In July’19, when Modi Govt came back into power, the returning Prime Minister Narendra Modi made an announcement of India becoming a $5 trillion dollars economy by 2024.
With the current GDP size of $2.9 tn, the dream of becoming a $5 tn Economy widened many many eyes.
The first question is, is it even achievable?
Many economists and analysts reached the conclusion that in order to be $5 tn economy in the given timeline India needs over 14% annual GDP growth
The Hindu reads….
Speculations started and it became the talk-of-the-town with many analysts, economists, including former RBI Gov, rejecting the dream of $5tn economy
Can we even reach a $5 tn mark?
In the last decade, India’s average GDP growth has been a little over 7%. This is a ‘decent’ level of growth when compared with other big economies but it is not even close to enough if we wish to reach the $5 tn mark by 2024.
A 7% annual growth is good. But are the numbers trustworthy?
Post demonetization, India delivered a phenomenal GDP growth rate of over 8%, which was highly doubted by economists as demonetization had ‘badly affected’ the unorganized sector and MSMEs which mainly run on the cash economy. Where economists were speculating a hit of 2%, it came out to be blooming 8%. This is when the doubts over GDP figures strengthened, and the official GDP figures started to lose the credibility
Eventually, the numbers are not trustworthy. Not until the cloud over the methodology and base year to calculate the GDP is cleared
What went wrong?
The economy of a country is driven by many factors. i.e. Investment in the market, creation of multiple jobs creation which leads to the high purchasing power of end customers, expenditure goes up, more goods/services are sold, manufacturing goes up, more investment comes in. It’s a closed cycle, where every factor is inter-dependent and drives the economy together.
If any of these factors get hurt, the whole cycle and eventually the entire economy crumbles.
Poor Investment led to poor growth?
We have observed that one of the after-effects of demonization is a slump in foreign investments. While many Foreign Portfolio Investors (FPIs) have lost faith in the ‘volatile’ state of Indian economy post demonetization and, many major FPIs already ‘pulled’ out their money from the India markets.
After a while this led a snowball effect, resulting in a major capital crisis in the system
What would you do if you don’t get money from investors and you need to meet your fiscal targets?
1. Disinvestment 2. Increase taxes 3.Simply take money from RBI
With lesser money in hand and ‘big plans’ to grow the economy, the Govt asked RBI to transfer a whopping 1.76 Lac Crore from its reserves and started disinvestment (selling out PSUs) with the hope that will help Govt reach their annual fiscal targets
Disinvestments: Just a simpler way to make money and reduce Govt expenditure. That’s what happens when GOI put PSUs like BPCL, SCI, NEEPCO, and THDC on sale. This will get the Govt Rs. 60,000 Crore which will ‘help’ Govt to reach their fiscal target of FY‘19-FY’20
Poor Investment: Poor employment?
Oh yes! A poor investment always leads to poor employment.
There is a direct relationship between investment and job creation in the country. Once the investment comes in, the companies/industries expand their business which results in more and more jobs in the market.
In May’19, National Sample Survey Office (NSSO) ‘released’ a report which said India has the highest unemployment rate in the last 45 years.
It simply suggests that the investments have been doing worse in last few decades.
How bad is it?
Usually, our unemployment rate used to be 2–3% but as the graph shows the current unemployment rate to be 8.45%, it is both alarming and deteriorating.
But? What if more people are seeking jobs, which is why employment rate is less?
I wish that was the case. But, unfortunately, data suggests that the number of people seeking jobs has been going down and despite that, the unemployment rate has crossed an 8% mark.
It means despite fewer people seeking jobs, the system can’t provide them jobs? Yes, that’s what it is!!
So, why did Govt do with this NSSO’s report?
Sadly, Govt rejected the data citing various reasons. Another report junked before it reaches the common man!
Okay. What about the expenditure pattern? Any impact there?
As I said above, an economy is a closed cycle. Less investment leads to lesser jobs, lesser jobs lead to less income, lesser income leads to low purchasing power which leads to lesser household consumption.
This is exactly what Govt’s recent House Expenditure/Consumption Survey of 2019 said.
Top income earners cut down sharply on their expenditure, dragging consumer spending down for the first time in India in over four decades, leading to a decrease in income inequality. — Business Standards
Business Standard newspaper on Friday quoted the survey, saying that the average amount of money spent by a person fell by 3.7% to ₹1,446 per month in 2017–18 compared to 2011–12, marking the first such fall in more than four decades, primarily driven by slackening rural demand. — LiveMint
So, what happened with the report?
Just like last time, Govt Junked the report citing various reasons.
Govt keeps on denying reports after reports. All the reports are loud and clear about one thing, that the economic machinery is not doing its best. From investments, jobs, tax revenues to consumer expenditure, everything is collapsing and heading to a verge of system breakdown.
The fact is simple, if we remain in the state of denial, we can never take corrective actions — Mahesh Vyas, CEO of the Centre for Monitoring Indian Economy (CMIE)
We are in a situation where rather than eyeing the $5 tn dollar mark, we should focus on reviving the dooming economic conditions of India.
This is too much. What now?
The bottom line is simple, investments have been on their worse, fiscal targets won’t be met, the employment rate is an all-time low, expenditure has gone down to its lowest in the last few decades.
And Govt is doing one thing if not all. Rejecting all the official reports and figures which are citing the same story of the country.
What can save us from a complete breakdown?
The answer is INVESTMENTS, INVESTMENTS, AND INVESTMENTS.
- The very first step is to stop denying all the reports, and accepting them as a ‘feedback’ to the Govt.
- The market desires more and more investment to be fed in.
- Banking sector to be revived and infused with capital
- More jobs creation to enhance the purchasing power of the common man
I hope by the next financial year, we will be back on track and our economy and eventually the jobs in the market, will grow at a much faster pace which the 1.25 Bn population really needs. By 2024, we all wish to see India becoming a $5 trillion giant Economy.
Until then, keep reading, keep glowing.
PS: The blog depicts my personal study and understanding of facts and figures. For more discussion, please drop me an email at email@example.com. Don’t forget to subscribe and give a clap :)