Explained: What does it mean for India to become a $5-trillion economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Read the attached story

  • It is now clear that the main goal of the government will be to make India a $5-trillion economy by the end of this term.
  • But what does it mean for India to become a $5-trillion economy? How likely is India to achieve the target? Will every Indian gain from it?

What is the meaning of becoming a $5-trillion economy?

  • In 2014, India’s GDP was $1.85 trillion. Today it is $2.7 trillion and India is the sixth-largest economy in the world.
  • Essentially the reference is to the size of an economy as measured by the annual GDP.
  • As a thumb rule, the bigger the size of the economy, the more prosperous it can be expected to be.
  • The GDP of an economy is the total monetary value of all goods and services produced in an economy within a year.
  • For most international comparisons, GDP is calculated via the production method (that is, adding up the value-added at each step) and the monetary value is arrived at by using current prices in US $.
  • In other words, GDP is a way among countries (economies) to keep score about who is ahead.

Global comparison

  • The first column of the table alongside provides a snapshot of where India stood as of 2018 according to World Bank.
  • In terms of overall GDP, this data shows that India is very close to overtaking the United Kingdom.
  • It also shows that Indonesia’s GDP is almost one-third of India’s.

Are Indians the sixth-richest people in the world?

  • That India is the sixth-largest economy does not necessarily imply that Indians are the sixth-richest people on the planet.
  • The GDP is the first and most rudimentary way to keep score among economies.
  • If one wants to better understand the wellbeing of the people in an economy, one should look at GDP per capita.
  • In other words, GDP divided by the total population. This gives a better sense of how an average resident of an economy might be fairing.

Income Inequality in India

  • If one looks at the GDP per person data in the second column of the table, it reveals a very different, and indeed a more accurate picture of the level of prosperity in the respective economies.
  • For instance, on average, a UK resident’s income was 21 times that of an average Indian in 2018.
  • Still, the richest 1% of Indians own 58.4% of wealth. The richest 10 % of Indians own 80.7 % of the wealth.

Can India achieve the target by 2024?

  • The answer would depend essentially on the assumption about economic growth.
  • If India grows at 12% nominal growth (that is 8% real GDP growth and 4% inflation), then from the 2018 level of $2.7 trillion, India would reach the 5.33 trillion mark in 2024.
  • However, there’s a glitch. Last year, India grew by just 6.8%.
  • This year, most observers expect it to grow by just 7%. So India must keep growing at a rapid pace to attain this target.

How will GDP per capita change when India hits the $5-trillion mark?

  • If by 2024 India’s GDP is $5.33 trillion and India’s population is 1.43 billion (according to UN population projection).
  • India’s per capita GDP would be $3,727.
  • This would be considerably more than what it is today, still it will be lower than Indonesia’s GDP per capita in 2018.
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