India, a $5 Trillion Economy: Why It Matters?

Five Reasons Why it Matters Beyond Just Being a Statistical Milestone or Political Rhetoric.

Economic Context and Projections

In the Modi 3.0 Government, India is poised to become a $5 trillion economy by 2027. Currently, with a GDP of $3.94 trillion, India ranks as the 5th largest economy in the world. Based on the latest data and projections, India is expected to overtake Japan and Germany, positioning itself as the third-largest economy globally, behind only the United States and China. Analysts attribute India's rapid ascent to its strong economic growth trajectory of around 6-7% annually, driven by structural reforms, favourable demographics, rising entrepreneurship, and its position as a growing hub for services exports. If these trends continue, India could potentially reach a nearly $10 trillion economy by 2030.

Based on these projections, here are the five key reasons why becoming a $5 trillion economy matters for India and is not merely a statistical milestone or just political rhetoric to boast about:

a.) Higher Standard of Living and Increased Employment Opportunities

If the benefits of a $5 trillion economy trickle down effectively, it would mean increased per capita income and better living standards for the population. A rising tide should ideally lift all boats, translating to more employment opportunities, higher disposable incomes and consumption levels, and improved access to quality education and healthcare.

b.) Increased Tax Revenue and Borrowing Capacity

As the economy grows to $5 trillion, the government's ability to raise taxes will increase substantially. A larger tax base and improved compliance will boost revenue. This, along with a higher GDP, will also enhance India's borrowing capacity in both domestic and international markets, enabling greater investments in infrastructure, social welfare, and other key areas.

c.) Greater Influence in Global Trade and Commerce

The sheer size of a $5 trillion economy will give India much more clout and negotiating power on the world stage. India will have a stronger say in regional and international trade agreements, attract more foreign investments, and be in a better position to safeguard its economic interests globally.

d.) Robust Forex Reserves

A bigger economy and rising exports will help India build up its foreign exchange reserves, which act as a cushion against external economic shocks. Ample reserves will provide stability to the rupee, help manage the balance of payments, and improve India's global credit ratings and credibility and, hopefully, lead to full convertibility of the Indian rupee.

e.) Magnified Growth Impact

As the economy becomes larger, even the same GDP growth rate will increase the absolute output more significantly. For instance, 7% growth in a $5 trillion economy will add $350 billion, while in a $3 trillion economy it will add only $210 billion. So the compounding effect of growth is more pronounced in a bigger economy, leading to faster development.

End of the Beginning

Becoming a $5 trillion economy is not just a catchy soundbite, but a key milestone in India's growth trajectory with significant tangible and intangible benefits. However, the focus must remain on sustainability, inclusivity, and structural reforms to ensure this economic expansion is equitable and durable. Before our readers jump to the conclusion that we are acting as the PR-arm of the government and ignoring issues like "jobless growth" and "unequitable growth," stay tuned for our follow-up article¹ on what else needs to be done in managing the economy of the country to address these issues.

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