The $5 Trillion Economy Dream
Modi 2.0 has set for itself the goal of virtually doubling the size of the Indian economy to $5 trillion by by 2024. Will we get there?
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Finance Minister Nirmala Sitharaman, in Union Budget 2019, laid down the contours of the government’s plan to make India a $5-trillion economy. PM Narendra Modi, speaking to BJP workers in Varanasi, his Lok Sabha constituency a day after the Budget explained the ‘why’ and ‘how’ of making India a $5 trillion economy over the next five years.
“The size of the cake matters. The bigger the cake, the bigger the share of everybody in it,” the PM said. “This is the reason behind our objective of making India a $5-trillion economy, which would increase the per capita income of people, which, in turn, would increase their purchasing power, demand and production, and trigger job growth.”
Steps like making India a manufacturing hub for solar panels, photo-voltaic cells, and e-vehicles would ultimately lead to a wider use of e-vehicles and solar panels which would reduce India’s oil bill. “We spend Rs 5-6 trillion to import petrol and diesel every year. It will strengthen India’s economy if this expenditure comes down with the use of solar power, wind power,” the PM said.
The Budget has made provisions for boosting farm and fisheries exports, making Rs 1,00,000 crore investment in infrastructure such as roads and ports in the next five years, constructing houses for all, promoting domestic manufacturing and cutting imports.
Says Deepanshu Manchanda, Co-founder and CEO, ZappFresh: “At ZappFresh, we work directly with livestock farmers and fishermen. We are extremely confident that the schemes introduced by the government towards the welfare of farmers and fishermen will contribute significantly to their growth in coming years.” He hails the ‘zero budget’ farming scheme announced in the budget as a great move wherein farmers can benefit through modern farming methods involving zero credit for agriculture and zero use of chemical fertilisers. “These measures will double the farmers’ income in future. Setting up of 10,000 new farmer producer organisations will also empower the farmers,” says Manchanda. The industry also hails the launch of the Matsya Sampada Yojana and promotion of aquaculture through easy credit access as steps aimed at making India a major source of fish and aquatic produce.
While the country is self-sufficient in food grain, the Budget emphasises on turning farmers into exporters of farm produce and value-added products. The government’s effort on cleanliness will boost tourism, which is the cheapest form of creating employment, Modi said.
Vivek Karve, CFO, Marico, a leading FMCG player says the finance minister has allocated substantial budgets for agriculture, rural, women, education and physical infrastructure. “The focus has been on the belly of the country comprising small and medium businesses and the middle class. These, along with some of the measures proposed to infuse liquidity in the economy, are expected to restart the growth engine and provide the much needed fillip to consumer demand in the country.”
Sunil Kumar Sinha, Principal Economist and Director – Public Finance from India Ratings and Research (Ind-Ra) says although the Union Budget FY20 highlighted the need for an investment of Rs 100 trillion in infrastructure over the next five years, Ind-Ra believes the budget has not announced enough measures to stimulate private sector investments.
Sinha, however, lists a few announcements made by the budget as “steps in the right direction”. These include recapitalisation of banks to the tune of Rs 700 billion, setting up of Credit Guarantee Enhancement Corporation in FY20, the action plan put in place to deepen the market for long-term bonds with 2 per cent interest subvention for all GST registered MSMEs, and the purchase of high-rated pooled assets of financially sound NBFCs up to Rs 1 trillion during FY20 with a one-time six-month partial credit guarantee by the government for losses up to 10 per cent, among other things. “Ind-Ra, though, believes these measures will not have any significant positive impact on the private corporate sector investment, which has now been languishing for several years,” says Sinha.
The Budget fine print also talks about new categories of people who will now have to mandatorily file their tax returns. These are typically those who carry out high-value transactions and include people whose annual electricity consumption bill exceeds Rs 1 lakh; who undertake foreign travel for self or someone else and spend Rs 2 lakh or more; deposit an amount or an aggregate of the amount exceeding Rs 1 crore in a current account. With these new category of taxpayers coming under the income-tax net, the finance minister has indeed set the tone for the changes in the personal income tax space in the coming months.
Mohit Malhotra, CEO, Dabur India described the Budget as a “mixed” package. “Overall, I feel, it’s a mixed Budget. The government has certainly set an ambitious target of growing India into a $5 trillion economy by 2024-25, but the big, bold structural reforms needed to create an enabling framework are missing,” says Malhotra.
Experts say India Inc was looking forward to a fiscal stimulus to boost economic growth and lead to a resurgence of the rural economy. “However, those big, bold steps were missing,” says Malhotra, adding that the decision to hike duty on petrol and diesel was an “area of concern” as it may lead to fuel inflation.
Push for Aviation, Railways
The finance minister said that as India was the world’s third largest domestic aviation market, the time was ripe for it to enter into aircraft financing and leasing activities from Indian shores. She said for providing an enabling ecosystem for the growth of the maintenance, repair and overhaul (MRO) industry in India, the government proposed to leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment. She declared that the government will adopt suitable policy interventions to create a congenial atmosphere for the development of the MRO industry in the country.
Commenting on the announcement, Palash Roy Chowdhury, Chairman, AMCHAM Civil Aviation Committee and Managing Director – India, Pratt & Whitney said: “We welcome the government’s intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much-needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime. This will not only boost the local MRO industry but also contribute to the government’s tax revenues.”
Directing her attention to the Indian Railways, Sitharaman said that it is estimated that railway infrastructure would need an investment of Rs 50 lakh crore between 2018-2030. Given that the capital expenditure outlays of Railways are around Rs 1.5 to 1.6 lakh crore per annum, completing all sanctioned projects would take decades. “It is, therefore, proposed to use public-private partnership to unleash faster development and completion of tracks, rolling stock manufacture and delivery of passenger freight services,’ she said.
Sitharaman added that in order to take connectivity infrastructure to the next level, the government will build on the successful model in ensuring power connectivity — One Nation, One Grid — that has ensured power availability to states at affordable rates. She proposed to make available a blueprint this year for developing gas grids, water grids, i-ways, and regional airports.