What will it take to become a USD 5 trillion economy? All we need is Rs 500 lakh crore, according to Care Ratings. That's nearly five times more than the Rs 100 lakh crore worth infrastructure investments announced by the government last year-much before the COVID pandemic struck the global economy.
Amid a sharp growth contraction, fresh investments in infrastructure and manufacturing required to achieve the GDP growth would have to be progressively increased annually from Rs 43 lakh to Rs 103 lakh crore between FY21 and FY27, Care Ratings noted in its report on 'Rebooting Economy through Financial Market Reforms'.
Total investments during this seven-year period would be Rs 498 lakh crore. As a percentage, it amounts to 25 per cent of GDP.
Of the Rs 100 lakh crore infrastructure investment pipeline as per the NIIP, the central and sate government investments would be Rs 59 lakh crore during FY21 and FY25, while the rest of the infrastructure and non-infra investment would have to come from the financial sector such as banks, corporate bond markets, and by way of foreign capital.
Meanwhile, growth will likely turn positive in FY22, but GDP would touch the targeted USD 5 trillion mark only by FY27, two years later than initial projections. If it goes according to plan, annual average growth would be 11.6 per cent-much higher than the projected 8 per cent growth per annum for next 5 years. In FY19, India’s GDP stood at USD 2.9 trillion.
The economic fallout of the lockdown has been more severe than anticipated with GDP contracting 24 per cent in Q1-the lowest level on record. Consumption, the mainstay of the economy, weakened sharply aggravating the weakness.
While agriculture and allied activities would be growing at 3.8 per cent, industrial growth would be largely negative. Manufacturing, however, could turn positive in Q4 of this financial year aided by a low base effect.
Construction activity may contract by about 24 per cent in FY21 as private sector participation would be limited. Importantly, the housing sector would be under pressure due to a build-up of inventory and there would be limited traction, the report noted.
The decline in GDP growth would also be associated with a decline in investments as well as consumption growth that will be affected by lower income growth. The sharp fall in GDP growth in FY21 would, however, provide the cushion of a faster pace of growth in FY22 depending on the rate at which various sectors increase their output.