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Insights into Editorial: What a $5 trillion economy would look like
President Ram Nath Kovind in his customary joint address to Parliament outlined the NDA government’s objectives for “new India.”
Stating that the government plans to make India a 5-trillion dollar economy by 2024.
President Kovind in his address at the Central Hall of Parliament said, “My government is moving ahead to create strong, secure and inclusive India.”
At the meeting of the Governing Council of the NITI Aayog also, Prime Minister Narendra Modi announced the target of a $5 trillion economy for India by 2024.
It is necessary to think big when seeking to make a difference, for transformation does not come from modest plans.
Hopefully, the Prime Minister will also use the drive to growth to place India’s official statistics on a firmer footing, so that we can be sure that economic policy-making is based on reality.
India’s Present growth rate:
India is, currently, a $2.8 trillion economy; to reach the $5 trillion mark by 2024, the economy would require nominal growth in dollar terms of over 12% a year.
To put this in context, in the last quarter for which data is available, India grew at slower than 6% in real terms.
Modi could never be accused of lacking ambition, but the fact is that getting India’s GDP to $5 trillion in five years will be far more challenging than achievable.
PM in Governing Council of the NITI Aayog:
A NITI Aayog forum is the ideal platform to air views and throw up genuine concerns, which the states did in ample measure.
PM Modi said that the states need to recognise their core competence and aim to increase their economy by 2-2.5 times, which is roughly the size of the current deficit.
Any upscaling of the Indian economy is only possible when agriculture is given priority and there are drastic reforms in this sector.
To that extent, any agricultural transformation would need improved logistics, efficient supply chains, upgraded marketing, more free moment of agricultural goods within the Union of states and overhauling the Essential Commodities Act, 1955, and the Agriculture Produce Marketing Act.
Some chief ministers present in governing council, suggested changes in working of the NITI Aayog, which was not playing the role of a facilitator, as expected. If there is a case of streamlining the Aayog, the government would be well advised to look into the bottlenecks.
Characteristics of a valuable economy:
First, Indians should feel empowered by the economy. India is placed very low in the United Nations’ World Happiness Report. Happiness, best understood as a sense of well-being, is directly related to empowerment, or being able to undertake the functionings we value.
India stands at 140th place out of 156 in the World Happiness Report produced by the United Nations Sustainable Development Solutions Network in partnership with the Ernesto Illy Foundation.
This is, in the first instance, related to being educated and experiencing good health. We are in India facing an education sector that is broken down and the majority are battling with almost non-existent public health infrastructure.
The private sector has some worthy initiatives in these areas but they await an effective public presence on a gigantic scale. So, the first attribute of the valuable economy would be access to quality health and education for all.
The second attribute of a valuable economy would be equality of opportunity.
For over three decades now income inequality has been rising in India. According to some measures, India is today more unequal than China, itself a society widely perceived as highly unequal.
Now some part of inequality of opportunity is related to unequal distribution of income but a part of it is not.
Gender inequality manifested as women having less opportunity in life is not going to go away with a re-distribution of income along class lines or across social groupings.
India is a serious outlier in this regard, and becoming richer as a society may do little to change the status quo.
Shockingly, a sex ratio, already unfavourable to women, has shown a secular worsening since 1947. Inequality in India can only be ended by equalising capabilities across individuals.
Concerted public action via education is the means to this outcome. Income transfers, pushed relentlessly by policy entrepreneurs, evade the issue altogether.
MSMEs play a key role in economic growth, job creation and local development:
The sector employs around 11.7 crore people, constituting 40 per cent of the workforce. Around 32 per cent of the total jobs are created in the manufacturing sector, 35 per cent in trade, and 33 per cent in other services.
However, MSMEs are not only important for employment, they can also be an engine of growth.
The share of MSMEs in GDP was 29 per cent in 2015-16. Contribution of manufacturing MSMEs to manufacturing GVA (gross value added) is about 33 per cent.
The banking sector needs to grow in size. Then, even if the share of loans to MSMEs does not go up too much, there are more banks lending to small industries. This can be done by giving out more bank licences.
Conserving nature: for sustained economic growth:
An economy, whatever its size, cannot be meaningfully evaluated independently of the extent of presence in it of natural capital.
Till now, by referring to the imperative for growth, to eradicate poverty, any effort to conserve nature has not just been ignored but treated with derision, by both right and left. This is no longer a credible political stance.
Two-thirds of the world’s most polluted cities are in India, when we accept less than a fifth of its population. Air pollution shortens lives and lowers productivity, reducing the capacity to earn a living when alive.
The poor are the most affected as they cannot afford to live in gated communities that somehow manage to commandeer scarce natural resources. Some part of environmental depletion in India is due to the pursuit of unbridled growth.
India need to carry out the crucial internal reforms that will allow it to be a productive international player, and to take on the leadership roles that so many people across the world hope that it will. But the chances of that happening at the moment are sadly low.
Any improvement in the life of the majority would require a re-alignment of the growth process so that it is less damaging. This would very likely require that we have slower growth but the process can be configured to channel more of it towards poorer groups.
India could and should aspire to double-digit growth. Without sustained growth at that all levels it has little hope of employing the roughly one million young people who join its workforce every month.
And unless it takes advantage of its current, favorable demographics it is never likely to emerge as an upper-middle-income economy with a prosperous and thriving middle class.