The politics of a $5 trillion economy

The politics of a $5 trillion economy

Speaking to ET, PM Narendra Modi was confident the economy would recover fast from the Covid slump, and, indeed, of building a $5 trillion economy by 2024.

Considering that the economy would likely attain the 2019-20 level of $2.7 trillion only by the end of 2021, after this year’s negative growth on account of the pandemic and associated economic lockdown, hitting $5 trillion in three years would require the economy to grow by more than 22% a year.

Since that growth is required in dollar terms, real growth of 12%, accompanied by rupee appreciation against the dollar by 10% a year, can achieve that. That would be growth as in China’s heyday without China-like currency depreciation. Impossible? Certainly not. But managing that growth calls for Herculean effort and determination.

After having laid power lines to rural areas and built motorable roads connecting villages to towns, India is on the cusp of a food-processing revolution, which could not just raise the share of manufacturing in GDP but also significantly raise agricultural output and farmers’ incomes, besides ridding food prices of extreme volatility.

That potential is thwarted by a bankrupt power sector. Fixing that problem calls for political firepower, not financial engineering or a new law. Patronising power giveaways and power theft that takes place under the cover of power giveaways is what makes distribution utilities accumulate rising dues to generators, bankrupting the entire sector. Politics must decide to stop tolerating power theft or giveaways unsupported by subventions. A thriving debt market must be put in place to fund long-gestation infrastructure projects. Industry must cease to have easy pickings from inflated project costs that banks willingly finance, and must compete with the world’s best.

Industry must learn to look beyond the low-hanging fruit and acquire global ambition. That is essentially a question of changing the political culture and resultant policy. This political reform must not be neglected in all the focus on economic reforms.