India's grand $5 trillion goal, and the policies to achieve it
Prime Minister Narendra Modi has given India and its citizens a lofty goal of maturing into a $5 trillion economy by 2025. Every growing country needs an ambitious goal, so everyone is aligned and focused on reaching it. To reap this vision, we must first take stock. In FY 2018-19, India's GDP is estimated to be Rs 190 lakh crores or $2.7 trillion (at Rs 70 = $1). Say we grow at eight percent for the next six years, with inflation at 3.5 percent, yielding a nominal growth rate of 11.5 percent - in constant currency of Rs 70 = $1, starting at $2.7 trillion - the $5 trillion goal is well within reach. Putting aside considerations like the rupee depreciation, the critical issue is, can we reach this goal of eight percent growth over the next six years?
When India’s economy opened up in 1991, the GDP was $275 billion; reaching $2.7 trillion today translates to a growth of 8.5 percent per year in dollar terms. The 8.5-percent per year is phenomenal growth and a testimony to the healthy growth drivers India possesses. Given India's strong 28-year history and capacity for growth, we estimate that the probability India reaches the $5 trillion goal is more than 80 percent.
Several policy initiatives are required in the next six years to maintain the eight-percent growth rate and reach the $5 trillion target:
Table: 2016-17 data comparing agriculture, industry and services sectors in India across share of Gross Value Added, GVA growth rate, workforce distribution and per-capita numbers. Data from RBI, MOSPI World Bank