In 2019, the government set an ambitious dream of making India a $5 trillion economy by 2024-25. This target seemed like an unprecedented dream of highly optimistic leadership then.
However, cut to 2023, India has already added half a trillion dollars in its making. The Indian economy rose from $2.84 trillion in 2019 to $3.5 trillion in 2023. That is already 5.8% YoY growth for India.
Despite the global pandemic and almost world war, India’s economy has grown steadily in recent years. But, there are still some roadblocks that need to be addressed to achieve this target.
Roadblocks Ahead Of India’s $5 Trillion Dream
Recently, the International Monetary Fund (IMF) has decreased its GDP projection for India from 7.4% to 6.8%. Also, OECD and the World Bank have decreased their optimistic projection due to the spillover effect of the slowdown in the global economy.
- Effects Of Global Pandemic: The pandemic was a major roadblock to global growth. During FY20-21, India’s GDP growth was -6.6% causing a major hindrance to the country’s dream. Even after the world has emerged from the global pandemic, it still faces its ripple effects. The global supply chain bottlenecks have not been completely erased. The increase in foreign remittance during the pandemic has caused a ripple rise in inflation. This led to an inflation rate of 6.6% in 2020, compared to 3.73% in 2019.
- Slow Growth In Agriculture: Agricultural sector is a crucial part of India’s economy. Around 50% of India’s population relies on agricultural practices as a source of livelihood. In contrast, the agricultural sector contributed only 20.2% of the country’s GDP in 2022. In fact, after 17 years, the GDP contribution for agriculture has touched 20%. Even after several years of the green revolution, India’s growth in the agricultural sector is still inconsistent.
- Foreign Geo-Political Issues: In the past three years, the geo-political scenario of the world has been very dynamic. It has faced various problems, such as:
- An aggressive increase in interest rates by Federal Reserve
- Energy Crisis in Europe
- Russia-Ukraine war
- China’s zero covid Policy
- UK’s economic recession
These factors have caused intangible ripple effects in global trade, leading to a slowdown in India’s growth story.
These roadblocks might not directly impact India's current economic goals. However, overcoming these roadblocks can easily help India achieve the $5 trillion dream.
Factors Contributing To India’s Growth
- Diversifying exports: India has already aligned its “Make in India” and “Local goes Global” projects with the dream of achieving $5 trillion. The government has launched the PLI scheme of INR 1.97 lakh crores to boost the manufacturing units of the country. Assuming that 80% of our industry is categorised as MSMEs, the PLI scheme can create several jobs and increase the purchasing power of consumers.
- New Technology Adoption: India has become the powerhouse of adopting new technology. From finance to manufacturing, almost every sector is adopting technology for better efficiency and improved productivity. Also, the UPI launch has boosted India's digital era. In 2021-22, there were 47.6 billion transactions made through digital channels, of which 50% were made through UPI.
- Going Green: Around 40% of the country's energy is produced using renewable energy sources. This switch to renewable energy can reduce the country’s imports significantly. Going further, India is estimated to produce 50% of its energy through renewable sources by 2030, reducing its imports by almost $300 billion.
- Offshoring Opportunity: Covid-19 caused a secular shift in the work culture of remote teams. This favours India, as businesses from around the world found it more cost-effective to work with people living in India. Professionals from various industries have the opportunity to earn in higher-value currency, giving them an advantage of better value for their work.
- Attracting Foreign Investments: India has been attracting foreign investments in various sectors. India's manufacturing sector has been developing into an investment hub for foreign players, with foreign direct investment (FDI) of US$104.18 billion between April 2000 and December 2021. India received $58.8 billion in foreign direct investment (FDI) in the financial year 2022 (FY22). Initiatives like 'Make in India' and Atmanirbhar Bharat have been pushing local production as well as local assembly, which has been steadily increasing India's manufacturing base.
- Youth Population: With around 700 million people below the age of 25, India has the largest youth population in the world. This not only makes India the next talent factory in the world. But also give us the added advantage of having the largest customer base. India’s youth is highly skilled and motivated to drive change in various sectors.
As McKinsey CEO Bob Sternfels said, “It is not India’s decade, it's the century of India.”
India's goal of becoming a USD 5 trillion economy is certainly achievable, although it may face challenges along the way. Due to roadblocks faced along the way, India may skip the target by a year or two.
But with the right policies and initiatives, India can overcome these challenges and reach new heights in the global economy. The future looks promising for India's economy, and it will be exciting to see how it evolves in the years to come.
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