Presenting her maiden Union Budget, Nirmala Sitharaman, the Indian Minister of Finance claimed India is set to a three trillion dollar economy by fiscal year 2020. Currently, only the United States, Japan, Germany and China have an economy larger than three trillion-dollars.
Earlier this year, in June, Fitch Ratings put India’s estimated GDP growth at 6.6for FY2019, however, earlier this month, they slashed the estimated GDP growth rate to 5.5%, showing to a few factors including the shadow banking crisis. Moody’s Investors Service, too, slashed their GDP growth forecast for India, with it going down to 5.8% from the previous 6.2%, mostly due to financial stress in the rural households and the slow job creation. Fitch and Moody’s aren’t alone – the Asian Development Bank, Standard & Poor’s, and the International Monetary Fund, all slashed their estimates of India’s GDP growth rate, reflecting poor economic growth.
The last time India saw its GDP growth rate slow down for five consecutive quarters was almost two decades ago in 1999. Figures released by the Central Statistics Office indicate that the value stands at 5%, which is the lowest since March 2013.
One thing that has taken a major hit is household consumption, and that has ended up affecting a majority of sectors. Across the board, ranging from the automotive sector to construction, we are seeing things slowing down and economic growth taking a hit. Moreover, SMEs are struggling to find lucrative financing options, further allowing the economy to continue its downward spiral. Luckily, with the availability of business loans, such as those on Finserv MARKETS, businesses are finding their lifeline out of the credit crunch. If you find your business affected by the economic slowdown, you can avail business loans of up to Rs. 30 lakhs on Finserv MARKETS along with value-added benefits such as flexible repayment options.
Getting back to the pressing issue, another cause for concern is India’s shadow banking crisis.
That being said, recently India cut the corporate tax rate – a move lauded by the International Monetary Fund and the World Bank. The World Bank’s 2020 Ease of Doing Business report also placed India 63rd on the list among 190 countries in total, one of the top ten improving nations for the third year in a row. Goods and Services Tax rates across sectors were slashed too, receiving praise from many.
Between the years 2014 and 2019, India’s economy grew from 1.7 trillion dollars to 2.7 trillion dollars. Delivering a lecture earlier this month, the finance minister described how after India becomes a 5 trillion dollar economy, it would move from its current 7th position in terms of current dollar exchange rate to the 3rd position. Highlighting that the growth has been at an average rate of 7.5% over the past five years, she underscored the importance of it needing to go faster if the target of becoming a 5 trillion dollar economy is to be achieved. EY India projected that assuming a growth rate of 7%, the size of the economy will stand at three trillion dollars, and in order to achieve the target of five trillion dollars, it will have to grow by at least 9% every single year (2021to 2025) in order to achieve the target by 2025.
Moving along with the assumption that the economy grows at a constant rate of 9% each year, here is what the projections look like:
|Financial Year||Size of Economy|
|2021||3.3 trillion USD|
|2022||3.6 trillion USD|
|2023||4.1 trillion USD|
|2024||4.5 trillion USD|
|2025||5 trillion USD|
So, these projections by EY, taking into account an inflation rate of 4% (as set out in the Monetary Policy Framework) indicate that even with a constant growth rate of 9%, the target of becoming a 5 trillion dollar economy may only be realised by the year 2025.
1. Basic needs for the nation: Providing basic security to all citizens will help project India’s image as a stable country, bolstering faith in the Indian economy. This, in turn, may push individuals to invest their money and help India achieve its target. If you’re on the lookout for investment avenues, you can find lucrative investment options and take your pick from a range of financial instruments including ULIPs, mutual funds and fixed deposits on Finserv MARKETS.
2. Focusing on the digital economy: Technology is now an inseparable part of our lives, and the digital world is the new realm where commerce is conducted. Having policies that promote the digital economy will pave a path of success for the Indian economy in this space.
3. Creation of jobs and skilling: India’s unemployment numbers are disappointing to see. There is a dire need for new jobs as well as skill development, which should be centred around the newer jobs, allowing individuals to join the workforce and serve in meaningful capacities. Investing in and allowing the growth of SMEs is also key to fostering a healthy economy. For businesses looking to scale up, options like the business loans available on Finserv MARKETS can be a boon. If you’re looking to increase your working capital, invest in new age infrastructure or give yourselves a technology upgrade, the business loans on Finserv MARKETS might be just the thing for you.
4. Focus on education: We need to focus on our education system, improving schools, curricula and instruction so that every child, regardless of their family’s income level, receives an excellent education. This will help create a strong base for the workforce of the future.
Thus, while the current slowdown gives legitimate cause for concern, and the goal of $5 trillion by 2024 might seem over-ambitious at this point, with enough economic stimulus packages from the government and learning from our past slip-ups, by 2024, we shouldn’t be far off from our goal. With unwavering focus on the key goals of increasing purchasing power, fostering the digital economy and boosting employment rates, we can find our way out of the economic slump and towards a $5 trillion economy.
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