Can India realistically become US $5 trillion economy?

Any nation, developed or developing, carries the accountability of building a sustainable future for its citizens by upholding the environment, maintaining culture and supporting a stable, growing economy. Rapid globalisation has changed the economic structures of developing and developed nations through innovation, increased communication and technology. The model set by the Modi 1.0 and 2.0 governments in particular, has brought about a defining, positive reform process for India's economic stabilisation. India's model aims at resolute economic growth. The Narendra Modi-led NDA 1.0's aggressive push for industrialisation and schemes to bolster several sectors have induced rapid growth. In particular, India focused on cash crops, natural resources, renewable energy, small businesses, entrepreneurship and public capital investment.

However, there were several factors that hindered stable growth and will pose a challenge to growth over the next five years. For India, these factors are monsoon and unpredictability in oil.

Monsoon

The Indian economy is indispensably linked with our monsoon because of water resources. Most of the country gets over 75 per cent annual rainfall in just three to four months which impacts agriculture, in particular, grain crops (legumes, wheat etc). Hydro-electric power also makes up a significant portion of power usage in India. Generating renewable energy from water is especially lucrative for India because monsoon is a consistent season in India even though the amount of water fluctuates. Speaking of which, over the past five years, the economy has faced hard luck in terms of monsoon. Water potential and wind power directly impact the Indian economy. Wind power is used to generate electricity and even to draw water. As for rainfall, the Modi-led NDA's first term was hit by drought, floods or pointedly less rainfall in comparison to previous years. In this time, the population also exploded to 1.3 billion people. The population has increased at a much faster rate than grain production. If this trend continues, India will face a very serious economic crisis.

At the end of the day, we are all hoping for stable and necessary rainfall over the next monsoon season so that the economy can also stabilise in this regard. Additionally, in order to offset shocks from potential years of drought and/or floods, PM Modi can take several steps. The first is to create mechanisms for mass water storage from unused monsoon water in places of largescale irrigation and where hydro-power is generated. A system should be devised where not a drop is wasted. This is especially important because PM Modi has assured to double farmer incomes and this year's Budget depends expressively on agriculture to boost the economy. Simultaneously, one can see the crisis associated with no water in Chennai, for example, over the past four months. The government has also paid farmers during past droughts which puts fiscal deficit under stress. Food accounts for approximately half of India's consumer price index. Therefore, droughts and floods also raise prices on crop which requires more government spending on welfare. Another step PM Modi should take is utilising technological innovation in cultivation and transportation of agriculture. Technology should also be used with more focus in things like soil testing, water allocation and water management. Agricultural innovation should be encouraged and used with full force as well.

Oil

The precariousness of oil prices is a major destabilising factor for the Indian economy. It proves especially poignant for India who imports a significant portion of our oil. Most recently, India has lost 11 per cent of its oil from Iran when we agreed to comply with US sanctions. Oil volatility can lead to large deficits and can force the government to spend money on energy instead of allocating to other necessary areas (water, schemes to help poor, etc). Therefore, it is necessary to build shields to offset volatility shocks over the next five years. There are several methods to do this. PM Modi should focus on more active derivative financial and commodities markets with oil products. This will help India reduce dependence for oil imports and would also bring discipline to the oil market. Another suggestion would be to strengthen the rupee. This would help deflect the surges from oil import bills which are inelastic in nature.  Inelasticity in this case refers to consumer buying habits remain unchanged regardless of the price of oil increasing or decreasing.

As a rapidly growing economy over the next five years, it is high time that India understands and acts to buffer the severity of oil prices; especially in light of US sanctions on oil producing countries that India receives exports from. Oil volatility can destabilise our economy and also has the potential to disrupt the global economy by causing a precipitous inflation. If the above measures are implemented, India would be able to not only cushion oil volatility shocks, but also reduce volatile oil prices to a sustainable, predictable level.

Conclusion

Despite these imponderables, India is still well on its way to become a US $5 trillion economy. The development of the energy market will be a determining factor of how fast we reach the target, as will employment generation, water management and sustainable growth. The good news is that PM Modi has placed immense importance on all of these areas respectively.

The number of government job vacancies are expected to grow in the next year through schemes involving industry and government (ie. Sagarmala Port project, road, railway infrastructure across the country, development in the Northeast, etc). A water ministry has already been implemented and there are multiple schemes for environment sustainability. PM Modi's increased focus and expansion on already existing on healthcare (Ayushman Bharat) and education schemes (Beti Bachao, NEP 2019, etc) aim to alleviate overpopulation in the next decade. Now it is up to citizens to also actively join forces with the government. If we work to conserve water, develop innovation (especially in agriculture, renewable energy) and clean up our environment, why just a five trillion economy? We can achieve a ten trillion dollar economy in less than five years.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)