How India Can Become a $5 trillion Economy by 2029?

How India can become a $5 trillion Economy by 2029?

With an average growth rate of 6.8 per cent for the medium term, India presents a significant economic opportunity. India has a history of accelerating its growth. Prior to the Covid-19 outbreak, the average annual GDP growth rate was 6.6% as opposed to 6.3% in the decade before. India has seen periods of growth at or around 8% annually, most notably between the fiscal years 2004 and 2008. However, these were years of “growth sprint”. India is anticipated to have the fastest-growing large economy in fiscal 2023, rising at a rate of 7% per year.

5 trillion-dollar Economy Relevance For UPSC Exam

The applicants have up to this point read a significant number of papers discussing how to grow India’s economy to a 5 trillion dollar one. For the UPSC mains, it is a crucial subject, hence candidates should thoroughly prepare for it. We will give you enough material to use as practice in this article so you can do well on the UPSC main examination GS paper 3.

Indian Economy Growth Expectations in 2023

The Indian economy is expected to grow at a 6.8 per cent annual rate during the next five years, with labour contributing 10%, capital 52%, and efficiency 38% of the increase. The need for capital will be crucial, and the odds are in favour of a sustained uptick in the private sector investment cycle. By the end of the fiscal year 2023, investment as a percentage of GDP had already risen to a decade-high 34%.

The government has been in charge of raising the investment ratio thus far. Infrastructure and manufacturing are becoming more important in the new growth paradigm. The Union Budget increased capital spending in high-multiplier infrastructure segments by roughly a third. However, due to pressures for fiscal reduction, this support for capex will start to decline in the years to come. With improved bank sheets, cash reserves, and low leverage, the private sector’s contribution to investments is expected to increase.

Is India still on track to becoming a $5 trillion Economy?

India should be quite proud of itself. When the $5 trillion goal was first proposed in 2019, it felt like a far-off fantasy. Now, it appears as though India is eager to accomplish it despite adversity like never before. The country’s economy has grown to be the fifth largest in the world, with a GPD of $3.5 trillion in 2022.

There may be some speed bumps on the next road. The International Monetary Fund (IMF) has lowered its earlier forecast of 7.4% GDP growth for India for the fiscal year 2023 to 6.8%. The World Bank and the OECD are two such major organisations that have revised their growth forecasts. The impact of the global economic slowdown, according to Japanese brokerage company Nomura, might cause India’s economy to grow by roughly 7% in FY23 but decelerate to 5.2 % in FY24.

Factors in Favour of India’s Growth

India has proven to be resilient in the face of these difficulties. There are numerous things that are in its favour.

Strong relationships and a diversified economy: Over the past 50 years, India’s economy has expanded steadily. The economy is broadly diversified, and it has productive trade ties with other nations.

Technology adoption: India has a huge thirst for embracing new technologies. The adoption rate has increased in the manufacturing and finance industries. This increased output while lowering production costs and raising production quality. These elements boosted profitability, which led to higher investments in innovation.

Offshoring opportunity: Covid-19 sparked a long-term movement towards remote teams in the workplace ethos. This benefits India because it is more affordable for corporations from developed countries to collaborate with Indian citizens.

Young population: With 356 million young people, India has the greatest youth population in the world. With a working population of 64%, India not only has a growing GDP and per capita income but also a sizable client base that businesses may successfully target.

Renewable energy: India’s installed electrical capacity already derives about 40% of its power from non-fossil fuel sources. With this conversion to renewable energy, both businesses and consumers will pay less, and the nation will be less dependent on imports.

According to many experts, India is best positioned to weather the economic headwinds predicted for the world in 2023. Despite revised growth estimates, India is still expected to have the fastest-growing economy in 2023 and will continue to confidently work towards the $5 trillion goal.

Indian Economy in 2023

In fiscal 2023, India is expected to grow at a pace of 7%, making it the major economy with the fastest rate of growth. We’ve quite effectively recovered from the pandemic. However, the economy is hampered by the looming global recession and the full manifestation of the lag impact of interest rate hikes since May 2022. CRISIL predicts that India will consequently slow down and see 6% growth in fiscal 2024. Below is a discussion of the suggested activities for the primary, secondary, and tertiary sectors of the economy.

Primary Sectors of Indian Economy

Indian economy is, predominantly, an agricultural economy. According to the Economic Survey 2020-21, 60% of the people are still engaged in the agriculture sector, but the agricultural GVA hovers around 18%. However, in these trying times of COVID, agriculture is the only silver lining showing a growth of 3.4%. Agriculture, broadly, has 3 stages—pre-production, production, and, post-production. Check here for detailed information about the Primary Sectors of the Indian Economy.

Pre-production

In the pre-production stage, the focus should be on:

Increasing the number of farmers who are members of FPOs (Farmer Producer Organisations), as 86% of our farmers fall into the small and marginal categories; Providing affordable and high-quality seeds through programmes like Kharif Strategy 2021; Providing irrigation facilities through river interlinking projects and programmes like PMKSY (Pradhan Mantri Krishi Sinchai Yojana); Providing price assurance through programmes like PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhi.

