{"id":48849,"date":"2019-07-03T17:41:34","date_gmt":"2019-07-03T12:11:34","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=48849"},"modified":"2019-07-05T18:02:35","modified_gmt":"2019-07-05T12:32:35","slug":"7-pm-not-by-wishful-thinking-3rd-july-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-not-by-wishful-thinking-3rd-july-2019\/","title":{"rendered":"7 PM | Not by wishful thinking &#8211; How to make India a $5 trillion economy | 3rd July, 2019"},"content":{"rendered":"\n<p><strong><a href=\"https:\/\/drive.google.com\/open?id=132PhcZmPp6K9QilULClXQWptRX5MVsGk\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Read&nbsp;In-depth analysis of all the Editorials here (opens in a new tab)\">Read&nbsp;In-depth analysis of all the Editorials here<\/a><\/strong><\/p>\n\n\n\n<p><strong>Context:<\/strong><strong> <\/strong>&nbsp;Goal to make India a 5 trillion dollar economy\nby 2024.<\/p>\n\n\n\n<p><strong>What is $5 trillion Economy?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>$1 trillion\neconomy means Rs. 70 Lakh crores ($1=Rs.70). So $5 trillion is approximately\nRs. 350 Lakh Crore at the present exchange rate. <\/li><li>At present,\nIndia\u2019s Gross Domestic Product (GDP) in 2018-19 at current prices is about $2.7\ntrillion, which is about Rs. 190 Lakh Crore.<\/li><li>To achieve this\ntarget Indian economy needs to grow at 13% of compound annual growth rate\n(CAGR). Since the inflation target of India is 4% (\u00b12), so the required growth\nrate in real (inflation adjusted) is 9% per year.<\/li><\/ul>\n\n\n\n<p><strong>Is 9% of growth rate achievable?<\/strong><\/p>\n\n\n\n<p>There are some historical examples in Asia. Let\u2019s see a few of them:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>China: <\/strong>Between\n2003 and 2007, China\u2019s economy grew at 11.7% growth rate.<\/li><li><strong>South Korea: <\/strong>Between 1983 and 1987, South Korea\u2019s Economy grew at 11%.<\/li><li><strong>India: <\/strong>Between\n2003 and 2008, Indian economy grew at nearly 9%.<\/li><\/ul>\n\n\n\n<p>The past experience shows that the target of 9% growth rate is\nachievable. India in 2003-08, grew at 9% because the Savings rate and fixed\ncapital rate were high.<\/p>\n\n\n\n<p><strong>Present status of savings, investment and growth?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>For the growth\nof an economy, the economy needs savings and investment. The investment may be\ndomestic or foreign (in the form of FDI). The saving rate in 2007-08 was 36.8%\nand the investment rate was 35.6%. These rates of savings and investment led to\nhigh growth rate of 9%.<\/li><li>In last 5 years,\non average the domestic saving rate was 30.8% of GDP and investment rate (Gross\nFixed Capital Formation) was 32.5%, which accounted for a growth rate of\naverage 7.2% (2018-19). If we assume Incremental Capital Output ratio (ICOR) as\nconstant, to grow at 9% growth annually, we need 39% of domestic saving rate\nand investment rate of 41.2%.<\/li><li>With the\ndecreasing savings rate, NITI Aayog is relying more on FDI inflow. However, the\nGross FDI flow into India has peaked in 2008-09 at 2.7% of GDP decelerating\nthereafter. The present net FDI inflows stand at 1.5% of GDP in 2017-18.<\/li><\/ul>\n\n\n\n<p><strong>Steps taken by the government to move the economy towards $ 5 trillion\neconomy:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Make in India initiative:<\/strong> under which thrust sectors have been identified to provide a push to\nmanufacturing production in India. Under this government promoting indigenous\ndefence manufacturing.<\/li><li><strong>Start up India: <\/strong>the objective is to support entrepreneurs, building a robust ecosystem\nand transforming India into a country of creators instead of job seekers. To\nfund the start-ups government launched \u201cfund of funds for start-ups\u201d with\n10,000crore corpus. <\/li><li><strong>Ease of doing business (EoDB): <\/strong>the performance of India in EoDB is remarkable. India\nimproved its ranking from 130 in 2016 to 77 in 2018.<\/li><li><strong>Streamlining regulations in Logistics sector:<\/strong>&nbsp; The\n\u2018India Customs Single Window\u2019 allows importers and exporters facilitating to\nlodge their clearance documents at a single point only. Required permissions,\nif any, from other regulatory agencies would be obtained online without the\ntrader having to approach these agencies.<\/li><li><strong>Goods and service tax:<\/strong> The introduction of the Goods and Services Tax (GST) has\nprovided a significant opportunity to improve growth momentum by reducing\nbarriers to trade, business and related economic activities.<\/li><li><strong>Inflation targeting:<\/strong>\nunder inflation targeting regime inflation controlled within the bandwidth of\n4&nbsp;&nbsp; which creates policy certainty and\npromotes savings and investment indirectly.<\/li><li><strong>Foreign direct investment (FDI) reforms:<\/strong> abolition of foreign investment promotion board led\nto more than 90% of FDI comes through automatic route.<\/li><\/ul>\n\n\n\n<p><strong>Challenges facing by the economy: from both external and internal\nfactors.<\/strong><\/p>\n\n\n\n<p><strong>External sector:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Rising trade protectionism:<\/strong> the US imposed three rounds of tariffs on more than $250bn worth of Chinese goods. The duties of up to 25% cover a wide range of products, from handbags to&nbsp;railway equipment. China hit back by imposing tariffs ranging from 5% to 25% on $110bn of US products including&nbsp;chemicals,&nbsp;coal and medical equipment. On the same lines USA imposed tariffs on steel and aluminum imports and recently withdrawn generalized system preference (GSP).<\/li><li><strong>Rising right wing philosophies in European countries:<\/strong> like Brexit and right wing leaders elected in Italy, Poland and Hungary nations will lead to rising protectionism.<\/li><li><strong>Ineffectiveness of World trade organization (WTO):<\/strong> WTO failed to control the rising tariff war between USA, china and India. WTO launched Doha round negotiations in 2001 but still negotiations are in limbo.