A $5 trillion economy

Context:

Recently, Prime Minister Narendra Modi extended the Pradhan Mantri Garib Kalyan Ann Yojna for five more years, aiming to provide 5 kg of free foodgrains every month to beneficiaries of the National Food Security Act. The announcement raises questions about the trajectory of economic growth, especially with India’s ambitious goal of becoming the third-largest economy globally by 2028.

Relevance:

GS-03 (Indian Economy, Growth and Development)

Mains Question:

Critically analyze the implications of India’s pursuit of a $5 trillion economy by 2028, considering the challenges in distribution, per capita income, and potential impact on socio-economic inequality. (250 words)

Dimensions of the Article:

• Roadmap to Making India a $5 trillion economy
• Echoes of Japan’s Journey
• Economic Diplomacy Lessons
• India’s Economic Landscape

Roadmap to Making India a $5 trillion economy

• The Government’s roadmap for making India a $5 trillion economy was put into action in 2014, it comprises focusing on growth at the macro level and complementing it with all-inclusive welfare at the micro level, promoting digital economy and fintech, technology-enabled development, energy transition and climate action and relying on a virtuous cycle of investment and growth.
• It poised that the major reforms including Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), a significant reduction in the corporate tax rate, the Make in India and Start-up India strategies, and Production Linked Incentive Schemes, among others, have been implemented.
• The Government has also focused on a capex-led growth strategy to support economic growth and attract investment from the private sector, increasing its capital investment outlay substantially during the last three years.
• Central Government’s capital expenditure has increased from 2.15 per cent of GDP in 2020-21 to 2.7 per cent of GDP in 2022-23.
• The Union Budget 2023-24 has taken further steps to sustain the high growth of India’s economy. These include a substantial increase in capital investment outlay for the third year in a row by 33 per cent to ₹10 lakh crore (3.3 per cent of GDP).
• Direct capital investment by the Centre is also complemented by Grants-in-Aid to States for the creation of capital assets.
• The ‘Effective Capital Expenditure’ of the Centre was accordingly budgeted at 13.7 lakh crore (4.5 per cent of GDP) for 2023-24. This strong push given by the government is also expected to crowd in private investment and propel economic growth, the Minister stated.

Echoes of Japan’s Journey:

• Drawing parallels with Japan’s economic ascent to the third-largest economy globally, the article reflects on the unintended consequences of rapid growth.
• Japan’s journey, marked by severe social issues such as hikikomori(A form of severe social withdrawal) and kodokushi (Lonely Death), prompts contemplation on the human toll that can accompany economic success.
• The climb to the third-largest economy globally has proved detrimental amongst the weaker links.

Economic Diplomacy Lessons:

• Japan’s Ego-Free Economic Diplomacy with China: Japan’s response to losing its second-largest economy status to China serves as a lesson in diplomatic pragmatism.
• It is imperative how Japan welcomed China’s ascent, emphasizing the interconnectedness of economies.
• Today, China is Japan’s largest trading partner. This ego-free ‘activism’ has ensured that Japan has held on to the third position in world GDP rankings for the last 14 years
• This historical perspective underscores the need for cooperative economic strategies, even with competitors, offering insights into India’s potential approach in a dynamic global landscape.

India’s Economic Landscape:

• Capital, Productivity, and Labour Challenges: Examining the components of India’s economic growth, the article scrutinizes the challenges related to capital, productivity, and labor. The stark wealth disparity, with 1% owning a significant portion of the nation’s wealth, raises questions about the inclusivity of the economic surge.
• Additionally, the reliance on low-resource citizens for funding, coupled with barriers in education and digital literacy, unveils potential hurdles in achieving balanced growth.
• With a per capita income of $2,400, India’s standing raises concerns about the actual improvement in the average citizen’s life.
• A comparative analysis with Japan and China prompts contemplation on the nuanced relationship between economic ranking and individual prosperity.

Way Forward:

• Balancing Growth and Inclusivity: Balancing growth ambitions with inclusivity emerges as a key theme, urging policymakers to reevaluate strategies. The need for an inclusive economic narrative that addresses the concerns of the marginalized becomes imperative for sustainable and holistic development.

• Beyond GDP Figures to Human Well-being: Prioritizing human well-being, fostering equal opportunities, and addressing the deep-seated disparities within society become guiding principles. The pursuit of a $5 trillion economy should not be divorced from the tangible improvement in the lives of citizens across the socio-economic spectrum.

• Avoiding the Pitfalls of Unbridled Growth: The article leaves policymakers with a crucial lesson from Japan’s experience—an economy’s success should not come at the cost of social fabric. The unintended consequences of economic acceleration, as witnessed in Japan, serve as cautionary tales. India is urged to learn from these pitfalls and chart a course that uplifts all citizens, avoiding the pitfalls of unfettered growth.

• Inclusive Growth Imperative: In essence, the pursuit of a $5 trillion economy is not merely an economic endeavor; it is a narrative that defines the collective destiny of the nation. As India propels itself toward economic milestones, it is tasked with ensuring that no citizen is left behind, echoing the vision of a truly equitable and prosperous nation.