India has emerged as a global power in the present-day capitalist world. The Indian economy has been growing impressively in the 21st century to emerge as a global power that cannot be ignored. The present-day capitalism confers political power to the economically powerful. India’s stride to global power is also mediated by the same. In the race towards topping the GDP chart, India has been making rapid advances and has now managed to reach the 6th position. However, our targets do not end there and the present National Democratic Alliance (NDA) government has set higher targets for India- a $5 trillion economy. Can India achieve the same? Is this a worthy target to set for ourselves at this crucial juncture?
India’s growth history
The Indian economy in pre-colonial times had an impressive economic presence globally. The subcontinent was well for its trade in textiles and spices. The richness of India’s trade was a factor that attracted imperial powers to India. During the period of colonial rule, the economy underwent a process of impoverishment where its position worsened drastically. India was transformed into a supplier of raw material and a market for finished goods. Three hundred years of imperial rule transformed and drastically affected India’s economic presence. Much of the growth and developmental challenges that India faces today can be attributed to the impoverishment faced during colonial rule.
Post-independence, India has been confronting considerable challenges in addressing concerns of poverty and inequality. Establishing self-reliance was a matter that guided a socialist orientation. India adopted a mixed model of development by adopting a socialist orientation along with the capitalist elements of the free market. The planning process adopted through the 5-year plans were a reflection of this orientation. During the course of the first four decades of independence, the economy registered a modest 3% growth rate of GDP referred to as the Hindu Growth rate or the Socialist Growth rate. Several economists contended that this was a consequence of the socialist policies that India has pursued.
The economic liberalisation and the structural transformation that came along with it was a major turning point for the Indian economy. Though India was forced to liberalise its economy following the balance of payments crisis in 1990, this measure has changed the course for us. This period experienced a significant increase the growth rate of GDP. However, it was also a period of fluctuation owing to the series of structural reform measures that were implemented. The two-decade period from 1990 to 2010 witnessed an average annual growth rate of 6.6% which was a substantial improvement to the Hindu growth rate.
During the tenure of the UPA government from 2004 to 2014, the economy averaged at a high growth rate of 10.08%. At the end of their tenure, the Indian economy stood at $1.85 trillion. Reaching the one trillion mark was a huge achievement for the economy which would have been impossible without liberalisation. By the end of the first term of the NDA in 2019, they were able to add close to a trillion to the same and the GDP stood at $2.7 trillion. This growth has given motivation for the ambition of reaching $5 trillion in a few years. This onus was reflected in the budget speech of our Finance Minister Nirmala Sitharaman.
The $5 trillion vision
The recent Union Budget proposed on the 5th of July 2019 began with a remark regarding the $5 trillion economy. The debate regarding the $5 trillion economy begins from this very remark as it reflects the larger economic agenda of the newly elected NDA government. The document, to a large extent, was a policy outline reflecting the stance of the government with regard to this and the means that they are intending to employ in order to attain the goal of $5 trillion economy, thereby putting India at the third place in terms of GDP only after USA and China.
The first means adopted by the government was structural reform. The undertaking of structural reforms was a means to address issues of inefficiency. This was an area that the NDA had been successfully made use of during their previous term. Tax reforms especially in terms of the GST have transformed indirect taxation. Though it had a short-term negative impact, in the long run, it has been envisaged to be beneficial for the growth of the economy. Several reforms in the area of banking, bankruptcy, digitalisation and the like have worked towards simplifying functioning for productive enterprises and the ease of living for individuals.
The budget makes an attempt to tap into the productive sectors of the economy and boost them in ways that would enable further growth of the GDP. Sectors that are bound to produce assured returns in terms of GDP growth have been targeted. The relaxation of the tax burden for corporates by bring 99.3% of all companies under the 25% tax bracket, incentives and push for start-ups and so on are some attempts. The budget even pointed out to a possibility of commercialisation of space technology by the formation of a commercial wing at the ISRO. The heavy push for the private sector and commercialisation can be seen as steps towards attaining the $5 trillion goal.
The question that arises is whether India is capable of attaining this goal within the short period of time stipulated. For $5 trillion to be attained, India essentially needs to double its GDP. The former RBI governor C Raghuram Rajan has stated that for India to be able to attain this goal, a sustained growth of 8% is required. The growth figures of India in the recent times have been a little fuzzy with reports providing misleading statistics. Rajan also mentioned that with the demand for welfare spending on the rise, there are limitations to the extent to which the government can invest in the economy. The ability to attain this goal in such short period of time is questionable.
The question that now arises is whether this goal is actually something worth pursuing. India at present is at an important juncture that will define its future. The policy measures and the areas of focus of the government can have long term implications for the development of the country for several decades to come. With its economic stability, this is a crucial time for the country to focus on the welfare aspect. Unemployment rates are an indicator of a faltering side to the economy. There is a strong need to focus on the people over economic indicators.
The problem derives from the fact that GDP is not a good measure of welfare. A $5 trillion GDP would not mean anything to the common man when it does not change his material living conditions. With the level of inequality existing in the economy it is very much possible to attain $5 trillion while the population under poverty might also be increasing. GDP in itself is a not an indicator of how incomes are distributed among people. Inequality can remain unaffected by the growth in GDP. Also, the measures of GDP are affected by the changing price levels and therefore can be highly inflated by price changes, masking the real increase.
The way ahead
India is in an economically sound position where it can begin to focus on the development aspirations of the people. However, our country fares poorly in terms of health and educational indicators which are a mark of development. Our human development ranks have been very poor for several decades. A third position in terms of GDP would not translate into benefits for the common people. The foundation of this goal is positioned on purely economic terms, lacking a people component. It becomes difficult to visualise this goal as being beneficial to all citizens of the country.
The focus instead would have to be on improving the health and education status of the people in India. The demographic dividend that India is experiencing currently has not been sufficiently harnessed. The increase in unemployment and the need to create more jobs are manifesting themselves into pressing concerns. Income inequality and poverty are major hurdles restraining the lives and capabilities of millions in the country. New India should be looking to attain development for its people, the people who make up the economy and not just work for improving the economy.
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