The Economic Survey doesn’t support PM’s conviction that we are on track to achieve a $5 Trillion economy 

The Prime Minister on Thursday welcomed the Economic Survey and voiced his hope that India is well on its way to become a $5 trillion economy by 2024. The ground reality does not support such optimism

Representative Image (PTI)
Representative Image (PTI)

Vivian Fernandes

India should become a five trillion Dollar economy by 2024, when his government’s term ends, Prime Minister Narendra Modi said in his opening remarks at NITI Aayog’s governing council meeting on

June 15. The goal was “challenging but achievable,” he said if states joined hands. India currently is a Rs 190.5 lakh crore or a $2.72 trillion economy. To achieve the Prime Minister’s ambition, the value of goods and services produced in the country over the next five years must see an 84 per cent increase, compared to a 53 per cent increase achieved over the past five. GDP must grow by about 15 per cent a year in nominal terms (or prices not adjusted for inflation), as against an average annual growth rate of 10.89 per cent over the past five.


In 2018-19, the economy grew at its slowest pace in the past five years – 7 per cent after discounting inflation. The gloom was manifest in passenger vehicle sales. In April, their sales growth declined by 17 per cent, the sharpest fall in eight years, the Society for Indian Automobile Manufacturers said. Within the segment, sales of passenger cars declined by nearly 20 per cent over April 2018. Passenger vehicle sales grew by 2.7 per cent last year, the slowest in five years. The decline was pretty steep compared to growth in the previous two years. The industry body said the decline continued in May, though it did not say by how much. The biggest car maker, Maruti, saw its sales fall by 22 per cent in May, compared to the same month last year. In the last financial year, the company’s sales volume had fallen by 17 per cent. Commercial vehicle sales grew at nearly 18 per cent – lower than the previous year, but respectable. An overall demand slowdown, however, will affect the segment. Sales of consumer staples have also entered the slow lane. Market research agency Nielsen India said in a report it expected a 2-3 percentage points decline in their sales value and volume during this calendar. Urban demand is likely to be less dented than rural, which has seen a pronounced slowdown since July last year. The trend is likely to worsen if the monsoon is deficient or not well spread out across the rainy months. Sales volume growth at Hindustan Unilever dropped to 7 per cent in the first quarter of 2019 compared to a growth of 11 per cent during the same quarter last year. Dabur saw its volume grow by 4.3 per cent, slower than the year-ago quarter. Similar declines were seen at Godrej Soaps, Britannia, Bajaj Consumer Care and Marico. “You can’t say FMCG is recession proof, but it is recession resistant,” Hindustan Unilever Chairman Sanjiv Mehta said during a press briefing after the March quarter results were announced. “People don’t stop bathing or cleaning their teeth when conditions become tough. What happens is the number of brands in a family gets reduced – instead of using larger packs they shift to more price-point packs. That’s the kind of shift that happens,” he said. A recession In the United States is defined as two successive quarters of negative growth. But the US is a large, $19.48 trillion economy (2017) which cannot be expected to grow as fast as India. Its growth rate was 2.9 per cent in 2018 and 2.2 per cent in 2017. After being used to double digit growth in the last decade, a rate below 6 per cent in India feels like a stiff contraction. In the January-March quarter of this year, it was 5.8 per cent, which is perhaps why Mehta used the ‘R’ word.


This is a continuation of what we have been feeling over the past five years. Though the government has been claiming that India has been the fastest growing economy, the growth figures have not been validated by felt experience. To claim that the economy grew at 8.2 per cent in 2016-17, the year of Demonetisation, seems quite incredible. Many economists and bankers have been saying that the figures need to be independently vetted. Arvind Subramanian, the former Chief Economic Adviser, says, in a working paper published by Harvard University’s Centre for International Development, that India’s growth may have been over-stated by 2.5 percentage points on average since 201112. He bases his findings on 17 parameters like electricity consumption, vehicle sales, railway freight traffic, index of industrial production and credit growth which are positively correlated with growth. On this basis, he revises India’s average annual growth rate in this decade from 7 per cent to 4.5 per cent, which according to him, is an economy growing “solidly but not spectacularly.” An average growth rate of 4.5 per cent from mid-way through Prime Minister Manmohan Singh’s second term in office is not solid, it is a disaster. Contraction of that magnitude would have been acutely felt. It is possible that Subramanian has overstated the gloom. Economists have pointed out flaws in his study but even they are agreed that growth in this decade was not furious but faltering.


