ODDS OF A 5 TRILLION DOLLAR ECONOMY
India - A Five trillion dollar economy by 2025
This phrase managed to grab the headlines in the recent past. In this article I’ve tried to delve deeper into this phrase and hopefully by the time you finish reading, you would be able to better appreciate its importance.
“India would become a five trillion $ economy by 2025” was one of BJP’s ambitious slogans after they were re-elected. It was first put forward by Nirmala Sitaraman (current finance minister).
For starters, What is a five trillion dollar economy? Is it an economy that is worth 5 trillion dollars? In that case any person having 5 trillion dollars in his pocket should be able to buy India in 2025. That’s definitely not the case. A five trillion dollar economy is a country with a GDP of 5 trillion dollars.
Why express GDP in dollars:
GDP of all the countries is expressed in terms of US dollars. There are two reasons for this. 1) Comparison between countries becomes fairly easy when GDP of all countries is expressed on a uniform basis. 2) The US dollar is considered to be stable and the king of currencies
GDP:
GDP( Gross Domestic Product) is the value of goods and services produced by an economy in a year. A country’s economic progress is generally evaluated in terms of its GDP although other measures such as GNP, per capita income etc. exist.
Indian inefficiencies:
Calculating GDP of a country is a cumbersome process. A number of methods are used, the prominent ones being
1)Output method - Value of all goods produced is aggregated
2)Income method - Incomes generated in India are aggregated
3)Expenditure method - Expenses incurred in the country are aggregated
Income method has proved to be the least efficient method in India. If you think I’m wrong try asking any person what his income is and see if you get an answer without any hesitation. Even if you manage to get a person's bank statements, it might not be sufficient as people in India prefer to hoard cash for various reasons that I do not have to explicitly state.
The Expenditure method is quite useful. People generally have an incentive to disclose their expenses as they may get tax deductions and other benefits under the GST Act. Accounting procedures have to be very strong to estimate GDP properly. In a country like India, thousands of small and medium sized enterprises exist and millions of transactions go unaccounted. Given the cumulative size of these small and medium sized enterprises, it is impossible to ignore their contributions to GDP. Hence, only the best estimate is taken. India’s GDP for the year 2018 was estimated at 2.96 trillion dollars. However, it could be way more or less than this figure. Who knows, India is probably already a five trillion dollar economy.
Let’s assume that India turns into a 5 trillion dollar economy by 2025. Will the world look back at us and applaud? Is it that big an achievement? The list below will give you the answer.
GDP for the year 2018
- USA - 20.5 trillion$
- China - 13.37 trillion$
- Japan - 4.97 trillion$
Hence, India’s benchmark of 5 trillion dollars may not mean much to the rest of the world, but coming close to this benchmark is a perfect indicator that our economy is on the right track.
What’s expected of us:
As mentioned already, India’s GDP for the year 2018 was estimated at 2.96 trillion $. The growth rate for 2019 was concluded as 6%(average). The growth rate for 2020 is estimated to be 5%. These rates are too low considering India’s growth potential. It’s inevitable though. We are currently experiencing a worldwide recession which has caused these figures to be so low. Going by the estimates, I’ve projected India’s GDP for the year 2020 to be 3.29 trillion dollars. From thereon if India has to reach the 5 trillion dollar mark by 2025, it has to grow by at least 10.87% every year. When China was in a period of rapid growth it’s average yearly growth was around 10%. Surely, a lot is expected of us!
{Note: GDP is a yearly figure and not a cumulative one. Eg. After estimating GDP for 2018 at 2.96 trillion $, the count is pushed back to 0 in the beginning of 2019 and doesn't continue from 2.96 trillion $}
Increasing dependence:
India embraced globalization in the 1990s. Exports and imports have increased multi fold since then. India now has so much exposure to foreign trade that it’s well being is determined to a great extent by the fate of all those countries with which it has trade relations. The world wide recession has caused India to slow down as well.
The current slowdown faced by the country has been worsened by Corona which has disrupted economic activity in an unprecedented manner. Who would’ve wondered that the phrase “When China sneezes, the whole world would rub its nose” would become literally true. Corona's grip over the world is still strong and has caused economies to almost come to a stand still. The recovery of India and the world on the whole from the current slowdown requires vigorous economic activity. In the midst of all these fears, the target seems quite far-fetched. Optimists would say ‘Nothing is impossible’ though.