India's Odyssey Toward a $5 Trillion Economy: An Insight into 2027
With aspirations to become a $5 trillion economy by the financial year 2027, India, recognized as the world's fastest-growing economy, presently holds the position of the fifth-largest global economy based on Nominal GDP.
Current Economic Landscape
The Economic Survey of India for the year 2023 reveals a real GDP growth of 6.1%, a slight decrease from the 8.7% recorded in the fiscal year 2022. The nominal GDP for the financial year 2023 stands at USD 3.5 trillion.
Estimated Real GDP growth percentage change (IMF data)
India has effectively managed its economic indicators, maintaining an inflation rate below 6% and wholesale inflation below 5%. Projections suggest that achieving a 7% growth in real GDP for the financial year 2024 could pave the way for India to attain its ambitious goal of a $5 trillion economy by 2027. The proposed plan outlines specific targets, with $1 trillion each from agriculture and allied services, manufacturing services, and a significant $3 trillion from the service sector.
Estimated Real GDP of India (IMF data)
India's Ascent to a $5 Trillion Economy by 2027
Does India's standing as the world's fifth-largest economy equate to being the fifth richest nation? The true gauge of India's prosperity on the global stage lies in its GDP per capita. Presently, India's GDP per capita (Nominal Value) stands at USD 2,601, placing it at the 139th position by Nominal GDP and the 127th position in terms of GDP per capita among nations worldwide. However, as India aims to secure the position of the third-largest economy by 2027, there's an anticipated rise in its GDP per capita, expected to reach USD 3,720.29 by the same year.
Estimated Nominal GDP per capita (IMF data)
Navigating Challenges on the Path
To attain this admirable goal, India must navigate through various challenges, both on the domestic and international fronts.
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The pandemic had a severe impact on the global economy, leading to a downturn that resulted in decreased imports and exports.
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The geopolitical tensions arising from the Russia-Ukraine war contributed to a global increase in inflation rates. Additionally, it led to a significant surge in the prices of commodities such as crude oil, natural gas, fertilizers, and wheat. Currently, the Israel Palestinian war declaration has started to threaten the global economy in the fear of increase in oil prices . Since India is one of the major importers of oil from the Middle East.
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The Federal Reserve's coordinated policy rate hikes, aimed at curbing inflation and fortifying the U.S. economy, exerted influence on other economies to tighten their monetary policies. This series of rate hikes by the Federal Reserve prompted increased capital investments in the U.S. capital market, resulting in the appreciation of the U.S. Dollar against most other currencies.
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Due to India's status as a crude oil importer and the depreciation of the Indian Rupee against the US Dollar, coupled with a rise in global commodity prices, there was a notable increase in India's Current Account Deficits (CAD) and a surge in the country's inflation rate.
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The IMF's global growth forecast for both 2022 and 2023 saw a decline, attributed to the impacts of the pandemic, inflation, and conflicts. The economic deceleration in China and other European economies further contributed to a weakened global growth forecast. These interconnected factors had a cascading effect, exacerbating the conditions for a global financial crisis.
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Additionally, concerns over climatic changes added to the broader global apprehensions.
Strategic Measures Taken by India
Despite India grappling with the effects of global economic turbulence, the country persists in maintaining a structurally constructive stance, thanks to a range of recovery measures implemented by the Government of India.
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India played a crucial role as one of the nation’s developing its own vaccine and offering assistance to 85 countries by providing vaccines. By the financial year 2022, India achieved a complete recovery from the pandemic, steering its growth trajectory back to the pre-pandemic path. Notably, India emerged as the second-largest country to conduct a massive vaccine drive, administering 2 billion doses for nationwide coverage. This extensive vaccination coverage facilitated the return of migrant workers to cities, particularly in the construction sector, thereby stimulating the housing market. It also led to increased demand for housing credits and a surge in inventory demands.
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With a dedicated focus on financial inclusion, through the PMJDY scheme , millions of Indians have reaped the benefits of Direct Benefit Transfers, particularly benefiting rural women through technological advancements. Emphasizing public service delivery has concurrently reduced instances of corruption, intermediaries, and black money transactions.
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India has planned to transform its society and its economy through its Digital India strategy. The advent of 5G telecommunication services is poised to catalyse advancements in e-commerce, online banking, payment remittance, healthcare, drone management, and other cutting-edge technologies across India. Notably, in September, UPI payments surpassed 10 billion transactions, with expectations to reach 1 billion transactions per day by the financial year 2026-27, constituting approximately 90% of India's retail digital payments.
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India has actively fostered the growth of startup companies through Start-Up India resulting in a remarkable achievement of having over 100 unicorns in the country.
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The Indian government has also taken progressive steps by permitting private participation in the defence and space sectors, signalling a commitment to encourage innovation and private enterprise in these strategic domains.
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India, through its poverty alleviation programs, has made a significant impact by assisting 60 crore Indians, who, in turn, are making valuable contributions to the Indian economy.
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In a bid to control retail inflation, India has implemented crucial measures through the monetary policy set by the Reserve Bank of India (RBI).
