India can meet its $5 trillion economy target by FY29, even if the nominal GDP growth maintains at the current level, according to Crisil’s latest report. Between FY21 and FY23, the country’s nominal GDP growth has been 11 per cent based on advanced estimates. This is lower than the pre-Covid growth rate (FY11-20) of 12.2 per cent but it can get us to the $ 5 trillion mark in another five years, according to the rating agency.
This forecast holds if the rupee follows the decadal depreciation rate. If the domestic currency depreciates at a slower pace of 2 per cent, then the target could be met a year earlier by FY28. If the country wants to hit that milestone faster, private investment is crucial.
To reach that milestone faster, the focus must be on pushing up the real growth rate over the next few years. A decisive and sustained lift in the investment cycle would be critical for that. Lifting the productive capacity of the economy through sustained spending on infrastructure, removing supply-side bottlenecks and facilitating a private-capex revival by improving ease of doing business would result in a more durable, non-inflationary growth path.
Interestingly, while the pandemic had caused the contraction of 5.8 per cent in FY21, it didn’t materially slow down the economy from its $5 trillion target path. This is because high inflation resulted in high nominal GDP growth.
The pandemic not hit and the GDP growth had continued on the pre-Covid decadal trend path, the country’s economy would have touched $3.5 trillion at the end of FY23. This estimate has been made by assuming that GDP in nominal rupee terms grew at the same pace on average over FY21-23 as it did in the pre-Covid period, and that the value of rupee against the US dollar also weakened at the pre-pandemic rate. The economy will close this fiscal not much lower at $3.4 trillion.
The nominal GDP shows to be 3.4 per cent lower than the pre-Covid decadal trend only if we look at it in rupee terms. In dollar terms, the difference between the two growth trends has nearly closed because of lower rupee depreciation. Between FY21 and FY23, the rupee depreciated by 4.1 per cent and that is lower than the 4.3 per cent depreciation recorded in the pre-Covid decade.