Indian needs to sustain a real GDP growth rate of 8 percent to achieve the objective of becoming $5 trillion economy by 2024-25, as laid down by Prime Minister Narendra Modi.  GDP of an economy

  • The GDP of an economy is the total monetary value of all goods and services produced in an economy within a year. 
  • There are many ways to calculate a country’s GDP.
    • Aggregate the total production, 
    • Add up all the income earned by the people, 
    • Add up all the expenditure made by the entities (including government) in the economy.
  • For most international comparisons, GDP is calculated via the production method (that is, adding up the value-added at each step) and the monetary value is arrived at by using current prices in US $.
Importance of Higher GDP
  • As a thumb rule, the bigger the size of the economy, the more prosperous it can be expected to be.
  • Essentially the reference is to the size of an economy as measured by the annual gross domestic product or GDP.
  • The first column of the table alongside provides a snapshot of where India stood as of 2018 according to World Bank
  • In terms of overall GDP, this data shows that India is very close to overtaking the United Kingdom. It also shows that Indonesia’s GDP is almost one-third of India’s.
    • However, being the sixth-largest economy does not necessarily imply that Indians are the sixth-richest people on the planet. 
    • If one wants to better understand the wellbeing of the people in an economy, one should look at GDP per capita. In other words, GDP divided by the total population.
      • This gives a better sense of how an average resident of an economy might be fairing.
      • For instance, on average, a UK resident’s income was 21 times that of an average Indian in 2018. This wide gap exists even though India’s overall GDP is very nearly the same as UK’s. 
      • Similarly, on average, an Indonesian earns double that of an Indian even though Indonesia’s overall economy is just one-third of India’s.
  • Although, if by 2024 India’s GDP is $5.33 trillion and India’s population is 1.43 billion (according to UN population projection), India’s per capita GDP would be $3,727. 
  • While this would be considerably more than what it is today, it will be lower than Indonesia’s GDP per capita in 2018.
Can India achieve the target by 2024?
  • If India grows at 12% nominal growth (that is 8% real GDP growth and 4% inflation), then from the 2018 level of $2.7 trillion, India would reach the 5.33 trillion mark in 2024.
    • However, there’s a glitch. Last year, India grew by just 6.8%. This year, most observers expect it to grow by just 7%.
Five major points from the economic survey report that could help India achieve the $5-trillion economy status.
  • Investment: According to the Economic Survey 2019, private Investment is the key driver of growth, jobs, exports, and demand. 
    • The government expects investment rate to pick up in FY20 on higher credit growth and improved demand rebound in the investment cycle, said the Economic Survey 2019. 
    • Growth in investment, which had slowed in many years, has bottomed out and has started to recover since 2017-18. 
  • Growth in fixed investments picked up from 8.3 percent in 2016-17 to 9.3 percent in 2017-18 and further 10 percent in 2018-19, the survey said.
  1. Jobs: 
  • The survey says job creation is mandatory to achieve the $5 trillion economy status. It says that unshackling MSMEs could help to achieve greater profits, job creation, and enhanced productivity.
    • This can be done via sunset clause of fewer than 10 years, with necessary grand-fathering, for all size-based incentives; and deregulating labor law restrictions to create significantly more jobs, it adds.
  1. Savings: Exports and manufacturing must ideally be focused as part of the growth model to sustain GDP at 8 percent rate. "Because higher savings preclude domestic consumption as the driver of final demand," said the survey.
  2. Demographic phase: The Economic Survey 2019 has predicted a slowdown in population growth in the next two decade. "Working-age population would grow by roughly 9.7 million (97 lakh) per year during 2021-31 and 4.2 (42 lakh) million per year during 2031-41. This could be an ideal for India to propel its economy," the survey said.
  3. Energy conservation: Enabling inclusive growth through affordable, reliable and sustainable energy is another step to make India a $5-trillion economy. 
    • The survey has suggested that 2.5 times increase in per capita energy consumption is needed for India to increase its real per capita GDP by $5000 (at 2010 prices), and enter the upper-middle income group. And, four times increase in per capita energy consumption can achieve 0.8 Human Development Index score.
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