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.
- 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.