India Will Become a US$ 10 Trillion Economy

India Will Become a US$ 10 Trillion Economy

 

I find the US$ 5 trillion debate a bit strange.

India will inevitably become a US$ 10 trillion economy. So we will obviously pass US$ 5 trillion along the way.

The numbers are very simple really. If you hated maths in school, feel free to skip ahead to the part about Nirmala Sitharaman.

The size of our economy is US$ 2.8 trillion. To get to US$ 5 trillion, we need to grow by 78.5%.

To achieve this in 5 years, we have to grow by 12.3% annually.

To achieve this in 10 years, we have to grow by 6% annually.

I've put those 2 sentences in bold because I want to come back to them.

Note here, I'm talking about 'nominal' GDP i.e. inflation + the 'real' GDP you read about in the newspapers.

So let's quickly break this down. It's simple enough...

India's annual inflation target is 4%. The RBI has done a good job so far on this front. It's about 3% now.

You may have read about India's real GDP growing by just 5% in the last quarter. Now 5% is not bad per se. It's just that we would all like 8%+ growth.

So...

5% real GDP growth + 3% inflation = 8% nominal GDP growth.

Is this good or bad?

Well, it's about mid way.

Go back to those 2 bold sentences. 8% is right between 12.3% and 6%.

What does this mean?

It means, at the current growth rate - which no one is happy about - India will become a US$ 5 trillion economy in 7 to 8 years i.e. by 2026-27.

And we will become a US$ 10 trillion economy in 16 to 17 years i.e. by 2035-36.

There's nothing wrong with this but remember two things...

The government wants to achieve these targets sooner.

Our economy's growth rate currently is slower than what we can achieve as a nation.

And this brings me to...

Nirmala Sitharaman has the Worst Job in India

As a rule, I distrust all politicians. This rule has served me well in life.

But I think our Finance Minister is a good person.

Her heart seems to be in the right place and she does seem to care about the problems in the economy.

Unfortunately, she's new to her job.

Imagine a new employee in a large corporation. This new employee won't be handed any big responsibilities on day 1. She is expected to learn the ropes.

But India's FM was expected to hit the ground running and be responsible for a US$ 2.8 trillion economy which was already slowing.

They say the two hardest jobs in India are the captain of the Indian cricket team and the Finance Minister.

Honestly, I thought she would find the job difficult at first. I was right.

But it hasn't taken her too long to hit her stride...four months was all it took.

Today's newspapers are full of praise...and she deserves it.

I must say, she has surprised me...but in a good way. I never thought taxes would come down...but they have.

The stock market has already rewarded her decisions. The Friday rally on the bourses was truly historic.

I hope it's just the beginning of more reforms to come. We must not lose momentum.

What About the Slowdown?

Tax reform is a very important step in our journey to a US$ 10 trillion economy but it's not the only one.

I'm neither naive nor a cheerleader of the government.

But I've no doubt we are on the right path.

I'm glad people are talking about how the government is either improving their lives or not. It's far better than the conversations of earlier generations.

The role of the government, in the lives of ordinary people, used to be limited to periodic doles at the time of elections.

That's not the case anymore.

Step back and take a long-term view of what's happening in the country. You will see a very different picture to the one presented by the media.

The daily negativity will disappear and you will see hope in the eyes of ordinary people who are making better lives for themselves.

How the aam aadmi is increasing his income.

I want to write to you about specific examples of how and why I think the slowdown in our economy is temporary.

I want to share with you what see in my mind when we are a US$ 10 trillion economy.

It's not all milk and honey of course.

But it's far far better picture than the one I see now...and I look forward to it.

Until next time...

 

By Tanushree Banerjee

(5 Minute Wrap)

Happy Investing