Decoding Piyush Goyal's Dream Of $30 Tn Economy

In a latest statement, Union Minister Piyush Goyal said that the Indian economy is expected to reach USD 30 trillion in the coming 30 years has raised several eyebrows about this humungous target.

The ambitious Goyal added that if India grows at 8 per cent every year on a compounded annual growth basis, the economy will double in about nine years. Presently, it is about USD 3.2 trillion and nine years from today, it will be about USD 6.5 trillion.

However, the Indian Finance Ministry has said that India’s economy is likely to witness slowing growth but higher than the other emerging players.   

Potentially this dream can become a reality. There are, however, many hurdles to cross and risk elements to manage in order to maintain a consistent 8 per cent growth rate to get to this size in 30 years," said Rajni Thakur, Chief Economist, RBL Bank.

Notably, the Indian economy witnessed a growth of 4.1 per cent in the quarter that ended 31 March. For the entire year, it expanded by 8.7 per cent, slower than the centre's second advance estimate of 8.9 per cent.

India has already embarked upon this journey as various international forecasting agencies estimate India to be the fastest-growing major economy in FY 2023, despite the dampening growth outlook of other economies and the world as a whole due to the challenges arising out of geo-political developments and the emergence of new COVID variants in a few countries," said Pradeep Multani, President PHD Chamber of Commerce and Industry. 

A hopeful Multani believes that the government will continue with the plethora of stabilising and growth-oriented reforms in years to come to make this vision a reality. 

Also, the Indian economy has sharply rebounded as per provisional estimates for FY22, recording a growth of 8.7 per cent. The Reserve Bank of India (RBI) retained the real gross and domestic product (GDP) forecast for the financial year (FY) 2023 at 7.2 per cent.

Talking about the USD 30 trillion economy in 30 years remark, Prasenjit K Basu, Chief Economist, ICICI Securities said, "This is certainly possible and would require a compound annual growth rate (CAGR) of 7.9 per cent in nominal USD over the 30-year period. India’s GDP (measured in USD) in FY2022 was more than 10-times what it was in FY1994, so it took slightly less than 28 years for the latest 10-fold increase." 

Getting one step ahead of Goyal's predictions, Basu said that given accelerated growth, stronger productivity and broader employment, we should see a 10-fold increase in the next 25 years or less.

"It should be a reality within about 25 years, or even sooner if the labour reforms are notified and implemented quickly, generating a broad-based acceleration in employment across the economy, particularly in the manufacturing sector," Basu said. 

Meanwhile, putting everything aside, the economist believes that India first has to reach a USD 5 trillion economy target and then move to the next one. However, according to the International Monetary Fund's (IMF) latest data, the gross domestic product (GDP) of India will not achieve the target of USD 5 trillion before the fiscal year (FY) 2027. The data from IMF shows that India's nominal GDP may rise to USD 4.92 trillion in FY 2028.

"First, we are yet to hit the initial target of USD5 trillion. If the economy continues to exhibit positive growth every year, no doubt we will be there at some point in time. If this has to happen in the next 30 years, the economy will have to grow at around 7.5 per cent real growth every year, so shows back of the envelope calculations," said Indranil Pan - Chief Economist, YES Bank.

For Pan the target looks like a feasible number, however, he said that holding on to a 7.5 per cent growth year on year for the next 30 years appears to be a slightly far-fetched target. 

The economic growth in India will be powered by green energy, production-linked manufacturing, digital drive, Rs 145 lakh crore-plus infrastructure pipeline, agriculture and targeted incentives for micro, small and medium enterprises (MSMEs).

Thakur said that the lead sectors hence need to be constantly identified, pushed to maturity and rotated towards the next (or set of ) sector/s. At this point, the lead sectors have been identified, and most of the policy support is directed towards them, in form of PLIs or other support measures. 

"All sectors will have to contribute to the growth. Surplus workers will move from agriculture to manufacturing and services, thereby boosting productivity in all sectors. (Agriculture currently has excess workers, so moving some agricultural workers to industry and services will boost average productivity in agriculture – fewer workers producing higher output – while also boosting employment and productivity in other sectors, where the use of more capital, machinery and technology will boost productivity)," Basu added. 

Meanwhile, Pan said that the manufacturing sector has to take the lead this time as the previous growth momentum was on the basis of the services sector. Given the large labour force in India, we should look at the labour-intensive sectors to propel growth. 

For the agricultural sector, economists pointed out that it has seen sharp neglect over the years, with capital expenditure towards the sector being low.  India may be the largest producer of certain crops, but it lacks productivity. So,  the R&D-related activities can provide a boost.