India $5 Trillion Economy

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What India must do in order to reach its goal of a $5 trillion economy by 2025?

The $5 trillion economy goal

 Our PM Narendra Modi has set the target for India to become a $5 trillion economy by 2025 India currently being at $2.8 trillion. Therefore, the Indian economy needs to double its size in the next 5 years to achieve the target of $5 trillion economy.

The target is in terms of dollar, so Inflation rate and Rupee-dollar exchange rate are the two core variables which will determine the economy’s fate. It is worth noting that India’s inflation has been under check and has continuously hovered below the 4 per cent level since August 2018 with an inflation rate of 3.05 per cent, last month. If rupee depreciates further, it will adversely affect India’s GDP growth in dollar terms and if the rupee starts appreciating against the dollar, it makes it easier to reach the target.

The target of $5 trillion is in nominal GDP terms, a 7-7.5 percent of real GDP growth and an average inflation rate of around 4-4.5 per cent translated into a nominal growth of 11.5 per cent, a ballpark calculation. There are several steps needed to be taken by the Indian government in cooperation with businesses to achieve the $5 tn goal.

India needs to make a lot of changes in the flexibility of labour contracts, free land and liberalize capital, empower ministers and to unify all states to achieve the target.

By 2025, the average age of the Indian population will be 29 years and thus right education is crucial which can be provided with the presence of strong physical infrastructure and by joining hands with top 100 foreign universities, to 43 Lakh Youth currently.

Moreover, the ease of doing business should be increased through incubation environments supporting businesses,simplification of clearances, procedures and strengthening quality & capacity of regulatory bodies like CCI, NCLT, SEBI and RBI.

Besides incubating startups investing in them too is important. So, the nation requires tax stabilisation, ease of AIF vehicles norms, tax norms of Angel Investors and a significant change in FDI policies. For the population to participate at a greater level the business listing norms should be eased so that the market has a wealth maximization.

The fortification and further development of newer technologies along with Investment in R&D should be focused upon. Technological revolution in AI, Fintech, Space, Genetics, Robotics, building strong infrastructure for R&D and designing of stringent laws to protect patents should be undertaken.

MOSPI CSO data indicates that the value addition by knowledge-driven fields accelerates the economy and drives GDP growth, especially in services sectors. To reach $5 trillion in 2025, India must grow at 10.8 percent CAGR if the rupee holds at 70, or even faster at 12 percent CAGR if the rupee depreciates to 75.

With 39,000+ startups and 33+ unicorns, India is today home to the third largest startup ecosystem, behind only the US and China. Projections indicate that by 2025, India may well have 100,000+ startups, employ 3.25+ million, and produce 100+ unicorns, with a total market value north of $500 billion.

Since 2014, startup ecosystem has collectively raised $50 billion across 3,700+ deals, yielded 500+ acquisitions and created 750,000 jobs. Bengaluru, Mumbai, and Delhi-NCR host 50% of all active startups, and have emerged as global players.

The contribution of IT services is 70.6% and of financial services is 72%. Now, India has large companies such as Flipkart, Byju’s, Ola, Oyo, MakeMyTrip, Paytm, Swiggy, Zerodha, DailyHunt, etc in diverse fields like education, mobility, hyperlocal services, and financial services. Many of the companies such as Freshworks, Zoho, BillDesk, Udaan, InMobi are now global companies with diverse client bases across the world.

It is also worth noting that public utility based startups like UPI, PolicyBazaar, LendingKart, PhonePe, Open, BharatPe, and others are gaining success by creating unique approaches towards capturing market share and value, therefore being important catalysts in the next phase of India’s economic growth.

 

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