The Indian Economy has seen exponential rise in the 21st century, so much so that it is now the 5th largest economy in the world. In the year 2020, GDP of India stood at $2.66 trillion according to IMF. It is expected to reach $3.5 trillion in financial year 2022. Before COVID-19, PM Narendra Modi had envisioned a $5 trillion dollar economy for India by FY25 but due to pandemic, things have changed.
Let us explore some ways on how Indian Economy can expand its horizon and reach the $5 trillion mark within the next 5 of years!
How is the Indian Economy (GDP) calculated?
The Gross Domestic Product is an economic indicator as to how the economy is performing. Usually the formula to calculate GDP is C + I + G + (X-M) where C is Consumption, I is Investment, G is Government and X is Exports with M being Imports.
In simple terms, GDP = private consumption + gross private investment + government investment + government spending + (exports – imports).
The Indian Economy GDP is calculated by the Central Statistics Office and they have two ways of two ways of calculating it!
- The Factor Cost Figure – India eyes on its 8 industries and calculates the net change over a given period of time. These 8 industries are as follows –
1. Agriculture, forestry, and fishing
2. Mining and quarrying
4. Electricity, gas, water supply, and other utility services
6. Trade, hotels, transport, communication, and broadcasting
7. Financial, real estate, and professional services
8. Public administration, defense, and other services
- The Expenditure Figure – Calculating India’s expenditure such as households, final goods and service, expenditure by the Government, net trade and net investments.
Now let us dive into the ways of reaching the $5 trillion mark
Making Indian Economy a ‘factory’ for Goods and Services!
In both formulas, we saw that exports play an extremely important role for the growth of any economy. Indian Economy needs to be a manufacturing factory of goods. Not just to become self sufficient but self sustainable. Recently prices of commodities have increased due to a war-like zone and global slowdown.
As imports increase, our economy becomes highly susceptible of fall down. For example, let us take Information Technology. India is the IT leader, they not only produce high quality services and products and also at cheaper prices as compared to the international rates. According to the RBI, Software services exports went up by 2.1 percent to $148.3 billion in 2020-21.
Conversely enterprise software based startups like Zoho, Darwinbox, Icertis and Freshworks are a success story because their products have access to US Markets which means the revenue is in dollars. In fact, these software based companies get tailwinds because of their nature. They have the ability to build their products in India and sell it in the European Union/US Markets.
After COVID-19 pandemic, companies follow a strategy called ‘China + One’ where they rely on one extra nation. As a result, India must show intent and work more towards manufacturing medical textiles, smartphones and semiconductors.
Increasing the Government Expenditure!
Building the infrastructure by the government is one of the better ways of boosting the Indian Economy. Building the infrastructure will not only lead towards employment but it will lead to more accessibility in the country. Goods and services can be delivered from one place to another at a much faster rate. States in India escaped the wrath of pandemic since they can import goods from one state to another. Imagine if one factory in Tamil Nadu can send goods to North-East India faster, wouldn’t that be efficient?
Roads, highways, railways, smart cities, metro are the basic building blocks of any economy. The Indian Economy needs more funding towards the building of country. Since ventures as portion of National Foundation Pipeline (NIP), with capital investing of $1.4 trillion, ought to be assisted and checked against timelines.
Increasing the Medical Expenses both by Government and Individuals
Indian Economy only spends 3.6% of its GDP on medical supplies. India is a part of OECD organisation, an average OECD nation spends 8.8% of its GDP on medical needs. Even BRICS nation spend at an average of 6.3% as medical expenses.
After the aftermath of COVID-19, Indian Economy must regulate its ideas on health. Simultaneously, individuals should also invest their earnings into medical insurance. Meanwhile direct-benefit transfers could be in the form of skill credits for medical workers or establish up medical colleges in villages.
The Indian Economy has a bright future ahead. With all the growth and development, India is surely on the right path. All it needs is a bit of push which makes it a $5 trillion economy in the coming years. The good thing about the Indian Economy is that it is in growth phase. This will not only benefit the country but also small business owners and reformers.
What India needs is reforms starting from the grass root level to higher authority. This is a collective contribution from people from all walks of life. India cannot become a $5 trillion economy with one person’s contribution. The contribution has to be collective.