World is watching with curiosity as Prime Minister Modi pledged to make India a $5 trillion economy by the fiscal year 2024-25. It is always good to have a goal and do the necessary to achieve it. At present, the global headwinds are challenging. The world economy remained subdued in 2018 with growth rate falling to 3.6 per cent from 3.8 per cent in 2017. It is projected to fall further to 3.3 per cent in 2019. The Indian economy moderated in 2018-19 with a growth of 6.8 per cent which is lower than 7.2 per cent in 2017-18.

According to estimates, India needs to sustain a real GDP growth rate of 8 per cent to achieve the goal of $5 trillion economy. Analysing the current situation, the Economic Survey 2018-19 has admitted “both downside risks and upside prospects persist in 2019-20”. But in the same breath the Survey dismisses the traditional Anglo-Saxon concept that an economy can be in either in a vicious or a virtuous cycle. It has termed the Indian economy to be stable and in a state of equilibrium.

The macroeconomic stability is due to containing price inflation within four per cent and by maintaining a manageable current account deficit to GDP ratio (2.4 per cent of GDP), despite the initial rise in crude oil prices. Added to this is the political stability. Despite the growth being subdued at 6.8 per cent, India continues to be the fastest growing major economy in the world. The GDP is projected at 7 per cent in 2019-20.   

The ruling Bharatiya Janata Party (BJP) in its 2019 poll manifesto said if voted back to power it would make India a $5 trillion economy by 2025 and $10 trillion economy by 2032.  India, which is now the sixth largest economy, will be the third largest economy by 2030.      

Toeing the line of the party’s manifesto, finance minister Nirmala Sitharaman while presenting the budget said India, which is now a $2.7 trillion economy, will grow to become a $3 trillion economy in the current year and to $5 trillion economy in next few years. Drawing confidence from India graduating to a $2.7 trillion economy in a span of five years from the level of $1.85 trillion economy, she said the goal is achievable. In purchasing power parity, India is the third largest economy, only next to China and the US. In post-budget media briefing, Sitharaman said her budget has laid the blueprint for next 10 years. The International Monetary Fund (IMF) has projected that India’s GDP will touch $4.7 trillion in 2024.

But who stands to benefit if India becomes a $5 trillion economy? To benefit the common man, it is the GDP per capita that matters (GDP divided by the total population). India with $2.7 trillion economy has GDP per capita at $2,015 only as per 2018 World Bank data. It is behind Indonesia ($3,893) and China ($9,770). Therefore aiming at $5 trillion economy is not sufficient. The country needs to have inclusive growth and more financial inclusion.

Key to fostering economic growth is investment, liquidity in the market, rise in savings and consumption, creation of jobs, increase in merchandise and services exports and overall keeping price inflation at a manageable level. Investment growth should pick up in the private sector. Liquidity situation has remained tight since September 2018. Financial flows to the economy remained constrained due to decline in the amount of equity finance raised from capital markets and stress in the non-banking financial companies (NBFCs).

However, there is a silver lining as banks have started reducing their non-performing assets (NPAs) and credit flow may rise. The micro, small and medium enterprises (MSMEs) that are responsible for creation of jobs need hand holding which the Union Budget has tried to address. Some MSMEs need to graduate to large enterprises. The Budget has tried to address some problems of NBFCs. The Reserve Bank of India has a critical role to play in creating liquidity and balancing inflation and increasing consumption and savings. As loans are costly in the country, companies should access cheaper loans in the global market. 

Government addressed the concerns of investors for a common market by setting up a countrywide agricultural market, common power tariff and inclusion of petro products in the GST. Deceleration in exports and moderation in growth of the services sector are causes for worry. However, the growth of remittances has offset the deterioration in current account deficit. Exporters should navigate in this difficult global situation and find out a solution.

The government has made a commitment to make investments in the infrastructure sector in the Union Budget. It has called for private sector participation in railways. In matters of infrastructure and social sector development, government should not shy away from making adequate investment, even if it breaches fiscal discipline

Raising of rural income is being done through schemes like crop insurance programme, rural roads, pension scheme for farmers, piped drinking water to rural household, gas and electricity connection to rural households, rural housing scheme, rural waste management and fisheries schemes and the like. Encouragement to Start Ups, Stand Ups is in right direction. But more needs to be done for scheduled castes, tribal people and women. The dream of $5 trillion economy should also aim at raising the GDP per capita which can help the common man.