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India has strategically accumulated Foreign Exchange Reserves as a protective measure for its financial markets and institutions against the uncertainties of a global financial crisis. The efficient functioning of the financial sector has facilitated the mobilization of resources essential for India's development. Financial institutions such as banks, Non-Banking Financial Companies (NBFCs), and capital markets have played a substantial role in positively influencing the growth of the Indian economy. These foreign exchange reserves have been instrumental in aiding India with external debt servicing and maintaining a favourable debt-to-GDP ratio.
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The central government has augmented its Capital Expenditure (Capex) by a significant 63.4%, a move expected to fortify the Indian economy in the fiscal year 2024. Additionally, the reinforcement of corporate balance sheets through credit financing has led to a sustainable increase in private capital expenditure.
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The government has implemented measures to enhance the financial health of public sector banks (PSBs) through its IBC Code, by improving asset quality, fortifying balance sheets, normalizing return ratios, fostering robust growth in advances, and exercising control over credit costs. These actions have strategically positioned PSBs to augment credit supply, particularly to the Micro, Small, and Medium Enterprises (MSME) sector, in tandem with the Emergency Credit Linked Guarantee Scheme (ECLGS).
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The MGNREG Scheme has played a pivotal role in offering direct employment opportunities in rural areas, thereby generating income for households in those regions. Initiatives like PM-Kisan and PM Garib Kalyan Yojana have been instrumental in ensuring food security throughout India. Furthermore, the National Family Health Survey has contributed to enhancing the welfare of rural areas.
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The PM Gati Shakti initiative stands as a national master plan aimed at bolstering infrastructure development through the National Infrastructure Pipeline of Projects. Additionally, the National Logistics Policy and the Production Linked Incentive Scheme have been introduced to stimulate growth in the manufacturing sector.
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India's Atma Nirbhar initiative aims to decrease the country's dependence on imports, leading to a corresponding increase in India's share of exports to GDP.
Positive Factors in India's Favour
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India's expansive consumer base, particularly through private consumption, has significantly bolstered the economy and compensated for losses resulting from reduced export stimuli. The widespread vaccination drive across the country played a crucial role in bringing people back to the streets, encouraging spending on contact-based services and revitalizing economic activities.
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As the most populous country globally with a population of 1.4 billion, India holds a demographic dividend wherein 62.5% of its population falls within the age group of 15-59 years. This demographic structure is anticipated to reach its peak by the year 2036.
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India possesses a substantial and skilled middle-aged workforce, contributing to the country's labour and economic strength. India realizes its skilled labour employability through National Skill Development Mission.
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On a global scale, there is an anticipation of a decrease in growth in the coming years, a trend that is likely to result in reduced commodity prices. This, in turn, is expected to contribute to the improvement of the Current Account Deficit (CAD) in the financial year 2024.
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Central banks of global economies adopt a policy of easy money.
India’s Outlook
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Projections suggest that in the financial year 2024, India is expected to secure the top position among G20 countries, with an estimated GDP growth of 6.1%. Presently, India holds the second position among G20 nations, having achieved a GDP growth of 6.8%.
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India is directing its efforts towards key economic growth drivers, namely investments, consumption, and exports, with a specific focus on crucial sectors such as agriculture, manufacturing, and the service sector. This strategic approach is aimed at achieving the ambitious goal of attaining a USD 5 trillion economy by the year 2027.
Indian Stock Market Trajectory
At present, India holds the position of the fifth-largest stock market based on market capitalization. The country's market capitalization stands at USD 3.7 trillion, with the SENSEX trading above the 65825 mark and the NIFTY50 trading over 19600 marks.
Projections indicate that by 2030, India is anticipated to boast the world's third-largest stock market, featuring an expected market capitalization of USD 10 trillion.
Currently, India's domestic investment in the stock market is notably lower compared to the United States. The expanding middle-income demographic in India is expected to drive individuals to invest their savings in the Indian stock market. This shift is poised to become a significant force, redirecting domestic savings inflows towards investments in the Indian stock market.
With the Indian Stock Market maintaining its upward trajectory, there is a high anticipation that it will draw investments from both domestic and foreign investors. Prior to engaging in any investments or trading activities in the stock market, it is imperative for investors to make well-informed decisions by seeking expert guidance and utilizing technical and fundamental tools.
Frequently Asked Questions
How is India planning to address social sustainability in its economic growth strategy?
India adopts a comprehensive strategy to address its social sustainability by employing a wide range of initiatives. Key governmental endeavors are Swachh Bharat Mission (SBM), Beti Bachao Beti Padhao (BBBP), Pradhan Mantri Awas Yojana (PMAY), Pradhan Mantri Jan-Dhan Yojana (PMJDY), Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY), and Pradhan Mantri Ujjwala Yojana (PMUY), have played a significant role in advancing India's progress in this direction.
How is India planning to address environmental sustainability in its economic growth strategy?
India realizes its social, economic and environmental sustainability through its Sustainable Development Goals, The key initiatives taken by government are PMJDY, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the National Environment Policy, National Agroforestry Policy, and Green Highways Policy.
What initiatives has the government already taken to move towards a $5 trillion economy?
The key initiatives taken by the government of India are GST, Make in India, Digital India, PMJDY scheme,Swachh Bharat Mission, Ayushman Bharat, Infrastructure Development, Startup India, National Skill Development Mission, IBC code, Production Linked Incentives Scheme.
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