India needs sustained high growth to reach its ambitious GDP target.
In 2017, Morgan Stanley — a multinational investment bank and financial services company — said in a report that India’s GDP will reach $5 trillion by 2025 . The $5-trillion economy echoed in several speeches delivered after that. TOI analysed growth rate data (current prices, which is higher than the 5% growth rate at constant prices) announced for nine quarters starting from Q1 2017-18 to Q1 2019-20. The idea was to see how many years it will take from the end of Q1 2019-20, for India to reach the $5 trillion goal, if the GDP grows at the rate announced in the previous eight quarters.
For this calculation, the quarterly growth rates at current prices are taken as annual growth rate. The base GDP is taken as the GDP estimate for 2019-20 and exchange rate is fixed at the average exchange rate for Q1 2019-20. The analysis shows that India was the closest to the $5-trillion economy target when the estimates for Q1 2018-19 were released. Since then, a $5-trillion economy goal is becoming more distant.
IN DOLLAR TERMS, INDIA'S GROWTH WAS THE SLOWEST AMONG MAJOR ECONOMIES
India will have to push its growth rate and prevent its currency from falling to maintain steady growth in dollar terms. World Bank data shows that in dollar terms, India was among the slowest growing large economies in 2018. If the dollar keeps appreciating against the rupee, India will take far more time to become a $5tn economy
BUT IN LOCAL CURRENCY, INDIA'S GDP GROWTH WAS FASTEST AMONG LARGE ECONOMIES
Recently finance minister Nirmala Sitharaman said that the Indian economy was growing faster than the global average and all other major economies. At constant price (after discounting inflation), it is true that in 2018 India was the fastest growing among large economies.
DESPITE SLOWER GROWTH RATE, CHINA'S NET ADDITION TO ITS GDP WAS 20 TIMES INDIA'S
Despite slower growth rate, China added $1,465 billion to its economy in 2018 against the previous year — 20 times India’s net addition of $74 billion. Similarly, other big economies added far more to their GDP than India.
WHY 7% GROWTH RATE IS NOT ENOUGH FOR INDIA
GDP alone doesn’t give the true picture about a country’s prosperity. A better yardstick is GDP per capita. With a per capita GDP of $2,036, India ranks 147 out of 192 countries. The 7% growth rate translates into 5.9% growth at the per capita level. At this rate, India will take 60 years to reach where the US stands today in terms of GDP.
CHINA IN ITS HIGH GROWTH PHASE TOOK GLOBAL CRISES IN ITS STRIDE
The rapid growth phase of Chinese economy started in 1982. Since then, there have been three global crises — the Gulf War (1990-1991), Asian economic crisis (1997) and the global financial crisis (2007-08). The Gulf War slowed down China for a bit, but during other events, the Chinese economy grew at more than 8%.
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