REALITY CHECK OF $ 5 TRILLION ECONOMY

India was holding 10th rank and not 11th, as often claimed by PM Modi, in global economic system when Modi assumed power on  26th May 2014. India remained at the 10th rank for 4 continuous years from 2011 and 2014 as per IMF report. The International Monetary Fund (IMF) shows that Indian economy rose to $2.0 trillion in the year 2014 from  $1.88 trillion in 2013. 

So the Modi government inherited GDP, as the entire countrymen did, of $2.112 trillion in 2014, which increased, to  be exact, to $2.301 trillion in 2015. 

The GDP of year 2016 was $2.264 trillion.

In the year 2017 India's GDP was $2.597 trillion and India became 5th largest economy.

India recorded a GDP of $2.73 trillion in 2018 and slided to 6th ranking.

In 2019 India reached to $2.94 trillion to be at 5th ranking again.

Today India has achieved nominal GDP of $2.94 trillion but the nominal GDP per capita comes down to $2,170, that is, 126th in world ranking. Hence it is useless to boast of world ranking when GDP per capita is so low. Low per capita GDP reflects that the common man in India is not benefited out of the economy of the nation. Japan is the third-largest economy in the world, with its GDP crossing the $5 trillion mark ($5.15 trillion) in 2019. Compared to India the quality of life in Japan is much better than India because GDP per capita in Japan is $40,850 (24th spot). 

Today we are boasting of leaving behind UK, France, Italy to attain 5th place in world GDP. At the same time we are nowhere near to these countries so far GDP per capita is concerned. UK has GDP per capita of $$42,558, France 42,877.56 and Italy $34,260.34 though their rankings in world economy are 6th, 7th and 8th respectively.

We may have achieved 5th position in world economy but are far low in per capita GDP. 

Let me bring forward the mess created by the policy makers and rosy picture of our economy is portrayed by the government.

The GDP figures provided above are nominal GDP data. One needs to understand the nitty gritty of how GDP is calculated in order to know as to why we are still in economic crisis 

In INR value india's nominal GDP is calculated with all goods produced and services multiplied by the existing price of a year. But the difference of price (previous minus and current year due to inflation) multiplied to the entire goods and services produced in the current year  will be the real GDP in Indian Rupees (INR).

But when we refer to a country's GDP at current price it is the nominal GDP in US dollars (USD or $). Therefore nominal GDP includes the inflation component as well. For example India's Nominal GDP for the year 2016 was INR 152.51 trillion and INR 136.75 in 2015. And if converted to USD the nominal GDP stood at USD 2.112 and 2.264 trillion for the years 2015 and 2016 respectively and the GDP growth for the year 2016 comes to 6.7%.  

Now please understand whenever growth of GDP is mentioned, it is mentioned by comparing real GDP of two years because a base year is chosen to calculate real GDP and then value from that year forward is considered to determine the actual growth in GDP after adjusting for inflation.

So real GDP is always calculated and referred to a constant USD on a INR price of a particular year. The  real GDP of India, eg, the year 2016 increased to $2.465 trillion from 2015 $2.301 trillion as per 2010 as base year for constant dollar price. Hence the real increase in GDP for the year 2016 recorded an increase of 7.1%. This 7.1% will always be referred to as real GDP growth for the year 2016.

For developing countries the real GDP remains lower than the nominal one because it is adjusted to inflation. But in the case of year 2016 the real GDP value is higher (7.1%) than the nominal one (6.7%) because of the exchange rate difference in 2010 (base year) on which the real GDP is calculated and therefore year 2015-16 real GDP was very high. 

Hence in current crisis ridden Indian  economy if GDP growth rate has plummeted to 4.7% in 3rd Q of 2019 it is all due to high inflation and high USD exchange rate in comparison to INR.

So what fundamentals Modi is talking about when he says our fundamentals are very strong? 

All productive sectors have slowed down except mining and power generation. GDP kept falling in FY 2018. GDP in Q1 2018-19 was 8%, 7℅ in Q2, 6.6℅ in Q3 and 5.8℅ in Q4 2018-19.

There has been a steep fall in current GDP in 3Q19 to 4.7%, the lowest since Q4FY13.

India needs $1 trillion exports to become a $5 trillion economy. High export growth rate is crucial for India’s goal of becoming a $5 trillion economy by 2024. To achieve this objective, the economy will have to grow at an average rate of 9% during the next four years. India’s exports will have to grow at an even higher rate.

The current slowdown has made the objective more challenging, with India’s exports having shrunk 6.57% in September 2019.

Decline in investment causes decline in employment. How Modi is talking about achieving USD 5 trillion economy by 2024 out of ailing economy is very difficult to swallow.

The country will need to grow by 9℅ every year for five years continuously and raise aggregate investment rate to 38 per cent of GDP to achieve PM Modi's target. But as per current expert opinions on country's economic condition India may require 16℅ nominal growth rate to achieve the target. We must also keep in mind the rupee devaluation.

Now regarding investment Modi has announced to arrange Rs 100 lakh crore in 5 years to achieve USD 5 trillion economy and for that we may need Rs 20 lakh crore yearly for capital expenditure. Last year Rs 9.2 lakh crore allocated for capital expenditure was cut down to Rs 8.5 lakh crore in FY 19. Even if capital expenditure is allocated in the budget around Rs 15-16 lakh crore we may require Rs 28 lakh crore to top up in average in the 5th year. But now Rs 32 lakh crore we may require at the end to make it a Rs 100 crore capital expenditure due to  the condition we are in. 

I identify two standpoints; first, that while the longer-term story of structural reforms remain intact, there is a need for immediate stabilisation policy – fiscal and/or monetary policy – so that the short-term shock does not pull the economy into a deflationary spiral and second, that these shocks due policy failures of demonitisation and GST stabilization with more than 250 amendments impacted agriculture and industry over the years so severely, especially the informal and unorganised sectors, that the crisis is now a deep structural issue rather than merely a short-run cyclical one. In this case, India’s growth story has been derailed and the pain must be endured by the masses for a long while to come. The blame for ending up in this mess rests on the government because of its poor understanding of economic realities and adventurism in policymaking and implementation. Even Modi's loud talking of $ 5 trillion economy also may not be of any help because his government and policy makers are totally confused lots as they come out with series of policies preceded by a barrage of amendments after amendments, enough to destabilize the industry and service sectors. Please know you all - policies are not made with shelve life of 5 years as the governments are formed. Policies are made to implement to last on a long term workable planning. Frequent changes in and amendments of economic policies after implementation only justify the incompetency of the government and vindicates that she is confused and not sure of the merits and demerits of the policies thrusted upon the nation.