Making India $5 Trillion Economy- What Should India Primarily Focus on?

Before the pandemic struck the entire world, India was expected to become a $5 trillion economy by 2025. The Covid-19 Pandemic had distorted all projections and left the world in an unpredictable state for almost a year. The economies all over the world crashed down due to the lockdowns and global unrest. Data from the National Statistical Office projects a 7.7 percent contraction for FY2021. 

But even if we look prior to the pandemic, India’s $5 trillion economy had many obstacles that needed focus to achieve the dream. One of the most important is India’s manufacturing sector. India’s manufacturing sector is not strong enough to allow expansion and integration in the global value chain. The Economic Survey pointed out that the global value chain exports could contribute a quarter of the increase in value-added for the $5 trillion goal and generate four million jobs by 2025 and eight million by 2030 via the Make in India initiative. (Reddy & S, 2021)

In order to integrate our manufacturing sector with the GVCs, it is very important to develop the infrastructure with top most priority. One example of this is China. China has done huge investments on infrastructure in the first half of the 20th century and the results of that can be seen now by the entire world. China has rapidly risen in the GVC due to its investment on infrastructure. This has led China to becoming the centre for world production. At this point in time, China is one of the strongest economies and has almost reached the stage of being self-reliant. 

India has announced Atmanirbhar Bharat (self-reliant India) with the view of transforming India into an important global player and making India self-reliant. The campaign has also created confusion in the minds of the MNCs as in the initial stages of the campaign India put a ban on the import of various non-essential commodities. Although these import restrictions were put to encourage domestic production to make India self reliant, these may also be seen as an obstruction in integrating India with the GVC. The import restriction can discourage global investors and in turn harms the long term goal for becoming a manufacturing hub. 

For India to achieve a $5 trillion economy, it has to encourage more and more foreign investments in the country and be as closely integrated with the GVC as possible. The policies made therefore have to be more welcoming for the global investors and MNCs and less restrictive in terms of import tariffs. 

The government should first and foremost focus on infrastructural development in the country in order to improve the manufacturing sector and be able to competitively produce. It should perhaps create a more open trade environment so that there is free trade of goods and services. The infrastructural development can also be useful for the performance linked incentive sectors. In this regard, the government’s Rs 111 lakh crore or $1.4 trillion investments in the National Infrastructure Pipeline can be seen as an important step towards building the required infrastructure. NIP consists of investment from the centre (39 per cent), state governments (20 percent) and private sector (21 per cent). It is very important at this point that the centre and the state governments work in a collaborative manner in order to devise smooth systems and proper and timely implementations of the policies. The central government should be hands on with any shortcomings of the state government so that there is minimum or no harmful repercussions felt over and beyond. It is important to make India so strong that even though India is a labour intensive country, it can have the ability to also be a major exporter of the capital intensive commodities along with labour intensive commodities. (Reddy & S, 2021)

It is as important to develop the traditional labour intensive commodities market so that India holds its foot strong in the global market when it comes to labour intensive commodities as it is one of the major aspects of the Make In India project.

Efforts of States to Achieve $5 Trillion Goal

UP Budget 2021-22 

The UP government on February 22nd brought the state budget to the table of the state Assembly. Chief Minister Yogi Adityanath presented the first paperless budget including ₹ 5,50,270.78 crore for 2021-22. It is about ₹37,410 crore more than the previous year’s budget. The focus of the budget was to make Uttar Pradesh Atmanirbhar and ensure overall development of the state. (Rudrappa, 2021)

Some of the important Budget Highlights:

1. UP government announced ₹2000 crore for Noida International Airport and also, building electronic city near airport.
2. UP budget proposed at least ₹640 crore for the overall development of Ayodhya.
3. The UP government made provision of ₹1,175 crore for metro rail projects. There is a provision of ₹597 crore for the Kanpur metro rail project in the budget presented by Finance Minister Suresh Khanna.
4. The UP government made ₹7,000 crore provision for Pradhan Mantri Gramin Awas Yojna.
5. A budget provision of Rs 976 crores for the development of canals, ₹610 crores for Saryu Canal Project, and ₹271 crores for the Eastern Ganga Canal Project were proposed. ₹104 crores was also proposed for Ken Betwa Interlink Canal Project. (D’Souza, 2021)
6. ₹1326 crore has been given for Delhi-Meerut RRTS and ₹100 crores each for Gorakhpur-Varanasi metro.

The investments on infrastructure by the UP government is one of the key aspects that could help transform India into a global manufacturing hub. The provisions made in the budget also promises to generate employment for the state leading to a higher SGDP. The infrastructural boost will lead the state to become more efficient in its development. With projects like Sabka Saath Sabka Vikas, the UP government has promised to bring taps, electricity, roads, water in every household along with making the state digitally equipped. The Chief Minister in his speech mentioned that the budget focuses on the poor, women, youth and the farmers. 

