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
Importance of Higher GDP
- 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 $.
- 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.
Can India achieve the target by 2024?
- 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.
Five major points from the economic survey report that could help India achieve the $5-trillion economy status.
- 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%.
- 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.
- 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.
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- 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.
- 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.
- 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.