Mint Primer: Can India become a $7 trillion economy by 2030?

In its report on the Indian economy released on Monday, the government says India can become a $7 trillion economy by 2030. This means the country will almost double its GDP in the next six years. Is it possible? Mint examines the pros and cons.

In its report on the Indian economy released on Monday, the government says India can become a $7 trillion economy by 2030. This means the country will almost double its GDP in the next six years. Is it possible? Mint examines the pros and cons.

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What does the Finance Ministry report say about the Indian economy?

The report, which looked at how the economy has performed over the last decade and its future prospects, expects India to achieve growth of at least 7% in the current and next financial years of 2023-24. It also said that India is economically strong due to the government's massive infrastructure spending (which has increased 3.3 times in the last 10 years), healthy financial sector, strong household finances, comfortable foreign exchange reserves and inflation under control is in better shape and a budget deficit that is tending to fall. These factors have led India to reach a $7 trillion economy by 2030.

How has India grown over the years?

It took 60 years for India to become a $1 trillion economy. This happened in 2007/08. The path to $2 trillion was much faster in just seven years (2014-15). Even as the country aimed to reach the $3 trillion mark in five years (it became a $2.8 trillion economy in 2019-20), the pandemic struck. It eventually surpassed $3 trillion in 2021-22. India went from being the world's 10th largest economy to its fifth largest a decade ago. The country's GDP is estimated to reach $3.7 trillion by the end of 2023/24.

What caused GDP growth to slow?

After a period of high growth driven by accommodative fiscal policies, the Indian economy began to slow down after 2014. This was further exacerbated by the demonetization exercise in 2016. Then came the pandemic, which caused the economy to contract. India had set a target of becoming a $5 trillion economy by 2024-25 and a $10 trillion economy by 2029-30. It will take another three years for India to become a $5 trillion economy.

Is a $7 trillion economy by 2030 an optimistic goal?

This appears to be the case when considering past growth rates and new challenges. To become a $7 trillion economy by 2029-30, India's nominal GDP needs to grow at a compound annual growth rate (CAGR) of 11.9% from 2023-24 to 2029-30, according to experts. That seems like a tall order considering the CAGR between 2013-14 and 2023-24 is expected to be just 6.7%. In other words, India needs to increase its GDP by up to $572 billion every year, compared to $190 billion it has added every year in the last decade.

What are the challenges for India?

While it is true that India's economy has far better growth prospects compared to other major economies in the world, there are factors that stand in the way of rapid economic growth. Due to inflation and environmental factors, the growth of developed economies has declined in the long term. The world is also becoming increasingly protectionist. Both factors will have a direct impact on export growth, a crucial element if India needs to grow quickly. Then there are the geopolitical crises, which typically fuel inflation and dampen growth.