Bihar Budget 2021-22

The Bihar government announced a ₹2.18 lakh crore budget for 2021-22 with focus on social sector and infrastructural development. The Chief Minister of Bihar also announced a separate department for skill development and entrepreneurship in the state. The Chief Minister announced that the government has made the highest allocation in the education sector worth ₹38,035.93 crore followed by ₹16,835.67 crore for rural development, ₹15,227.74 crore for roads, ₹13,264.87 crore for health and ₹8,560.00 crore for energy. (Bihar’s Rs 2.18 trillion budget for FY22 prioritises social, infra sectors, 2021)

Some of the important highlights of the Bihar Budget:

1. All villages in Bihar will have the facility of solar street lights.
2. A budget provision of ₹250 crore for building link roads in rural areas of Bihar.
3. The state allocated ₹110 crores towards building of new engineering colleges.
4. Three new medical colleges are already under construction. 
5. 38 districts of the state have been declared as open defecation free.

The Bihar government has also focused on developing the infrastructure of the state along with improving the rural regions of the state. This inclusive development efforts of the state government will generate more skilled employment and improve the lifestyle of the rural people. The state government has made extra effort in building a separate skill development department in order to increase the skilled employment in the state integrating with the idea of Atmanirbhar Bharat. 

West Bengal Budget 2021-22

The West Bengal government announced its budget in the absence of the Finance Minister of the state. The government has announced a ₹29,96,88 crore budget for 2021-2022. (West Bengal Budget 2021-2022, 2021)

Some of the important budget highlights:

1. ₹1500 cr allocated for the construction of 20 lakh houses for SC/STs.
2. ₹50 cr allocated for building the infrastructure of 100 new English medium schools.
3. Building of 100 new schools for Nepali, Urdu, Kamtapuri and Kurmali language.
4. 45 lakh construction and transport workers will be given ₹1000 each under the social security scheme.
5. 100 IAS and IPS aspirants will be trained by the state government along with fooding, lodging and providing stipend.
6. All kinds of road taxes lifted from January 2021 to June 2021.

The budget of West Bengal has seen a rise in the expenditure on infrastructure 3.9 times. The state’s planned expenditure increased by 7.2 times. The expenditure on social sectors has risen by 5.6 times.These highlights show that the state government is perhaps in link with the national goal but has to do more in terms of investing in the infrastructure. To build a self reliant nation, the state governments have to work in synchronisation with the central government. 

CONCLUSION 

In view of the Modi government’s aim to make India a $5 trillion economy, the state governments’ budgets do perhaps look in sync. The state governments have focused primarily on the infrastructural developments and enhancing the skilled employment in the respective states. It is very important for these states to pull up their sock in order to provide a competitive development strategy. In order for India to become a global leader in terms of exports, it is very important that the two most important factors are strongly built-infrastructure and skilled labour. 

Being a country with the largest youth population in the world, it is our responsibility to stand out and become self reliant along with being a provider for the world. The pandemic has brought in many changes and should be seen as an opportunity to develop new skills and explore the untapped potentials of the country. 

References

Bihar’s Rs 2.18 trillion budget for FY22 prioritises social, infra sectors. (2021, February 22). Business Standard.

D’Souza, C. E. (2021, February 22). UP Budget 2021-22: Yogi Adityanath govt proposes Rs 140 crore for development of Ayodhya. ZEE News.

Reddy, K., & S, S. (2021, January 13). Building a $5-trillion economy. The Indian Express.

Rudrappa, P. (2021, FEBRUARY 22). UP Budget 2021 Live Updates: UP Presents ₹ 5.5 Lakh Crore Budget To Make State “Aatmanirbhar”. NDTV.

West Bengal Budget 2021-2022. (2021, February 22). The Times of India.

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Following the PM’s address, our Finance Minister, Dr. Nirmala Sitharaman, through a set of conferences, laid out the specifics of the package divided into 5 tranches. This article seeks to explore the details, benefits and drawbacks of the same. 

The Package in Details

Some of the Key Highlights of the Package for various sectors in several tranches have been provided below:

EARLIER MEASURES 

The “Pradhan Mantri Garib Kalyan Yojana” provided the following:  

• Foodgrains and gas cylinders to the needy for three months.
• ₹500 to women Jan Dhan account holders for three months.
• Relief to construction workers via a Welfare Fund.
• Insurance cover to health workers.
• District Mineral Fund to facilitate greater medical testing.
• Increased minimum daily wage rate 
• An increased limit of collateral-free loans for Women Self Help Groups.

Apart from the aforementioned activities, the Indian government has also provided relaxation in Statutory and Compliance matters such as extending the last date for Income Tax Returns and filing GST returns, allowing for 24*7 customs clearance till 30th June 2020, and others. It has also sanctioned Rs. 15,000 crores for Emergency Health Response Package and issued pending income-tax returns up to Rs. 5 lakhs.

RBI’s Monetary Measures:

• Reducing Cash Reserve Ratios.
• Providing Targeted Long Term Repo Operations for fresh deployment in investment-grade bonds, commercial paper, and non-convertible debentures. 
• Increasing banks’ borrowing-limit under the Marginal Standing Facility.
• Special refinance facilities for NABARD, SIDBI and the NHB at policy repo rate.
• 3 months of moratorium on payment of all installments and interest on working capital facilities.

