Posted by: by MDAE Posted on: 2019-12-23 18:00:47
The panel discussion held by Meghnad Desai Academy was to know whether India is still on track to be a 5 trillion dollar economy by 2024? The panel had prominent speakers such as Mr. Shantanu Sengupta, Mr. Mahesh Vyas, Dr. Tirthankar Patnaik and Dr. Niranjan Rajadhyaksha as the moderator.

The panel spoke about three essential pointers that lead to growth in GDP, which are consumption, investments, and exports.


Consumption in India is 60% of GDP. Accordingly, we can say that we are majorly dependent on consumption. In the past, consumption has had consistent growth, but it has started to decline in the last few quarters. 2004 to 2015 was a phase where there was high growth in consumption and inflation. Due to inflation growth, the real income of an average Indian did not grow. Urban and rural consumption has both dipped from 8% to 3% in the last few quarters. The panel is optimistic that consumption growth will pull back up as consumption depends on the sentiments of the people of India. Considering consumption has the largest share in GDP, it will play a significant role in making India reach the 5 trillion dollar economy mark.


Why have things gone wrong with investments in India?
-Investments have slowed down.
-Income in India is not growing.

If the people in the economy do not invest, no jobs will be created, which will lead to low incomes. Investments were growing between 2008 and 2009, but they declined remarkably by 2011-2012. The decrease in consumption dropped the asset utilization ratio; demotivated companies reduced investments; this also affected the NPAs as the revenues of companies were declining.

CapEx database to support the downturn of investments:

Investments in 2008-09 were around 27 trillion. As discussed before, there was a significant fall in investments. By 2012-13 investments weakened to 12 trillion. In 2014 Modi government came into power and introduced make in India, which boosted the investments back to 20 trillion. Now in the last few quarters, it has again come down to 12 trillion.

The trajectory of net fixed assets is almost similar to investments:

In 2008-09 the net fixed assets of the companies were 23%. It declined to 12% by 2011-12. It again increased to 13-14% till 2014 and now at only 5.6%. Therefore in real terms, the companies’ fixed assets are also shrinking.

Exports and the Global economy:

India’s exports were almost the same, even when the economy moved from 2 to 2.7 trillion. The panel believes that the world is becoming more inward-looking, and India has to depend on inward demand. Therefore increasing consumption and investments becomes imperative. They pointed out that India cannot do what china or other south Asian countries did in order to grow. Despite a global slowdown, a decrease in investment, and consumption, the export of services has had consistent growth, which shows that the companies must be doing something different.

How do we fund this?

India has been and still is a bank-funded economy. The market capitalization of tech companies is increasing. India gets its funding from sources like banks, equity, FDI, and FII’s. In order for India to grow, these channels need to work, but the proportion from where to get the funding from should depend on the most efficient use of capital, where the companies generate the maximum amount of returns. India should move to market funded models like America by increasing bonds into the market.

The panel’s views on where the government should concentrate its resources:

There should be a short term, midterm, and long term plan. The Short-term plan should delve into how to come out of this declining economy so that there can be a positive business environment. The mid-term plan should focus on how the government should boost investments in the country. The long-term plan should focus on how the government is going to achieve the demographic dividend. The panel also proposes that the banks should reduce their toxic assets by not lending to the well-connected promoters who default. NITI Aayog, a policy think tank of the Government of India should focus more on developing technologies. The government should ensure macroeconomic stability by maintaining exchange rates.

The global trade of Information and communications technology goods is 2 trillion, where 99% concentrated among ten countries. China holds 40% of the 99%. India should also get into manufacturing such technologies.

In Conclusion:

India arriving at a 5 trillion economy by 2024, is more of an aspiration. It might get close to 5 trillion, or even may go beyond 5 trillion. They understand that the same approach will not help us reach a 5 trillion economy. Technology will play a more prominent role than traditional methods. An increase in infrastructure and logistics will also play an enormous role. Investments will move from asset-heavy to asset-light models. The government should recognize and make policy changes by connecting supply chains example – education, developing skills on data science, A.I., Machine learning, etcetera. The only setbacks in growth could be surprises by the government like demonetization.

According to the panel, demonetization was a disaster as it led to labors exiting the market. Demonetization is one of the reasons responsible for high unemployment in India. Thirteen million discouraged workers left the labor force, which influenced the labor participation ratio to fall to 40%. The panel was very optimistic about India, eventually achieving its target of a 5 trillion economy.

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