5 years! A mere shift from the rural area to the urban area is not going to help the country because all it is going to do is increase the population density in particular areas; the country needs to modernize the rural areas in a way that owners of that land are not divided, mentally & physically, and the growth is multiplied, subsequently.

3.     Penetrating global markets: India cannot be speaking in lieu of protectionism, we cannot solely depend on domestic market, and expansion of trade is the need of the hour. Core focus should be on the exports, and the import should be brought down in order to expand the economy. Globalization enables a country to prosper and maintain healthy relations with other countries across the globe. It also promotes competition in the market that makes the producers produce the best of the output that they can. As of data collected in 2019, India’s current exports recorded $27.7 billion and current imports were recorded as $38.6 billion, a large difference of $10.9 billion. To cover the deficits, and to increase the revenue, India needs to draw its major focus on increasing its exports and decreasing its imports.

India needs at least $1 trillion exports to reach the goal of a $5 trillion economy, in contrast to the current total exports of $27.7 billion.

4.     Employment generation especially among the females: India can never really grow until and unless it surpasses its gender parity. Here, only about 26% of the women work, whereas the world average for the same is 48%. With such a major part of the population not working, growth expansion seems to be a long lost story.

As of 2018, India has around 31 million jobless people, educated but not greeted. With such a high unemployment rate of 3.5%, even the suicide rates among the unemployed have crossed the suicide rates of farmers this year, the first time ever in India’s history.

Job opportunities need immediate attention by the Government of India for welfare and sustenance, both of the people of the nation and the nation itself.

5.     Reforms in agriculture: Agriculture is the most important sector of the Indian Economy. It accounts for 18% of India’s overall GDP and gives employment to over 50% of the country’s workforce. India is the world’s largest producer of rice, wheat, pulses, and spices which account for a large share in the Indian exports too.

The agricultural sector in India needs major structural reforms and strong attention because they cannot always grow on subsidies, negligence, assisting farmers without providing them with better markets, without introducing latest technology, and without contract farming.

If the GoI does not direct its attention towards the agriculture sector as soon as possible, the economy would drift far away from its goal of expanding, let alone the goal of a $5 trillion economy.

These 5 things need to be taken critical care of in the coming 5 years if the economy wants to go close to its target. But with the instability and the tensions swirling round the country at the moment, it looks like a far vested dream.

Lately, the government has spent about Rs. 4800 crores on publicity, RTI shows. Had this amount of money been righteously used, could have fed 46 million children’s midday meals for a year, could have provided for one day’s wages for over 200 million wage workers under MGNREGA, and could have conducted about 10 more mars missions. But the entire expenditure was solely made for advertising in print media, advertising through electronic media, and outdoor publicity. With such expenditures on board, there are no second thoughts about the finances of the nation.

The financial standing of the economy along with its quantitative measures have proven the economy dwindling drastically, supported by the recent news given by the International Monetary Fund where it says that 80% of the reason for the fall of the global economy is due to a sharp fall in India’s economic growth rate.

As it was rightly said by Late Lala Lajpat Rai, “Nations are made by themselves”, nations are even destroyed by themselves. India’s fiscal deficit as of now is about 3.3% of the GDP, which is a highly alarming figure, which has led to macroeconomic instability and a huge fall in the foreign exchange rate. Currently, India is the worst performing currency in the entire continent of Asia.

The 8 sectors in the core infrastructure industries’ output that account for two-fifth of the country’s factory output has shown the worst results in 14 years – resulting in an industrial slowdown of the country. Crude oil, electricity, natural gas, cement, refinery, steel, and coal all have shrunk in the past few months only leaving the fertilizers industry on the path of growth. 

           Ever since demonetization and the implementation of Goods and Services Tax, the country has seen a deceleration of the economy. On one hand as the government banned the legal tender of the economy, it implemented taxes on the other. People were cut short of money, employees lost their jobs, the stock market fell, development saw a major hold, and the country as a whole, started losing its pace of growth. "What happened in 2017 is that even as the world picked up, India went down. That reflects the fact that these blows (demonetization and GST) have really been hard blows. Because of these headwinds we have been held back”, said our former RBI governor, Mr. Raghuram Govind Rajan.

Undeniably, India is seeing its best demography ever, with about 65% of its population below the age of 35, i.e. most of Indians are currently in their working age, provided that they have jobs. The estimated dependency ratio of the country in 2020 is just a little over 0.4, fairly a good ratio, which shows the dependency of the non-working population on the working population. The lower this ratio is, the better it is for the country. But, to reap the benefits of its demographic dividend and increase the country’s production capacity, serious measures should be taken in favor of education and health. Unfortunately, the education and health status of India is far below than what is required for a better nation-wide progress. 

With such tensions flowing in the country, unless of an occurrence of a miracle, I am highly doubtful of India turning into a $5 trillion economy by the end of 2024. To end with, all I would like to quote is that, I am neither for a flower, nor for a hand, all I am is for my nation, since the day I understood what economics actually meant, since the day I looked at my country with genuine repent.