India poised to be a
$2 trillion economy.
New Delhi: India’s economy is poised to become a $2 trillion one by the end of 2014-15—provided
it grows by at least 5% this year and the rupee does not resume its downward
slide.
This is a real number and not adjusted for purchasing power parity, or
PPP, according to which the Chinese economy will be larger than that of the US
by the end of 2014. India is expected to grow by 5.4% this year, up from 4.7%
in 2013-14.
The economy grew by 4.5% in 2012-13, a decade’s low, and but for
the loss in momentum over the past two years, would have crossed the $2
trillion mark already. Sure, the $2 trillion mark is merely a numerical
milestone.
For instance, it doesn’t mean much in terms of per capita income
(India’s current gross domestic product, or GDP, is around $ 1.8 trillion), and
India will remain a lower middle-income economy. Its economy will have to grow
by at least four times and its population remain at the same level for it to
become an upper middle income economy.
The Indian government factored in the $2
trillion milestone in the Union budget for this financial year. The central
government budget for 2014-15, presented in July, projected GDP at Rs.128
trillion assuming 13.4% nominal GDP growth, which at Wednesday’s closing of the
rupee at 61.395 amounts to $2.1 trillion. At the turn of the millennium, the
Indian GDP was about $481 billion and by 2007 it was measured at $1.2 trillion.
That means it had grown two-and-a-half times in seven years. And effectively,
in a span of 14 years the Indian economy has grown more than four times. To be
sure, the economy is plagued by structural imbalances. Services account for a
preponderant share of GDP while the share of manufacturing has remained
stagnant at 15% for several years.
The bigger challenge is that this growth has
not been accompanied by a commensurate growth in employment. According to the
Planning Commission, between 1999-2000 and 2009-2010, the number of jobs in the
so-called formal sector fell 2 million and the 4.62 million jobs created were
all in the informal sector. To put these numbers in context, around 12 million
people join the job market every year. This rapid expansion of the economy,
accompanied by poor employment growth, has come to be referred to as jobless
growth—something that cost the Congress-led United Progressive Alliance dearly
in the 16th general election. Another point of concern has been the fact that
Indian agriculture, which accounts for 18% of GDP, still employs a little under
50% of the country’s workforce. That proportion itself is a milestone; it was
only in 2013 that the number of people employed in agriculture fell below 50%
of all workers.
The rapid growth of the Indian economy has had a positive
impact on poverty levels. At the poverty level of $1.25 a day, the number of
poor in India has declined significantly from 41.6% of the population in 2005
to 32.7% of the population in 2010, according to the World Bank.
The same trend
was also reflected in the 2011 Census, which showed that materially most of the
country had traded up between 2001 and 2011. For instance, in 2011, two in
three households had access to banking services, up from one in three a decade
ago. In the same period, the number of households with a television doubled. At
the same time, the rapid economic growth has been accompanied by a spurt in
urbanization. Since 1951, the proportion of rural population that lives in
villages with a population less than 2,000 has decreased from 63% to 28%.
Meanwhile, the proportion of that living in large villages (population more
than 5,000) has risen from 5% to 17%, according to the Indian Institute for
Human Settlements. Some of these villages have been classified as Census Towns
by the Census—places where farming is no longer viable and people have moved on
to other professions. Between 2001 and 2011, the number of such towns trebled,
to 3894.
The literacy rate also increased significantly in between to 74.04% in
2011 from 65.38% in 2001, according to the Census of India. photo Challenges
remain. With more mobile phones than toilets in the country and gender biases
in every field of the society, India remains a third-world country in many
aspects, even after becoming a lower middle income country in 2007 with average
per capita income rising above $1,006. Although becoming a $2 trillion economy
is an important milestone, it still is no more than a number, said Crisil Ltd
chief economist D.K. Joshi. “We have many people still under poverty.
India and
China were of the same size two decades ago and now China is a decade ahead of
us,” he said. “India needs to grow at a much faster rate to provide employment
opportunities to the youth. At the same time, the quality of growth is also
very important to address issues of inequality and regional disparity.”
Prashant K. Nanda contributed to this story.
RANJAY KUMAR,
PGDM 2ND
YEAR,
SOURCE- MINT
India poised to be a $2 trillion economy
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