India’s Prime Minister recently made a remark that India will become $5 Trillion Economy in next five years. This statement has caused debate among economists and media. Some believe that it is more of an ambitious dream and the Indian government is overestimating its economic strength. Some opinions suggests that Indian Economy has potential to achieve this target. However, they made it clear that even not being an impossible feat, it is no less difficult to achieve this feat in mentioned time frame.

What does it mean by a $5 Trillion economy? A country’s economy is usually measured in Gross Domestic Product (GDP) to easily compare it with other economies. It is based on a rule (maybe a flawed one) that the bigger the size of the economy, the more prosperous it is expected to become. The GDP of a country can be simply define as the total monetary value if all goods and services produced in an economy within a year. With intentions to compare it on international level, the GDP is calculated via Production method i.e. adding up the value added at each step. The monetary value arrived at by using current prices is in US Dollars.

Currently, Indian Economy is the fifth largest economy in the world, only behind USA, China, Japan and Germany. In 2014, India’s GDP was $1.85 Trillion which increased significantly to become $2.7 Trillion in 2018. Estimated GDP in December 2019 stands at $2.9 Trillion. However, one must not take things for granted as being fifth largest economy does not make us fifth-richest people in the World. The real picture only becomes clear when GDP per Capita is calculated, which reveals very different and indeed a more accurate picture of the level of the prosperity in the respective economies. For example, on an average, a UK resident’s income was 21 times more than that of an average Indian resident in 2018. Which makes achieving $5 Trillion target of GDP is more about Economic Growth instead of Economic Development.

To become a $5 Trillion economy, and eventually the third largest economy in the world, India needs 12% nominal growth, which is 8% real GDP and 4% inflation. If we somehow achieve this mammoth growth, Indian economy becomes $5.33 Trillion in GDP size by the year 2024. Recently, the IMF’s World Economic Outlook (WEO) update revised India’s year 2020 growth forecast to 5.8% and estimates it to grow at 6.5% for year 2021. Both the estimates are distant from the required target. India has many hurdles in its way to become a $5 Trillion economy by the year 2024.

Indian Economy is an agrarian one with nearly half of the workforce engaged in agriculture and related activities. The recent Climate Uncertainties has hit the agriculture sector hard. Another problem in the economy is worsening condition of Manufacturing Sector. The unemployment rate is touching the sky. To a little relief to the economy, the Service sector is still contributing well and high. However, employment opportunities offered by the Service Sector are very less in comparison with the agriculture and the manufacturing Sectors.

The slowdown in the agriculture sector has become a major concern. Besides the climate extremities, the incompatible Land and Labour laws are making things worse. The industrialization has ill-effects on the agriculture with decreasing cultivable land and pollution. With major part of agriculture still being dependent on the monsoon, the lack of irrigation facilities and advance science and technology becomes visible. India’s yield rates fall behind the other major economies.

The recent slowdown in the manufacturing raises many doubts on the future goal of becoming a global manufacturing hub. Lack investment or more specifically lack of Foreign Investments has affected the manufacturing sector. With rising Ease of Doing Business, the Foreign Direct Investments (FDI) rose too. Unfortunately, the condition in manufacturing remained same as most of the inflows where investment in the Service Sector. Another major problem is scarcity of skilled labours. Major part of Indian workforce comprises of the unskilled works. Which leads to production of low-quality materials, which ultimately makes the product unsuitable for the export. Lack of Infrastructure development is hurting the manufacturing sector too. It faces problems like irregularity in electricity supply, under-developed transportation sector, scarcity of quality row materials and problems in Indian bureaucratic system.

To become a $5 Trillion economy, India needs to expand its export sector to as high as $1 Trillion. Currently, India is facing business deficit with major economies of the World like our neighborhood giant China. The recent step in which government has refuse to accept the Regional Comprehensive Economic Partnership is welcoming as it would have flooded Indian marker with cheap Chinese products further worsening the condition of the manufacturing sector of the India. Out of the 15 countries included in RCEP, India already have a Free Trade Agreement (FTA) with 10 ASEAN countries, Japan and South Korea. Negotiation of FTAs are under discussion with Australia and New Zealand. Only China is left behind, which is for the greater good. Besides, India’s FTA experiences are not pleasant as it mostly faces business deficit with its FTA partners.

The global economic slowdown is also hurting India’s $5 Trillion economy dream. The US-China Trade War and unrest in the middle-east has its ill-effects on the World Economy. The uncertainty in the price of Crude Oil is hurting India’s Forex reserves. In addition to that Rupee is losing its value against US Dollars. Surprisingly, Gita Gopinath of IMF has blamed Indian Economic ‘crisis’ for the global slowdown. This shows the ill-phase that Indian Economy is going through.

There is a need to introduce structural reforms in Indian economy with priority on the agriculture status. Government alone will not be able to achieve the target, which makes private sector participation essential. Improvement in Medium, Small and Micro Enterprises (MSMEs) is needed, which can lead to generation of employment opportunities. Banking, NBFC and Insurance sectors must be revived and best global practices must be applied to remove the burden of Non Performing Assets (NPAs). Above all, Government involvement in the Private Sector affairs must be decreased to allow them operate independently.

Right now, Indian Economy is growing at a Snail’s pace. For the task as mammoth as becoming the Third largest economy in the world, the current GDP growth seems too slow. Unless the high economic growth is achieved the chances of becoming a $5 Trillion economy by the year 2024looks distant. However, we can achieve the target at this pace, but not only in mentioned time frame!