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$7 TRILLION ECONOMY

CONTEXT:

  • Recently, the finance ministry in its review of the Indian economy, said India can become a $7 trillion economy by 2030.

ABOUT FINANCE MINISTRY REVIEW:

  • The finance ministry 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 fiscal year and the next.
  • According to review, India is in a better place economically to achieve that figure due to the following conditions:
  1. Government’s massive infrastructure spending (which grew 3.3 times in the last 10 years),
  2. Healthy financial sector
  3. strong household financial health
  4. comfortable forex reserves
  5. Controlled inflation
  6. Lowering fiscal deficit
  • These factors have led finmin to confidently predict that India can become a $7 trillion economy by 2030.

CURRENT STATUS OF INDIAN ECONOMY:

  • Currently, India is the third-largest economy in the world in Purchasing Power Parity (PPP) terms and the fifth-largest in market exchange rates.

  • The advance GDP estimates for the year 2022-23 is around 7% and GDP growth of 6.0-6.8 per cent is expected in 2023-24, depending on the trajectory of economic and political developments globally.
  • The Capital Expenditure of the central government increased by 63.4 per cent in the first eight months of FY23 according to the Economic Survey 2022-2023 and it became major driver of the Indian economy in the current year.
  • The Real GDP at constant prices (2011-12) in the first quarter of 2023–24 is estimated at Rs. 40.37 trillion (US$ 484.94 billion), showing a growth of 7.8% as compared to the first quarter of 2022-23 estimated at Rs. 37.44 trillion.
  • India’s merchandise exports in September 2023 stood at US$ 34.47 billion, with total merchandise exports of US$ 211.40 billion during the period of April-September (2023-24).
  • India also emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.
  • India’s appeal as a destination for investments has also grown stronger and more sustainable.
  • The record amounts of money raised by India-focused funds in 2022 are evidence of investor faith in the “Invest in India”.
  • As of November 2023, India’s foreign exchange reserves stood at US$ 594.90 billion.
  • In the first half of 2023-24, India saw a total of US$ 21 billion in PE-VC investments.

INDIA’S GROWTH OVER THE YEARS:

  • Since independence, India took 60 years to become a $1 trillion economy, crossing the mark in 2007-08.
  • But 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 milestone two years later in 2021-22.
  • In a decade, India has moved from being the 10th largest economy in the world to being the fifth largest.
  • India is hoping to become the third largest economy in the next three years.
  • The size of India’s GDP is estimated to reach $3.7 trillion by the end of 2023-24.

CHALLENGES FACED BY INDIAN ECONOMY:

  • Due to inflation and environmental factors, there has been a secular decline in the growth of developed economies.
  • There are trade hurdles as the world is becoming increasingly protectionist, with nations raising their trade barriers.
  • Both of these factors will have a direct bearing on the growth of exports, which is a critical element if India has to grow fast.
  • The ongoing geo-political flare-ups also fuel inflation and smother the growth.

ACHIEVING $7 TRILLION ECONOMY:

  • By considering past growth rates and emerging challenges, it appears achievable.
  • According to experts, “To become a $7 trillion economy by 2029-30, India’s nominal GDP must grow at a compounded rate (CAGR) of 11.9% from 2023-24 to 2029-30”.
  • The compounded rate (CAGR) of 11.9% appears to be a tall order considering that the CAGR between 2013-14 and 2023-24 is expected to be only 6.7%.
  • In absolute terms, India needs to grow its GDP by around $572 billion every year as against $190 billion it has been adding every year in the past decade.

WAY FORWARD:

  • The GDP growth in upcoming months will be supported by rising employment and substantially increasing private consumption, supported by rising consumer sentiment.
  • With a flexible monetary policy, proactive set of administrative actions by the government and a softening of global commodity prices and supply-chain bottlenecks, inflationary pressures in India look to be on the decline overall.

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