India needs to grow at 9 pc to achieve PM’s target of USD 5 trillion economy: EY

New Delhi, Aug 4: The country will need to grow by 9 per cent every year for five years continuously and raise aggregate investment rate to 38 per cent of GDP to achieve Prime Minister Narendra Modi’s target of turning India into a USD 5 trillion economy, EY has said.
In its latest edition of Economy Watch, EY said assuming India grows by projected 7 per cent in the current fiscal year ending March 31, 2020, the size of the economy will grow to USD 3 trillion from USD 2.7 trillion in the previous year.
It will have to grow by 9 per cent in each of the five subsequent years to take the size of the economy to USD 3.3 trillion in FY21, USD 3.6 trillion in FY22, USD 4.1 trillion in FY23, USD 4.5 trillion in FY24 and USD 5 trillion in FY25.
“Assuming an inflation rate of 4 per cent which is the target inflation rate as per the Monetary Policy Framework, a real growth rate close to 9 per cent would be required to increase the size of the Indian economy to USD 5 trillion by FY25. This implies a nominal growth rate of 13 per cent, assuming an average annual depreciation of the rupee viz-a-vis the US$ at 2 per cent,” it said.
In FY19 (2018-19), the gross investment rate, estimated at 31.3 per cent, was able to deliver a real growth rate of 6.8 per cent. The implicit incremental capital-output ratio (ICOR) was 4.6, it said. “This is relatively high because of deficient capacity utilisation.”
Historically, India’s average ICOR during the three-year period from FY17 to FY19 has averaged 4.23. The highest achieved investment rate in India was 39.6 per cent in FY12.
EY said achieving such levels would be consistent with the requirements of our demographic dividend.
In China, average saving and investment rates of close to 45 per cent have been maintained for a long period. Total investment is the sum of public investment, household investment and investment by the private corporate sector.
Raising the growth rate to 9 per cent in FY21 would require uplifting the investment rate to close to 38 per cent of GDP as against 31.3 per cent in FY19, it said.
“If the inflation rate is lower than 4 per cent on an average and if the exchange rate depreciation is higher than 2 per cent per annum, reaching the size of USD 5 trillion would be delayed even beyond these target years.”