<\/li><li><strong>Conflict in west Asia<\/strong> (Syria war, Saudi Arabia-Oman war) along with USA withdraw from Iran nuclear deal led to rising crude oil prices. With the $10 per barrel increase in oil price, the GDP is expected to come down by 0.2-0.3 per cent which will further worsen the Current Account Deficit by $9-10 billion dollars.<\/li><\/ul>\n\n\n\n<p><strong>Internal\nfactors:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>India\u2019s\nagrarian crisis: <\/strong>increasing protest from farming\ncommunity due to lack of just price for agricultural produce; increasing debt\nand loan waivers; effects of climate change (like monsoon breaks, increasing\nunseasonal rains etc.) will effect on the agricultural productivity and on\nIndian food security.<\/li><li><strong>Twin\nbalance sheet syndrome (TBS):<\/strong> Twin\nbalance sheet problem refers to the stress on balance sheets of banks due to\nnon-performing assets (NPAs) or bad loans on the one hand, and heavily indebted\ncorporate on the other. Because of rising NPA\u2019s led to decline in credit\ngrowth.<\/li><li><strong>Rising\nstate Debt\u2019s:<\/strong> according to N K Singh committee report,\nOutstanding liabilities of States have increased sharply during 2015-16 and\n2016-17, following the issuance of UDAY bonds in these two years, which was\nreflected in an increase in liability-GDP ratio from 21.7% at end-March 2015 to\n23.4% at end-March 2016 and further to 23.8% at end-March 2017.this will also\nnot give enough space for productivity investment.<\/li><li><strong>Savings and Investment:<\/strong> The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in\n2016-17.The gross capital formation rate has declined from 33.8% to 30.6%\nduring same period. For any country\u2019s growth consistent rise in savings and\ninvestment should be needed.<\/li><li><strong>Declining Export to GDP ratio-<\/strong> from 25.43% in 2013 to 19.05 in 2017 due to rising\nlabour costs and policy effects (Demonetisation and GST implementation).<\/li><\/ul>\n\n\n\n<p><strong>Steps needed to be taken:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Bank recapitalisation:<\/strong> government announced RS 2.11 trillion for capitalisation of banks in\n2017 but till now only 1 lakh crore infused by the government. So the\ngovernment should speed up infusing the needed money to revival of credit cycle\nin the economy.<\/li><li><strong>FDI reforms:<\/strong> increase the limit of FDI in insurance and pension and Mutual fund\nsector.<\/li><li><strong>Increase in public expenditure:<\/strong> At the\nmost basic level, GDP of an economy is the sum of private consumption\nexpenditure, investment, government expenditure and net exports (exports minus\nimports). An increase in any of these pushes up GDP. The government expenditure\nfor this fiscal is expected to grow at 8.87%, whereas GDP is likely to grow at\n6.98%. In 2017-18, government expenditure grew at 14.97%, while GDP grew at\n7.17%. So, an increase in government expenditure basically pumped up GDP growth\nto a large extent in 2017-18 and to some extent in 2018-19.<\/li><li><strong>Export promotion:<\/strong> with increase in protectionism in several countries, domestic exporters\nneed incentives to increase shipments. So, exporters body Federation of Indian\nexport Organisation (FIEO), suggested a series of measures including outright\nexemption from GST, interest subsidy for agriculture sector, more funds for\nMSME.<\/li><li><strong>Implementation of agriculture reforms:<\/strong> like e-NAM to just price discovery for agricultural\nproduce; mega food parks to control food wastages; and to protect the farmers\nfrom climate vagaries, Pradhan mantri fasal bima yojana should be implemented\nstrictly.<\/li><\/ul>\n\n\n\n<p><strong>Way\nForward:<\/strong><\/p>\n\n\n\n<p>In the present\nscenario, the $5 trillion target appears to be a mammoth. However, it may yet\nbe doable, provided policy makers begins with realistic assessments and willing\nto step up domestic saving and investment, along with promotion of FDI.<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><em>ICOR: The incremental capital output ratio (ICOR) is a frequently used tool that explains the relationship between the level of investment made in the economy and the consequent increase in GDP. ICOR indicates the additional unit of capital or investment needed to produce an additional unit of output.<\/em> &nbsp;<\/td><\/tr><\/tbody><\/table>\n\n\n\n<p>Source: <a href=\"https:\/\/www.thehindu.com\/opinion\/op-ed\/not-by-wishful-thinking\/article28264404.ece\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">https:\/\/www.thehindu.com\/opinion\/op-ed\/not-by-wishful-thinking\/article28264404.ece<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Read&nbsp;In-depth analysis of all the Editorials here Context: &nbsp;Goal to make India a 5 trillion dollar economy by 2024. What is $5 trillion Economy? $1 trillion economy means Rs. 70 Lakh crores ($1=Rs.70). So $5 trillion is approximately Rs. 350 Lakh Crore at the present exchange rate. At present, India\u2019s Gross Domestic Product (GDP) in&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-not-by-wishful-thinking-3rd-july-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | Not by wishful thinking &#8211; How to make India a $5 trillion economy | 3rd July, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":3567,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130],"tags":[],"class_list":["post-48849","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2017\/07\/brief-image.jpg?fit=1000%2C500&ssl=1","views":{"total":58,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/48849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=48849"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/48849\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/3567"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=48849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=48849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=48849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}