New Delhi: The Indian economy will become the third largest in the world and cross the $5 trillion mark by 2027-28, Finance Minister Nirmala Sitharaman said Wednesday, in a departure from the Modi government’s earlier target of 2024-25.
This is also a year later than what the International Monetary Fund (IMF) predicted.
“It is believed that we will surely be able to reach the third-largest economy goal about which the Hon’ble Prime Minister has been speaking with a good sense of confidence,” Sitharaman said while speaking at the Vibrant Gujarat Summit in Gandhinagar Wednesday.
“That is because the people of India have met the challenges post-COVID and have built the recovery on a strong footing,” she added. “Therefore, it is possible that we will be the third-largest by 2027-28 but also that our GDP will cross $5 trillion by that time.”
The finance minister said “it is a conservative estimate” that India’s economy would cross the $30 trillion mark by 2047, the year that marks 100 years of India’s independence.
Sitharaman’s deadline of 2027-28 runs contrary to what various ministers in the Modi government — including Prime Minister Narendra Modi himself — have said in the past. As recently as last month, Home Minister Amit Shah vociferously said India would be a $5 trillion economy by the end of 2024-25.
Modi had made the same claim in 2018. This, of course, was said before the COVID-19 pandemic and the resultant contraction of the Indian economy in 2020-21.
The truth of the matter might lie somewhere between Modi’s target and Sitharaman’s. The IMF estimates that the Indian economy will hit the $5 trillion mark in 2026-27.
Calculations by ThePrint confirm this. The first advance estimates of GDP for 2023-24 released by the Ministry of Statistics and Programme Implementation earlier this month peg India’s nominal GDP at Rs 296.6 lakh crore. At current exchange rates, this works out to $3.57 trillion.
The economy would have to grow at a nominal rate of about 40 percent if it has to end 2024-25 at $5 trillion — a near-impossible task.
To reach $5 trillion by Sitharaman’s target of 2027-28, the nominal growth rate would have to be 8.76 percent every year till then — significantly slower than the about 11 percent average post-COVID nominal growth rate India has seen.
If India maintains that growth rate, or even a somewhat slower one, it should reach the $5 trillion target before 2027-28.
The other variable in this is the exchange rate. If the rupee depreciates rapidly over the next few years, it could push back the date by which the rupee value of India’s nominal GDP translates to $5 trillion. On the other hand, an appreciation in the value of the rupee would bring that date forward.
(Edited by Gitanjali Das)
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