India: Hitting the $5-trillion mark by 2024

Addressing the chief ministers of India’s states in New Delhi on June 15, Prime Minister Narendra Modi declared that he wanted India to be a $5-trillion (Dh18-trillion) economy by 2024, when he faces re-election. This would, he said, be “challenging, but achievable”.

Currently, India is a $2.8-trillion economy and to reach the $5-trillion mark by 2024, the economy would require growth of over 12 per cent a year.

As a whole, India’s GDP averaged around 7 per cent over the past five years, among the fastest-growing in the world, according to the International Monetary Fund.

As Modi 2.0 sets its sights on making India a $5-trillion economy, it is no longer going to be a single-handed effort. Much of the  growth that is needed to fire-up India’s economy has to come from its 29 states, a fact that even Modi understands.

“Every department of the Union government and every district of each state has a role to play in making India a $5-trillion economy,” he said in the speech to chief ministers. “Each state must aim to at least double its economy if the country is to achieve the target by 2024,” he added.

Better-developed states such as Gujarat and Karnataka grew faster than the national average in the five financial years from 2012-13 to 2016-17, according to the States of Growth 2.0 report by rating agency Crisil in January. In 2017-18, Bihar outpaced all the other Indian states by registering an 11.3 per cent growth in its state GDP, even as the overall Indian economy grew by just 6.7 per cent.

BIMARU better than average

All but one of the so-called BIMARU states (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) — a term coined to denote the poor growth of these states — outpaced the national growth average in 2017-18, according to Crisil. Another state that staged a surprise turnaround in 2017-18 was West Bengal.

To realise the $5-trillion vision and unleash the potential of India’s states, reform is key, and the onus of this is squarely on the central government.

The outright majority for Modi’s Bharatiya Janata Party in the 2019 elections, combined with slowing economic growth, gives him a mandate to unleash bold measures.

Modi implemented several key reforms over the past couple of years. Although some of the changes experienced roll-out issues, India jumped 30 places to reach the top 100 ranking on the World Bank’s 2018 Ease of Doing Business Index.

Government sources told India Today TV on August 19 that the Prime Minister’s Office along with the finance and the corporate affairs ministry officials are now working upon a plan to tackle the current slowdown.

“Tax reforms, banking reforms and amendment in the Companies Act will be brought into effect very soon to boost growth,” India Today reported. However, the big reforms investors are watching relate to land ownership and labour laws.

Infrastructure importance

To unlock the full potential of India’s long-term growth story, infrastructure is another crucial spoke. India’s infrastructure continues to remain an impediment to growth. A study by Standard & Poor’s said India will need another $4.5 trillion over the next 25 years to build infrastructure that matches its economy.

Investors have high hopes that the government will make good the promises made in its election manifesto, among  them $1.4 trillion of investments in infrastructure by 2024 that would double the length of highways by 2022, and lead to a similar increase in the number of airports.

Support for infrastructure funding is also coming from outside the country. Last year, the UAE unveiled plans to invest $75 billion in infrastructure development across India. Moreover, Abu Dhabi Investment Authority (ADIA) and National Investment and Infrastructure Fund (NIIF) announced a $1-billion investment in infrastructure in India.

Despite the challenges, India can and should aspire to reach the $5-trillion economic mark. Without sustained growth, it has little hope of employing about one million young people who join its workforce every month.