Macro-economic numbers, $5-trillion GDP target to undergo revision

India’s target for a $5 trillion economy will be reset as Covid-19 has worsened the prospects of an already slowing economy, which dipped to an 11-year low of 5% in 2019-20. The exercise will be undertaken after the crucial April-June quarter economic growth numbers that are expected on August 31 will be out.

The earlier target for India to reach $5 trillion was the year 2024-25. The size of India’s economy, at present, is $2.8 trillion and to reach $5 trillion, India needed a growth rate of nearly 12% in nominal terms and 9% in real terms.

However, with the economy expected to contract sharply this year, the size of the GDP will also shrink and consequently the tax to GDP ratio will fall from the current 16%.

The government will also undertake a mid-term revision of the economic growth numbers for the current financial year 2020-21, its tax collection target, deficit expectations and the rate of inflation it foresees for the year ending March 31, 2021.

The government is also expected to reset the new short and medium-term growth targets up to 2025-26 as it looks highly impossible for the economy to take a sharp upturn from a deep contraction expected in the April-June period this year.

“We are waiting for the first-quarter numbers. The growth estimates, revenue collection, deficits and inflation target for the whole year will accordingly be revised,” said an official privy to the development.

He said the government has been in discussion with the Reserve Bank of India and the Niti Aayog on a mid-term revision of all macro-economic targets. This year has been an exceptional year due to the virus outbreak.

Another official said while the mid-term economic targets will be reset after the first quarter numbers, those of $5 trillion economy will depend on how early the vaccine for Covid-19 is discovered.

Yet another official, on conditions of anonymity, said it may be difficult for India to reach $5 trillion in the current decade.

Estimates of the gross domestic product (GDP) decline in 2020-21 vary from 1% to over 15%. While International Monetary Fund projects a sharp contraction of 4.5%, the World Bank has said, it will project a deeper than 3.2% contraction when it revises the outlook in October.

Various private estimates have suggested a sharper decline.

The RBI has not given any number but has said the economy will contract this year. The government has not said anything officially till now but Prime Minister Narendra Modi has gone on record to say that he sees green shoots of recovery in certain sectors.