In the next five years India aims to become a five trilliondollar economy. It’s a nice round number, although the word “trillion” is notquite folksy enough. It actually equals one lakh crore, the preferred coinageof our bureaucrats, ministers and bankers. It’s basically five followed bytwelve zeros, a number large enough to make your eyes glaze over. Interestinglythis target is set in dollars, a foreign currency and metric, not in Indianrupees. It gives it the stature of a global milestone, which it is, since itwould officially make India the third largest economy. There is much work to doto get to that milestone. In addition to all the huffing and puffing needed toget the economy to that size, we also have to ensure that the rupee dollarrelationship does not slide precipitously. For if that happens, we might get to5 trillion dollars in today’s exchange rate, but if the rupee slips say bytwenty percent in the meantime, then it needs to be twenty percent bigger, tobe called a 5 trillion economy in dollar terms.
So, the strategy calls for a million (or billion things todo), and also make sure that the exchange rate remains relatively stable. This is certainly an ambitious, if notaudacious goal. For in the past five years we have grown by less than 1trillion dollars in size. In the next five, we have to grow at twice the speedat the very least, not to forget the exchange rate risk. The first of thesefive years already is likely to be a tepid speed of 7 percent GDP growth, asprojected by the Economic Survey. So, we have to accelerate in the remainingfour years. To be fair, the Finance Minister in her speech said the aim is toreach 5 trillion in a “few”, not “five” years. So, it could be eight or tenyears too. But the goal is admirable.
It is worth recalling an anecdote from September 2001. Aglobally renowned multinational consulting company, made a presentation toPrime Minister Vajpayee about achieving double digit growth. The word BRICS wasstill to be coined, and the world was grappling with a recession. Theprojections were fantastic and the vision of 10 percent growth leading to adeveloped economy was alluring. The PM sat patiently through the slickpowerpoint 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 fromthe poet PM. The same can be said about the 5 trillion dollar goal. Unlike thatrather unrealistic goal of double-digit growth, the good thing about the 5trillion target is that the destination is inevitable. Sooner or later we willget there. Even if we grow at 6 percent, a rather conservative estimate, wewill reach the goal in eleven years.
The Finance Minister’s Union Budget proposals were expectedto be about boosting growth to get to that ambitious goal. She made thereference to 5 trillion in her speech. There were general and broad indicationsin the budget about the big push in roadways, sagarmala (linking variousports), railway and airways, as also a national grid for gas andelectricity. All this growth ininfrastructure will undoubtedly promote growth, and may also crowd in, ratherthan crowd out private investments.
But if you look at the overall capital spending in thebudget proposal, it is actually falling. In the last three years thegovernment’s capex to GDP ratio has fallen from 5.2% in 2017-18, to 4.6% in2018-19 to now only 4.2% in 2019-20. This includes investments made throughpublic sector enterprises too. Hence the inference is that maybe growth isexpected 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 howto revive private sector investments, if we have to get to 5 trillion fastenough. Of course, there were many smaller measures, that can be consideredpro-growth. For instance, the slew of measures to enable the start-ups tofunction and grow away from the unfriendly scrutiny of the taxman, and free ofthe permit raj, is welcome. The facility to let non-profits and socialenterprises to also tap into public fundraising is a great step. The variousmeasures to ensure growth of corporate bond markets will ease the financingconstraint for small and medium enterprises. The infusion of 70,000 crore asfresh capital into public sector banks will hopefully allow greater creditflow, after netting the capital provisioning for non-performing loans. Thelower income tax rate of 25 percent on all companies with a turnover of lessthan 400 crores is also a much-needed step.
The road to five trillion needs to be broken into smallerand more immediate milestones. The metrics by which to measure progress have tobe much more specific and granular. And, of course, we need a strategy on howto achieve these. It will need sectoral targets, but not in the sense ofcentral planning. For instance, how can India regain its position of a leadinggarment exporter, after having fallen behind even Bangladesh and Vietnam? Howcan the agro-processing industry be vitalised to increase exports and valueaddition? (The budget did mention a target of another 10,000 farmer producingcompanies, which is laudable.). How can we revive the leather industry, whichhas been adversely affected? How can we attract at least a million Chineseforeign tourists? How can we enable at least a hundred new billion dollarprivate sector greenfield projects, in mining, chemicals, metals, automobiles,and other areas of manufacturing? Perhaps this is the work cut out for the thinktank 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 credibleprojections. We however do need more clarity on the roadmap to 5 trilliondollars.
(The writer is an economist and Senior Fellow, TakshashilaInstitution)
(The Billion Press)