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In the month since the Narendra Modi government returned to power with a thunderous majority, it has repeatedly given voice to an ambitious target to grow the economy to $5 trillion by 2024. That aspiration found mention in President Ram Nath Kovind’s address to a joint sitting of the two Houses of Parliament, and the Prime Minister too alluded to it in a speech to policy wonks at the NITI Aayog. Modi did acknowledge that the enterprise to get India into that higher orbit of growth would be challenging — a fact that has been accentuated by the tapering-off of GDP growth rates in recent quarters — but nevertheless claimed that it was, in fact, realisable.
Given that India has consistently underperformed its economic potential, the setting of a stiff performance target is being read in some quarters as a wake-up call from a Prime Minister who claims to channel a can-do spirit that renders the impossible possible. What such analyses overlook, however, is that in the absence of meaningful structural reforms, attempts to flog the economy into growing at 12 per cent a year in nominal terms — the minimum required to realise the $5-trillion dream by 2024 — are bound to fail. Worse, attempts to engineer ‘growth by diktat’ come embedded with perils, particularly for a financial system that is yet to recover from the bad-loans mess, which itself is a hangover from the profligate lending by the UPA 2 government.
Successive governments have relied excessively on a monetarist approach to stimulating growth, which is akin to pushing on a string, and on throwing good money after bad. Even the Modi government has, for all its bluster, shied away from the serious supply-side reforms that are needed to unshackle the economy. Worse, it has exhibited a nativist, protectionist mindset, which finds expression in erecting tariff walls, which only serve to protect industry at the cost of competitiveness. The keenness to see rapid growth is evidently not matched by an appetite for doing the hard work needed.
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