Despite minor hiccups, India is on track of $5-trn economy by 2025

Mumbai: Even as the country gradually marches towards realising the goal of a $5 trillion economy over the next few years, it is confronted with a host of challenges (not all revolve around finances directly) that have to be addressed in right earnest.

They come in various forms like the Ukraine crisis, the aftermath of the Covid pandemic and the most critical one being the continued non-cooperation of state governments that are headed by parties not affiliated to NDA.

The 8-8.5 per cent growth for FY2023 as presumed by the Economic Survey, which was released ahead of the presentation of the Union Budget, appears to have built a cushion for possible Covid-induced future disruptions even as the preparedness of economic agents has improved on account of the insurance offered by a bouquet of social safety nets.

The continued thrust on government capex portended by the Economic Survey is enthusing, as it offers the best likelihood of piloting an enduring growth recovery.

Presuming that LIC flows materialise in FY2023 amidst back-ended spending, ICRA expects the Centre to report a fiscal deficit of Rs 16.6 trillion or 7.1 per cent of the GDP in FY2022, despite revenue receipts surpassing the budgeted level by a robust margin of Rs 2.25 trillion. Taken under a different yardstick, even if the government sheds a mere five per cent of its stake through the offer for sale for LIC's IPO, it will raise a whopping Rs 80,000 crore.

For a second forget $5 trillion as India has the potential to grow into a $10 trillion economy by the early 2030s. The country's economy currently stands at $3 trillion GDP and thereby it is the sixth largest economy in the world, after the US, China, Japan, Germany, and the United Kingdom.

An estimate suggests that if India grows at about 11-12 per cent nominal GDP growth rate (which is in line with its historical growth for the past few years) and rupee depreciates at around 1 to 1.5 per cent a year (which is not an unreasonable assumption given the fact that Indian economy, in terms of growth, is most likely to outpace all other major economies in the next 10-15 years; there might actually be some underlying tendencies for rupee to appreciate), Indian economy will grow to be of $10 trillion in early 2030s.

In other words, if the GDP grows at 10 per cent per annum in nominal dollar terms, India would be close to five trillion dollar economy in 2024-25 and a 10 trillion dollar economy by around 2030.

Going by this average growth rate, India will start adding more than $500 billion to its GDP every year from 2025-26 onwards and more than a trillion dollars a year from 2032-33. If India were to grow at 11 per cent per annum in nominal dollar terms, the $10 trillion milestone could be achieved a year earlier in 2031-32 and at 12 per cent per annum, this milestone could be achieved in 2030-31 itself.

Now, the moot question is about how the country can become a $5 trillion economy. Well, it requires a multi-pronged approach.

First, production of economic goods and services is business. The governments are not good producers of goods and services, and hence must refrain from production-related activities. The governments are best in making laws, regulations and maintaining law and order. Governance is their forte. They should, therefore, as a policy, not be doing businesses.

The Public Sector is a mule, as analysts opine, which is a cross between the government and the private sector. It does deliver service but is not business savvy as the private sector.

"Swayed by the transient success of communism, India also embarked on the path of socialistic pattern of society resulting in nationalisation of almost all financial businesses besides reserving most of the infrastructure and basic goods production in the public sector. Policy overreach and some misconceived objectives resulted in a number of consumer goods being produced in the public sector," says Subhash Chandra Garg, former finance secretary, government of India

There are 29 states in the country. Things are going well in states where their governments are headed by the party that is ruling the Centre. The problem lies in states where opposition parties are ruling and are unwilling to cooperate with the Centre.

Shiva Kumar, former managing director of SBBJ (SBI Group) says, "India's economy is a sum total of the economies of all states and UTs. This aspect needs to be talked about more. Also, we tend to discuss the country's GDP growth. There should be more emphasis on the growth and size of the economies of states and UTs vis-à-vis GDP. This would be the fastest way to galvanise every unit and bolster achieving a $5 trillion economy by an early date."

A section of experts is of the firm belief that the country's economy is all set to realising the dream well within the already decided time-frame of 2024-25. And they have reasons to believe it.

The economy continues to be on a strong footing driven by the local demand. The impetus on infrastructure spending by the government as well as some green shoots of private CAPEX will spur the growth.

India is on the right path to becoming a $5trillion economy by 2024-25, barring the few minor hiccups that seem to slow down the pace. The kind of structural shifts that are happening in the underlying economy is long-term in nature and will ensure that the target is achieved. However, they also point out certain challenges that are up ahead.

According to Arun Malhotra, founding partner and portfolio manager, CapGrow Capital Advisors, "The key challenges lie in the execution part. This target of higher economic growth is based on improved infrastructure and the benefits that will be realized from the measures taken in boosting the overall productivity and accelerating the growth of services and manufacturing. Global factors leading to higher commodity and higher oil prices will cause inflation and may impede the overall economic growth. The negative sentiment due to the Ukraine crisis may also impact the demand."

Well aware of the challenges, the government is making all possible efforts towards that direction and fighting the challenges that are trying to create roadblock in the realisation of the long-cherished dream of every Indian.

The Indian government has taken the right steps in facilitating economic growth. Measures like rationalization of taxes and duties, focus on manufacturing through 'Make in India' and PLI schemes, and a complete overhaul of the PSUs that were slowing down the growth and at the same time consuming precious resources, key divestitures like Air India and LIC, All these will ensure that the scarce resources are put to best use and productivity is increased thereby boosting the economic growth.

Now, comes the pertinent question-what will be the role played by India Inc?

Well, the answer is simple. India Inc, Malhotra goes on, needs to step up the pedal and accelerate to cash in on the new measures. This needs capital and investments along with the right mindset to make India the most preferred manufacturing hub in the world. The country has a huge consumer base and more manufacturing here will ensure improvement in the current deficit as well as provide wages and income to the huge English-speaking workforce.

The ongoing geo-political tension, including the Ukraine crisis, is another point of debate, which often throws cold water on the efforts being made by every stakeholder to take the country to the desired level of economic growth.

A minor blip has caused big disruptions in supplies, leading to higher commodity prices and higher price of oil. Prices of commodities have spiked and held on to high levels, increasing the probability of a downgrade of earnings. This can impact growth in the short to medium term.

It also brings a fresh set of dilemmas for the policymakers, who have been making efforts to find the right balance between supporting growth and controlling inflationary pressures. There will be some indirect impacts of the Ukraine crisis that would far outweigh the direct fallout in terms of trade flows between India and Russia/Ukraine. Demand or consumption constitutes roughly 58 per cent of GDP. Any slowdown due to the above factors would slow down the overall economic growth.

Last but not the least, achieving the desired goal will also depend on the strengthening of India-US relations.

Arun Malhotra says "The Indo-US relationship has received additional stimulus from the Quadrilateral Security Dialogue. Going forward, the two countries need to skillfully recalibrate the current relationship in order to broaden its reach and ensure continuous meaningful engagement, at both political and industry levels, to sustain their ambitious mutual agenda."

As India prepares to meet an ambitious target of becoming a $ 5 trillion economy, the US is powerfully positioned as an even stronger partner in this inevitable and important growth journey.