Production

During the production phase, focus should be placed on:

• Reducing the use of fertilisers by implementing programmes like the Paramparagat Krishi Vikas Yojana;
• The mechanisation of farms through programmes like SMAM (Sub-Mission on Agricultural Mechanisation);
• Crop insurance provided by programmes like the Pradhan Mantri Fasal Bima Yojana (PMFBY);
• Using precision farming and other climate-resilient agriculture techniques.

Post-production

In the post-production stage, the focus should be on:

• Implementing the Shanta Kumar Committee’s recommendation to build storage facilities;
• Improving forward and backward linkages through the use of programmes like PM-FME and SAMPADA;
• Concentrating on agricultural exports through the adoption of the Agricultural Export Policy, 2018;

In addition, through programmes like the National Livestock Mission, Mission for Integrated Development of Horticulture, and PMMSY (Pradhan Mantri Matsya Sampada Yojana), the focus should be on animal husbandry, horticulture, and pisciculture.

Secondary Sectors of Indian Economy

Since the LPG reforms, our nation’s manufacturing industry has had problems. The PMI indicator clearly shows how terrible reality is. The MSME sector, which accounts for the majority of employment in our nation, is experiencing numerous difficulties and requires an urgent update.

Steps like CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) are the right way to aid the cash-starved MSME. Additionally, measures like the Marketing Assistance Scheme must be strengthened to promote local products. The 4Ms — materials, machines, personnel, and methods — should serve as the foundation for the manufacturing sector’s revival.

• Material: India needs to develop into a global industrial powerhouse on the material front, but this would require persistent government action.
• Machine: On the machine front, the world is embracing Industry 4.0, therefore we must take action to convert our conventional factories into smart ones.
• Manpower: In today’s technologically advanced culture, having a trained workforce is now a requirement, which emphasises the significance of programmes like SANKALP and STRIVES.
• Methods: To enable the standardisation of products with lower manufacturing costs, traditional and antiquated methods need to be updated. These actions will boost our investment ratio while concurrently lowering the incremental capital-output ratio or ICOR.

Tertiary Sectors of Indian Economy

The government must also support the services sector. Prompt Corrective Action and the EASE agenda are two strategies that should be used to get the banking industry back on track. Additionally, we must work to integrate technical and vocational education and make it applicable to the workplace. In order to lower people’s out-of-pocket expenses, the National Health Policy recommends raising health spending to 2.5% of GDP.

India is also fortunate to have a vast variety of tourist attractions. Through programmes like PRASAD (Pilgrimage Rejuvenation and Spiritual Augmentation Drive) and HRIDAY (National Heritage City Development and Augmentation Yojana), we must thus reap its benefits without damaging the environment.

Additionally, infrastructure need an upgrade, which the National Infrastructure Pipeline appropriately emphasises. Start-ups urgently require protection and encouragement, and programmes like Start-up India, which exempts angel investors from paying income taxes, and the Start-up India Seed Fund Scheme will help to keep the nation’s economy strong.

Government Initiatives to Make India $5 Trillion Economy

The Government’s roadmap for making India a $5 trillion economy comprises focusing on growth at the macro level and complementing it with all-inclusive welfare at the micro level, promoting digital economy and fintech, technology-enabled development, energy transition and climate action and relying on a virtuous cycle of investment and growth. The Government’s Road Map was put into effect in 2014.

The major reforms including Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), a significant reduction in the corporate tax rate, the Make in India and Start-up India strategies, and Production Linked Incentive Schemes, among others, have been implemented.

The Government has also focused on a capex-led growth strategy to support economic growth and attract investment from the private sector, increasing its capital investment outlay substantially during the last three years. Central Government’s capital expenditure has increased from 2.15 per cent of GDP in 2020-21 to 2.7 per cent of GDP in 2022-23.

The Union Budget 2023-24 has taken further steps to sustain the high growth of India’s economy. These include a substantial increase in capital investment outlay for the third year in a row by 33 per cent to ₹10 lakh crore (3.3 per cent of GDP). Direct capital investment by the Centre is also complemented by Grants-in-Aid to States for the creation of capital assets. The ‘Effective Capital Expenditure’ of the Centre was accordingly budgeted at 13.7 lakh crore (4.5 per cent of GDP) for 2023-24. This strong push given by the government is also expected to crowd in private investment and propel economic growth

Vision of a USD 5 Trillion Indian Economy

By breaking down the drivers of medium-term prospects into the contributions of capital, labour, and efficiency, growth accounting offers a valuable framework for analysing such prospects. We anticipate that the Indian economy will expand at a 6.8% annual rate over the next five years, with 52% of that growth coming from capital, 38% from efficiency, and 10% from labour.

Capital will be the key and stars are aligning for a sustainable lift in the private sector investment cycle. Investment as a percentage of GDP has already touched a decadal high of 34 per cent in fiscal 2023. So far, the onus to lift the investment ratio has been shouldered by the government. The growth model is changing to an infrastructure and manufacturing-driven one.

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