This is reflected in unemployment data. After withholding for six months the findings of the Periodic Labour Force Survey conducted every five years, the government released it a day after the Prime Minister’s swearing in ceremony. It confirmed the data leaked in Business Standard in January. The unemployment rate at 6.1 per cent in 2017-18, the year of the survey, was the worst in 45 years. This is the share of persons above 15 years who are out of work. The survey also said that the Labour Force Participation Rate was a low 36.9 per cent. This is the proportion of working age people who are actively looking for jobs or those employed and want to upgrade. A low rate means unemployed people are not looking for jobs for, say, cultural reasons in the case of upper caste Indian women or because they perceive the chances of getting one are slim. The Centre for Monitoring Indian Economy (CMIE), an independent, Mumbai-based, private research organisation, says the unemployment rate between January and April was 6.87 per cent. This survey is more granular than the official one. It is continuous and conducted daily over a four-month period after which it is repeated. Though the Prime Minister and his party put economic issues on mute during the Lok Sabha election campaign and won a sound majority on emotional themes, they know they cannot ignore the narrative of livelihoods. As a sign of earnestness, the government had cut the rate of contribution of employers and workers to Employees State Insurance from 6.5 per cent of wages to 4 per cent. This is expected to impact 3.6 crore employees and 12.85 lakh employers and reduce their cost by about Rs 8,000 crore a year. It might also spur the conversion of unorganised enterprises into formal ones. Labour reforms allowing companies with a larger number of workers to close down without seeking prior government permission, and reducing the number of compliances – are also on the anvil. When Prime Minister Atal Behari Vajpayee attempted them in 2001, there was stiff opposition. With a solid majority in the Lok Sabha, and given his wide popularity, the Prime Minister should be able to push them.


The banking sector, particularly public sector banks, continues to reel under the burden of bad loans. The ratio of these loans has increased from 4.3% of total loans at the end of March 2015 to 11.5% in March 2018. It moderated to 9.3% as of March 2019. The stressed banks do not have enough capital cover to lend; they are in debt recovery mode.

The government also does not have the fiscal space to recapitalise them. In his July 2014 budget speech, the Finance minister said the fiscal deficit would be reduced from 4.5% of GDP in 2013-14 to 3% of GDP by 2016-17. The government has been unable to meet the target despite disinvestment ploys like the state-owned ONGC buying the government’s controlling stake in another state-owned company, HPCL, or Power Finance Corporation doing the same in Rural Electrification Corporation. The (interim) budget announced in February set this year’s fiscal deficit target at 3.4%, the same as last year. With the economy faltering, it is doubtful whether the government will achieve it. Its tax revenue should grow at 14%, which seems stiff, given last year’s 20% growth rate. The tax department might try third degree methods but they will be counter-productive.

Since the government is constrained fiscally and cannot invest to the extent necessary, it has no option but to unleash the animal spirits of private enterprise. Privatising some of the state-owned banks would make a strong statement of intent and buoy investor confidence. State owned banks have a 70% share of the market which is too high. So long as the government is in control of banks, there will be a tendency to direct loans to cronies in return for campaign finance. The government has so far invested ₹3.5 lakh crore in banks, about ₹2 lakh crore in the last two years alone. Putting in more government money will not be prudent, nor will it change their behaviour unless their ownership structure is changed.

The Prime Minister and his party put economic issues on mute during the Lok Sabha election campaign


Air India is soaking up taxpayer’s money with little to show for it. In 2017-18, it made a loss of ₹5,348 crore on top of the ₹6,453 crore loss made in the previous year. It had accumulated losses of ₹59,914 crore at the end of the March 2018. The presence of a subsidised player is affecting the health of nimble private carriers. Air India’s Managing Director Ashwani Lohani has written in a recent article that “governmental systems are ill-suited for running… an airline business that is very high on competition, regulation and technology yet has very thin margins that have a propensity to vanish with the slightest flutter in fuel prices.”

The government could deploy the money that keeps Air India afloat more profitably in enterprises like the Railways that are crying out for investment. The Railways themselves need to become more competitive. They must be corporatised and run as a business enterprise with the ministry concerned only with policy aspects. Private players should be allowed to lay rail tracks and operate trains. The non-core activities like production of locos should be privatised.

The power sector has been afflicted with about ₹1.8 lakh crore in bad loans. This has been caused by a weak economy, lack of fuel linkages and loss-making distribution companies unable to pay the power producers. The government has tried financial engineering, but improvement in billing efficiency, which was a precondition for permitting the states to take over part of the losses by issuing bonds, has not happened. India experiences the paradox of rural areas going without power for long hours while power plants are working at about half their capacity


No country can power its way to growth if exports are weak. Last year, India exported goods worth $331 billion which was a 5% increase over the peak of $314 billion achieved in 2013-14. While the global trade environment has deteriorated and there may be more trouble from the United States, India has also slid from the purpose of making the economy more competitive. It has instead increased tariffs on a range of produce to encourage Make in India. This will not boost exports.

The government’s ideological priorities have hit labour-intensive exports. The vigilantism of the gau rakshaks has affected the cattle trade and the supply of hides to the leather and footwear industries. It has also hurt buffalo meat exports, where India ranks No. 1. Exports have declined from 1.45 million tonnes ($4.35 billion) in 2013-14 to 1.23 million tonnes ($3.61 billion) in 2018-19. This has implications for the rural economy.

Agricultural exports have also declined from a peak of $42.6 billion in 2013-14 to $34 billion in 2017-18. This is partly explained by the decline in global commodity prices but the government’s restrictive policies on agricultural marketing are also to blame.

Overall, there is a need to revive the investment rate which has fallen from a peak of 34.3% of GDP in 2011-12 to an average of 29% over the past five years. Prime Minister Modi has been very good at marketing himself as the election results show. But people also expect him to deliver. Apart from making it easier for people to do business, he will have to ensure social harmony and enlist the cooperation of non-BJP ruled state governments. Otherwise, the goal of making India a $5 trillion economy will have the same hollow ring as the goal of doubling farmers’ income by 2022.

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Published: 1 Jul 2019, 4:09 PM