Wishful thinking

At the fifth meeting of the Governing Council of NITI Aayog earlier this month, Prime Minister Narendra Damodardas Modi revealed his wish to see India transforming to a $5 trillion economy by 2024, the year when his current term ends. The desire sounded soothing, but highfalutin to ears. The objective was too audacious, to say the least. There is no harm in aiming high. But the process should not be stretched to a point where it turns out to be counter-productive. Many such targets have been set in the past. There was talk of doubling farmers’ income by 2022, but it seems nowhere near achievement. There were so many other targets and deadlines that had been set by the central government. Electricity to all villages, pucca houses for all, 100 per cent coverage of banking, full digital penetration, among others, were some the targets set by the government. However, most of these targets remain far off achievements. The government has been talking of achieving a double digit growth. But what we are seeing is a deceleration of growth. What is therefore needed is not to set unachievable targets. Our efforts should be to focus on the immediate goal of taking the economy out of the current slump, and in the medium term to push it to sustained growth of above eight per cent a year. Double-digit growth has been talked about before, but did not happen. Acceleration will come in phases. India’s GDP is currently about $2.80 trillion. In order to make India a $5 trillion economy, we need an 85 per cent increase in production over the next six years, which compares to a 47 per cent raise over the last six years. Getting to $5 trillion in six years would mean a compound annual growth rate of 11 per cent. But for the next couple of years, even achieving eight per cent growth looks difficult. The growth rate dropped to below 6 per cent in the first quarter of the year. There is huge preparatory work needed to super-charge growth. There are too many structural issues impeding economic growth. For one, the financial system continues to suffer. The problems of the public sector banks are compounding the financial problems. The non-banking finance companies (NBFCs) are in a mess, led by IL&FS. Public-private partnership models have their own problems. Corporate earnings are discouraging. Private sector is battling with over-capacity. For one, the power sector is dysfunctional. The utilisation of the installed capacity is hardly 50 per cent even as large parts of the country go without power. Unless there is a fast pick-up in private sector investment, job markets will continue to remain depressed. Since there is underutilisation of the existing installed capacities, the room for further investment in capex is limited. The key to stoke growth is to raise demand that will come from higher consumption. That may not come unless people have more money left in their pockets. In the rural landscape of the country, demand may not rise unless there is a good monsoon. Also, the economy requires growing exports and a healthy, educated and productive workforce. Added to them are land and labour reforms. These have not been priorities of the government. The government must clear the mess and then try to push through critical reforms to achieve fast-track growth. Unless they are done, all these talks to catapult India to a $5 trillion economy in five years will remain wishful thought.