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Making India poverty free: Did the Government underestimate GDP growth?

For the government to eradicate poverty by 2032, India will need to grow at 10% nominal GDP, but this will involve radical reform instead of incremental reforms

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Ishan Bakshi New Delhi
On Thursday, Niti Aayog CEO Amitabh Kant said India would become a $10 trillion economy by 2032. Kant made the projection assuming that growth would average 10% over the 16-year period.
 
But did he underestimate India’s GDP growth?
 
In 2014, India’s GDP at market prices (current USD) was $ 2.04 trillion according to World Bank data. Now, advance estimates by the Central Statistical Office (CSO) put GDP growth at current prices at 8.6% for FY2015-16. This takes India’s GDP to $2.21 trillion in FY2016.
 
So if GDP growth averages 10% in nominal terms (real growth plus inflation) over the coming 16 years, India would then emerge as a $10 trillion economy by 2032.
 
 
But nominal growth is likely to be higher than Kant’s estimate. Assuming that real growth averages 8% over the period and inflation ends up in the 4-5% range, nominal growth would then average 12-13% over the entire period. At the lower end of the growth spectrum, this would translate to a GDP of around $13.6 trillion by 2032. Obviously these estimates will be affected by how the rupee fares against the dollar over the period.
 
If however the economy grows at 10% in real terms over the entire period and inflation stays in the range of 4-5%, then nominal growth will edge upwards to around 14-15%. This would translate to a GDP of around $18 trillion by 2032, significantly higher than the government's estimate. 
 
But the real challenge is to maintain an 8%-plus growth trajectory over the coming decades. China is the only country that has managed to grow at over 8% consistently over three decades. Its growth rate averaged 10% from 1982 to 2012. Matching the famed Chinese growth, however, will require far reaching reforms. It will involve radical reform as opposed to the policy of incremental reforms being pursued by the government.

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First Published: Apr 22 2016 | 2:38 PM IST

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