India $5 trillion-economy goal (reminds of BRIC report)

Suddenly, there is lot of talk about making India a $5 trillion economy. The focus of Economic Survey 2018-19 was around this theme.

Here is a Mint piece which says why this goal is a dangerous distraction. First, most people do not understand what 5 triliion means. Second, it is a much better idea to say you wish to improve lives of people.

a bevy of economists and analysts have started a “debate” on how best to achieve this target. Unfortunately, this is, in our judgement, an entirely misguided and problematic exercise.

The crux is this: The IMF’s projection and Modi’s goal for GDP is stated in terms of nominal US dollars. In other words, the size of India’s economy as measured by the value of the dollar that will prevail in 2024. While statistically valid, this is an economically meaningless construct, at three removes from what average Indians care about—real rupee GDP per capita. Ask: In 2024, will an ordinary middle-class Indian be revelling in the fact that his country’s economy is worth close to $5 trillion, or will he be asking what is the purchasing power of his own income in rupees? Clearly, the latter affects his and his family’s life prospects, not the former.

So, who gains from a $5 trillion economy? Evidently, large Indian multinational firms, or high net-worth individuals looking to invest abroad, or deep-pocketed foreigners looking to invest in India may benefit from India’s larger aggregate dollar footprint. None of this is of any concern to the well-being of the average Indian.

Not sure about the last para. If India becomes $ 5 trllion, people will benefit though the gains will be unequal.

Then they point how GDP calculations are problematic while looking at Dollar values.

In a way, the $ 5 trillion target reminds one of Goldman Sachs’ BRICS report released in early 2000s. The report argued how the BRIC economies (Brazil, Russia, India and China) will become leading economies of the world in terms of aggregate GDP. However, it one saw per capita GDP, the BRIC lagged way behind the developed world.

The report’s forecast obviously lost its way post-2008 crisis. Brazil and Russia ran into all kinds of political and governance problems. China after recovering from the 2008 crisis is seeing slowdown and a potential financial crisis. India is the loner here which has muddled its way out of the several crises though the brewing banking and non-banking crisis is testing the potential.

A better goal would be in terms of per capita and that too in national currency (in Rupees here) as people understand it much better.

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