MSMEs AND OTHER BUSINESSES

• Availability of collateral-free, automatic loans with 4-year tenure.
• 25% reduction in the rate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) 
• Equity infusion and Equity Support for MSMEs.
• Providing a new definition of MSMEs with additional turnover criteria to incentivise them to grow.
• Amendments of General Financial Rules to disallow Global tenders up to Rs.200 crores.
• Extension of the due date of all income-tax return for FY 2019-20.

AGRICULTURE^[3]

• Additional Emergency Working Capital for farmers through NABARD
• Provision of concessional credit to PM-KISAN beneficiaries.
• Promotion of ‘Vocal for Local with Global outreach’ vision via schemes formalising Micro Food Enterprises.
• Facilitating risk mitigation, assured returns and quality standardisation for farmers.
• Implementation of schemes for sustainable development of marine and inland fisheries, development of herbal cultivation, animal husbandry and beekeeping.
• Subsidies on transportation and storage.

MIGRANTS, LABOURERS and OTHERS^[4]

• Setting up shelters providing food and water to migrants by utilising  State Disaster Response Fund.
• Launching schemes to provide free food supply and affordable rental accommodation to migrant workers.
• Providing employment opportunities to the urban-poor by mass production of sanitizers and masks.
• Launching a Special Credit Facility for Street Vendors.
• Universalizing the minimum wage right and implementing the statutory concept of National Floor Wage to reduce regional disparity in minimum wages.
• Boosting the housing sector and the middle-income group through the extension of the Credit Linked Subsidy Scheme.

NEW HORIZONS^[5]

• Fast track Investment Clearance through Empowered Group of Secretaries (EGoS)
• Implementing schemes to upgrade industrial infrastructure and bring about beneficial policy reforms.
• Encouraging private sector participation and boosting investment in several sectors, including space activities.
• Facilitating Efficient Airspace Management for Civil Aviation.
• Improve autonomy, accountability and efficiency in Defence Production.
• Implementing a Tariff Policy Reform pertaining to Consumer Rights, Industry Promotion and Sector-Sustainability.

      GOVERNMENT REFORMS^[6]

• Promoting India as one of the easiest business locations by modifying the Ease of Doing Business Reforms relating to easy registration of property, fast disposal of commercial disputes and simpler tax regime. 
• Facilitating Technology-Driven Education via PM eVIDYA programme
• Increasing investments in the Public Health Sector to not only combat the present pandemic but also prepare for future pandemics.
• Supporting State Governments & promoting state-level reforms.
• Modifying policies to allow for the privatization of various sectors, while upholding the prominence of Public Service Enterprises in defined areas. 

Overall Stimulus Provided by the Aatmanirbhar Bharat Package

Problems

The earlier fiscal relief measures along with RBI’s measures constitute ₹9,94,403 crores, which leaves an effective amount of ₹11,02,650 crores. Thus, the immediate fiscal boost announced with such grandeur by the government is quite less than the promised amount because of the inclusion of RBI’s monetary measures, despite both being independent institutions. Direct investment by the government in the form of a boost to the aggregate demand guarantees immediate impetus to the economy, however, that might not be the case with the government’s indirect measures and RBI’s credit easing because the banks, instead of lending, might park the money back with the RBI, thus, rendering its help ineffective. Even if the banks transmit the liquidity measures from RBI to the citizens, the transmission procedure will not be smooth due to the prevailing inefficiency of monetary policy transfers.

The economic package includes a lot of measures spread over 5 tranches. However, there exists the problem of implementing those measures. A classic example is the provision of collateral-free automatic loans to MSMEs. There is a high risk of non-return to banks in such cases unless the businesses end up earning high-profits amidst a global crisis, that is if the MSMEs get the required loans after overcoming the hurdles of meeting the high credit score criteria, bearing high processing costs followed by tedious procedures, and still not receiving the entire amount applied for. 

Conclusion

Both ‘Aatmanirbhar Bharat Abhiyaan’ and the ‘Make In India Campaign’ attempt to attract Foreign Direct Investment by laying emphasis on the promotion of local products to help with the declining job market. However, this causes a critical problem in a developing country like India which needs to depend on cost-effective imports of several products in which it does not have a comparative advantage and the domestic production of which will lead to increased manufacturing cost, thus, leading to the loss of a competitive edge in the Global Market. Although, Aatmanirbhar Bharat Abhiyaan does possess an advantage due to the inclusion of agriculture, which had been neglected all this while.

Although the package is very comprehensive and caters to the needs of all people, past history of failures due to the presence of corrupt bureaucracy raises the question of whether the relief package will have its desired effect. However, if the package is properly implemented and people are educated about the schemes through various drives and trained to utilize the benefits available to them, then there exists the possibility of success of the package through economic upliftment of the nation.

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