Last month, Prime Minister Narendra Modi spoke of India becoming a “Five Trillion Dollar” economy. Let us find out how soon we can reach the 5T mark? What growth rate is required? And what changes we need to introduce?
But how do we assess the current size of the economy?
There are two measures of GDP — at constant prices (2011-12) and current prices. Currently, India’s GVA is $1.8 trillion, GDP at constant price $2 trillion, and GDP at current price $2.5 trillion.
What growth rates will take us to 5T and how soon? World Bank says India’s GDP is expected to grow at 7.3 per cent in 2018-19. The RBI’s figure is 7.4 per cent. So we can take 7.4 per cent as the base figure.
A simple calculation shows that the GDP at current prices will reach 5T in 2027 at this growth rate. So if we sustain the base growth rate of 7.4 per cent, we will become a 5T economy within ten years.
However, an ambitious agenda of change can push growth rates upwards. So, India can become a 5T economy in 2024 with 10 per cent annual growth rate. And 14.2 per cent growth will get us there in 2022. But achieving such high growth will require exceptional structural changes in all sectors of the economy.
Table 1 indicates when our economy will reach 5T. The year is different for each of the three measures of economy and depends on the growth rate selected. Sectors such as agriculture, manufacturing and services grow at different rates. Table 2 captures the sectoral growth rate required to achieve the target.
To reach 5T, we need to shift our perspective from policy to projects. Select sectoral initiatives can be converted into 100 projects. Each to be led by a competent leader with proven skills. They must report to the PM. The regular bureaucracy would facilitate the job of the project leader, who will be free to choose her team. We propose few such initiatives.
Model farms
One, transform agriculture by setting up a thousand world-class farms across the country. Most farmers do not have the capacity or means to benefit from the existing schemes. Time to try a new model where farmers learn to be productive by working in association with a professional firm which takes care of farming, marketing, and exports.
The implementation will cover less than one per cent of the arable land and cost no money to the government.
To implement, the government will need to identify 1,000 agriculture development regions (ADRs) each with a minimum area of 200 sq. km. State governments will take this land on a 10-year lease from the willing farmers. In return, the State governments will assess a farmer’s 10-year income and agree to pay double the amount in annual instalments. Farmers will remain the landowners.
Next, the States will invite corporate farming ventures (CFVs) to work on each of the ADRs for 10 years. In return, CFVs will pay the money that the States promised to pay the farmers. The CFVs will apply modern techniques and investments to produce and market high-quality products. Farmers may work on the land and imbibe the right practices. Soon, the best practices will spread to adjoining areas. Farmers who participated with such CFVs will pool their land and start collaborative farming where external CFVs will not be needed. The model will turn millions of farmers into smart and prosperous entrepreneurs. ADRs will contribute substantially to production and exports. This model may supplement the existing government schemes.
Manufacturing ecosystem
Two, transform manufacturing. With a trade war-like situation emerging between the US and China, and MNCs looking for alternative manufacturing locations, there is no better time for India to give a big push to manufacturing. To get there, India has to focus on setting manufacturing ecosystem for the four product groups.
One, machinery that makes the products. Two, specialty materials, biologics, nanotechnology, integrated circuits, embedded systems, medical imaging devices. Three, computers, TVs, mobile phones, and telecom equipment. And, four, auto components, toys, furniture, footwear, and apparels. This skill and labour-intensive products group can absorb part of surplus people from the agriculture or informal sector.
Successful operations would require sector-specific policies and inviting an anchor firm for each major product group. Flexible labour laws are an essential precondition for large-scale manufacturing.
Over 70 per cent of India’s exports come from the manufacturing sector. New manufacturing operations will allow India to become part of few global value chains and help in raising exports to a trillion dollar mark.
Transform services
Services contribute to 56.5 per cent of GDP but create only 30 per cent of jobs. So far, IT sector has been the star, exporting over 80 per cent of its $150 billion turnover.
But as over 50 per cent of IT revenues come from the US, the future looks challenging with Trump at the helm.
Also, as over 40 per cent of the IT jobs India does will disappear due to automation, the sector needs to develop expertise in IOT, AI, and their applications. Travel and tourism, health, and professional services can be the other star service sectors. Better delivery of infrastructure, education and essential services would also create a large number of jobs and growth.
The travel and tourism sector created 40 million jobs and contributed a significant 10 per cent to GDP. Considering the variety of experiences India offers, the sector can grow manifold with project-driven investments in budget hotels, medical tourism, tourist safety, and top 100 attractions.
India as a global healthcare jobs provider can be another big story. Global healthcare and wellness is a $8 trillion industry, which would require over 100 million health workers in the next 15 years. Dr Devi Shetty proposes that we should convert India’s 600 district hospitals as medical nursing and paramedical schools to train 5 million doctors, nurses, and paramedics to meet the global requirement. They can remit about $100 billion of foreign currency every year.
The construction sector’s potential is largely untapped. It has slowed in the past two years but remains big with over 8 per cent share in GDP.
It is the largest job-generating sector after Agriculture. The sector lacks transparency, and millions of buyers stand cheated in the hands of builders every year. Ensuring transparency and ease will revive the sector attracting FDI and create millions of new jobs.
The writer is an Indian Trade Service officer. Views are personal.