The Union Budget as well as the Prime Minister laid down the roadmap to $5 trillion GDP till 2024-25. This dream, if achieved will make India the third largest economy just behind United States of America and China. The size of the Indian economy stands at $2.8 trillion right now, which makes it the sixth largest in the world. Ever since its inception, India has been one of the countries which has shown tremendous potential and growth in various sectors. Still at a developing stage, many believe India has all what it takes to come out as the next superpower and achieving the $5 trillion economy will definitely place India on the right track
Scenario before COVID 19 outbreak
The slow down fuelled by the hesitation of banks to lend is the major reason why it makes it nearly impossible for India to reach $5 trillion before 2025. Although the government claimed that by 2025 India would become a $5 trillion economy, the current trends and prospects do not favour this dream. India’s real estate, automobile, construction sectors and overall consumption demand facing a serious and constant decline. The second quarter (July-September) of the financial year April 2019-March 2020 witnessed a drastic fall in gross domestic product (GDP) growth rate to 4.5%, even as international bodies like the International Monetary Fund (IMF) and the World Bank repeatedly cut the country’s growth rates.
In the words of former Governor of India’s central bank, the Reserve Bank of India (RBI), Raghuram Rajan, there are signs of To become a USD five trillion economy in 2025, India must achieve USD 3.3 trillion economy status by 2021; USD 3.6 trillion economy status by 2022; USD 4.1 trillion economy status by 2023; USD 4.5 trillion status by 2024 and USD 5 trillion economy status in 2025.
The current trends and prospects do not favour this dream. India has seen an economic slowdown in 2019, with the country’s real estate, automobile, construction sectors and overall consumption demand facing a serious and constant decline. The second quarter (July-September) of the current financial year (April 2019-March 2020) witnessed a drastic fall in gross domestic product (GDP) growth rate to 4.5%, even as international bodies like the International Monetary Fund (IMF) and the World Bank repeatedly cut Indian economy’s growth rates. This was described as the lowest GDP growth rate in the previous 26 quarters, which means in over six years. The main reasons attributed to the fall in the GDP growth rate were contracted manufacturing activity, weakened investments, and lessened consumption demand.
In the words of former Governor of India’s central bank, the Reserve Bank of India (RBI), Raghuram Rajan, there are signs of ‘deep malaise’ in the Indian economy. Repeated government allusions to the 5 trillion U.S. dollars economy by 2024, which would necessitate steady real growth of at least 8-9% per year starting now, seems increasingly unrealistic, he added.
Scenario of the economy post Covid 19 outbreak
According to the Ministry of Statistics, India’s GDP growth went down to 3.1% in the 4th quarter of FY 2019-20. According to The World Bank and several rating agencies, this will be India’s worst recession and lowest figures since 1990, moreover State Bank of India’s research estimates a 40% GDP contraction if the last quarter of FY 2020-21. Within 40 days, (from 15th March to 19th April) unemployment rose from 6.7% to 26% with the daily wage workers being affected the most. On 12th May, our Prime Minister addresses the country on national television and reassures by presenting an optimistic view, that post this pandemic how the Indian economy would be on the verge of becoming self-reliant or “atmanirbhar Bharat”. The funding that was provided to this scheme was ₹20 lakh crore, approx. 10% of India’s total GDP. In order to boost the MSME sector and promote business opportunities, RBI announced ₹8 lakh crore liquidity.
The agriculture sector has been one of the sectors that has not been able to sustain the shock waves of this pandemic. According to a research by Public Health Foundation of India, 10% of Indian farmers could not harvest their crops and out of those who were able to harvest, around 60% of them reported a fall in the total output. Analysing the current trends, it is expected that the price of agricultural products will rise by a significant amount in the coming future, due to fall in the output or supply.
The unemployment rate rose to 26% with just over a month’s time, however the fall in salary and wages of the employees is also something that should be taken care of. In order to reduce costs, almost all the firms and MNCs operating in India have resorted to a decrease or cut in the salaries of the employees, for a certain period. Being sceptical about their future, companies such as ITC, Hindustan Unilever, Dabur etc. have not undertaken any significant project or invested in any sort of research and development. It is expected, that if the situation does not improve in the coming future, the entire manufacturing sector in India might adopt this system, which would lead to a huge slump in the economy.
One of the sectors that experiences a sudden and direct impact of economics slowdown in the country id the financial sector or the stock market. On 23rd May, the Indian stock market posted its worst losses in the history. SENSEX fell by 4,000 points (13.15%) and NIFTY fell by 1,150 points (12.98%). However, on 25 March, one day after a complete 21-day lock-down was announced by the Prime Minister, SENSEX posted its biggest gains in 11 years, adding a value of ₹4.7 lakh crore (US$66 billion) crore for investors.
According to the Indian Association of Tour Operators (IATO), the travel and tourism sector had reported a loss of ₹8,500 crores since the pandemic. Since all the transportation modes being railways, airways, waterways etc. are not allowed to travel, the fall in revenue of tourism sector was expected and quite natural.
MSMEs and self-employed businessmen such as shopkeepers, salons, wedding planners etc. have had the worst face since their operation. Regardless of the lockdown being imposed or not, due to the rise in number of cases, people are now practicing social distancing with even more consciousness. Delivery service providers such as Zomato and Swiggy have reported a 60% fall in orders, even after taking proper precautions and measures.
To summarize, the $5 trillion Indian Economy seemed really difficult and far-fetched until the COVID 19 outbreak which clearly made it impossible. COVID 19 has clearly enhanced the demand side of the Indian economy and has worsened the situation. Survival and revival have now become more important than growth.
BY: SAHEJ KAPOOR