Nation's real GDP to touch $2.5 tn by 2021: study

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SME Times News Bureau | 09 Jan, 2012
India’s real GDP is expected to touch USD 2.5 trillion over the next 10 years by 2021 from the current level of around USD 1 trillion, said a study on “Growth Prospects of Indian Economy: Vision 2021, Trillion dollar growth opportunities” conducted by PHD Chamber Research Bureau.

Exports of goods and services are projected to expand to USD 1500 bn in the next 10 years by 2021, while the average current account deficit would be less than (-)1 percent of GDP. The average WPI inflation is projected to remain within 5-6 percent trajectory, while the gross fiscal deficit is estimated to remain within 3-4 percent of GDP during the next 10 years by 2021.

It said, "India’s real per capita income is estimated to double by 2021 from the current level of USD 900 to USD 1800."

The strong macroeconomic fundamentals like savings, investments, and per capita income are growing strong and would drive the further growth prospects said PHD chamber in press statement today.

Notwithstanding that in the near term real GDP growth is expected to moderate at around 7.4 percent-7.7 percent in FY2012, it is projected to enter higher growth trajectory in the next few years. The real GDP is estimated to achieve an average growth of 9.3 percent in the next 10 years by 2021. The real GDP growth during 1990s and 2000s was 5.7 percent and 7.3 percent, respectively, said the study.

Despite the fact that the slowdown in the advanced economies coupled with domestic economic challenges like high inflation, high borrowing costs, and slowdown in industry scenario have strained the growth momentum in the near term, India has emerged a leading economy in the world economic system said Sandip Somany, President, PHD Chamber.

Going ahead, India’s so called “demographic dividend” would place it among the high growth fast moving economies in the global economic order. India will grow at double-digit growth rate by the later part of 12th Five Year Plan, the Chamber release said.

Infrastructure sector has a huge untapped potential and it will be the main driving force for higher economic growth, going forward. India will be spending around 9-10 percent of GDP on infrastructure during the 12th Plan period as compared with 7-8 percent of GDP in the 11th Plan period, said Mr Somany.

Higher growth in infrastructure sector will provide huge employment opportunities, which in turn will boost consumption growth in the higher trajectory and enhance the production possibility frontier.

However, the inflation risk on account of both global developments and weak supply responses to increasing demand in the domestic front could be severe on India. Despite the various measures undertaken by RBI vis-à-vis tight monetary stance, WPI inflation still remains in high growth trajectory at around 9 percent, significantly higher than the comfortable level of 4-5 percent.

This must be tackled through a suitable combination of fiscal and monetary policy combined with efforts to remove specific supply constraints which are identifiable, added the study.

On the other hand, the developments in the global economy over the past few months are a matter of serious concern. Global growth prospects appear to be receding as recovery is weaker than assumed. Going ahead, the emerging markets may face a more difficult environment with adverse external conditions and more volatile capital flows. If the euro area crisis escalates further, as currently expected, it may have serious spillovers to these economies.

The allocation of global financial capital in the future will be very different from the past, since the demands of the public debt of the advanced economies will be larger. Also the financial instability issues may not be entirely behind us, but they could very well reappear anytime vis-à-vis our increased openness with world economy, said the study.

Of late, the uncertainty in global economy has impacted India through various financial channels like unstable capital flows and depreciation of the rupee against the dollar. With the fears of the global recession lasting in the medium to long term, the external sector of India seems to be considerably vulnerable.

Study observed that India’s convergence of business cycles with major world economies/regions during the recent years has been remarkably high. The inter-temporal comparison provided evidence that during the recent years (2000-10), growth cycles of major economies/regions have shown higher co-movement with that of India. Convergence of business cycle has been observed highest with China at 0.80 and US at 0.79 and other advanced economies at 0.74.

Thus, going forward, the decoupling hypothesis is not expected to hold as globalisation has increased India’s economic linkages with almost all major economies. Hence, India may not remain insulated from the slowing down of world economic system and resurgence of recessionary fear could emerge as an eminent risk to its growth, the Chamber release said.