Reaching $ 5 trillion GDP benchmark is being projected as a landmark milestone for the Indian economy by many in the Government. The latest estimate puts the size of Indian economy, measured as GDP at current market prices, at $2.4 trillion. Does reaching $5 trillion mark reflect a significant achievement or is it really an implicit admission of incipient sluggishness in growth of Indian economy? Let the data speak.
Indian economy registered an average annual growth of 12.8% in GDP (at current market prices) during 17 years – from 2000-01 to 2016-17. During the same period, only in 2 years, the growth rate fell below 8%, the minimum being 7.6%. The 25 percentile growth rate was above two digits at 10.4% and the median rate was 13%.
Given this nominal growth scenario of recent past, dollar value 5 trillion appears to be too modest a goal to be set by the current government. Table 1 gives the projected value of Indian economy till 2035 under various growth rate scenarios. Even if Indian economy grows at the lowest rate achieved during last 17 years, the size of the economy would reach at least 4 trillion US dollar by 2025. If rupee depreciates in mean time the growth in dollar terms would be lower. At 70 rupees per dollar, the size would become only 3.9 trillion dollar by the end of 2025.
A nominal yearly growth rate of 7.6 percent would imply, given 4 % target growth rate notified by the government of India (GOI), a real growth rate of only 3.6 percent. A 10.4 % growth rate would thus imply real growth rate of only 6.4%. Thus if projections of $5 trillion is in nominal terms, then no big achievement is being claimed.
Suppose, all the projections are being made under the assumption of constant prices of 2016-17, then the target average growth for next eight years should be 9%. India has achieved a double digit real growth rate in the last 66 years only once. Even in the last 25 years India clocked a real GDP growth rate greater than 8% only 6 times. So the probability of clocking a real growth rate of more than 8% is as low as 25%. Achieving 9% uniform real growth rate till 2025 with stable rupee-dollar rate might be a chimera. If rupee depreciates to 70 rupees by 2025, we would need an average year over year real growth rate of 11%. It could be a dream worth pursuing but there is no evidence in terms of accelerated investment or growth in productivity that could make the dream a reality.
In summary, reaching 5 trillion USD by 2025 in nominal terms is no big deal – a lower than achievement would be considered a highly disappointing performance. Achieving the same target in real terms could be an enormous challenge- heralding a real structural break in the Indian economy with productivity led growth and not merely by adding more capital and labour.
Table 1: Projected USD Size of Indian Economy under various growth rate scenarios and with constant exchange rate of 63.5 ($Trillion)
|Distribution Measures based on data from 2000-01||Compound Growth Rate of GDP at current market prices||2025||2030||2035|
|Note: Only first decimal value without rounding up has been reported. Projections are based on CSO’s preliminary estimate of GDP at current market prices for year 2016-17.|
Note: Only first decimal value without rounding up has been reported. Projections are based on CSO’s preliminary estimate of GDP at current market prices for year 2016-17.