Mint Primer: Can India become a $7 trillion economy by 2030?

What does the Finance Ministry’s review of the Indian economy say?

The Review which looked at the journey of the economy over the last decade and its future outlook, expects India to grow at or over 7% in the current 2023-24 fiscal and the next. It also said that India is in a better place economically due to the government’s massive infrastructure spending (which grew 3.3 times in the last 10 years), healthy financial sector, households’ strong financial health, comfortable forex reserves, an inflation that is under control and a fiscal deficit that is trending lower. These factors have led it to predict that India can become a $7 trillion economy by 2030.

How has India grown over the years?

It took India 60 years to become a $1 trillion economy. It did so in 2007-08. The journey to $2 trillion came much faster in just seven years (2014-15). Even as it looked at reaching the $3 trillion mark in five years (it became a $2.8 trillion economy by 2019-20), the pandemic struck. It eventually crossed the $3 trillion value in 2021-22. India has moved from being the 10th largest economy in the World a decade ago to being the fifth largest. The size of its GDP is estimated to reach$3.7 trillion by the end of 2023-24.

What caused the GDP expansion to slow down?

After a period of high growth, fuelled by loose fiscal policy, Indian economy began to slowdown post-2014. This got accentuated by the demonetization exercise in 2016. Then came the pandemic which caused the economy to shrink. India had set for itself a target of becoming a $5 trillion economy by 2024-25 and a $10 trillion economy by 2029-30. It will take another three years for India to become a $5 trillion economy.

Is $7 trillion economy by 2030 an optimistic target?

It appears so, if past growth rates and emerging challenges are considered. To become a $7 trillion economy by 2029-30, experts say that India’s nominal GDP must grow at a compounded annual growth rate (CAGR) of 11.9% from 2023-24 to 2029-30. That appears to be a tall order considering that the CAGR between 2013-14 and 2023-24 is expected to be only 6.7%. In other words, India needs to grow its GDP by as much as $572 billion every year as against $190 billion it has been adding every year in the past decade.

What are the challenges in India’s way?

While it is true that India’s economy is much better placed to grow compared other large economies in the world, there are factors that will come in the way of a rapid economic growth. There has been a secular decline in the growth of developed economies due to inflation and environmental factors. Also, the world is becoming increasingly protectionist. Both these factors will have a direct bearing on the growth of exports, a critical element if India has to grow fast. Then there are the geo-political flareups, that typically fuel inflation and smother growth.