Modi’s $5 trillion economy dream may have to wait for long; why India’s GDP growth now depends on banks

The fresh investments required to make the economy achieve the $5 trillion goal would amount to nearly Rs 500 lakh crores over the 7 year period 2021 to 2027.

Prime Minister Narendra Modi’s goal of making India a $5 trillion economy will now take a few more years to be achieved. to be achieved. If India’s economy grows at an annual average of 11.6 per cent during the next six years, the country’s GDP could reach $5 trillion by 2026-27, showed an estimate by CARE Ratings. While the growth of 11.6 per cent seems highly optimistic at this time as the coronavirus pandemic has led to disruptions in almost all the corners of the economy, the inherent potential of the Indian economy remains sound. The attributes that the country possesses in terms of size, political stability, progressive leadership, and relatively lower exposure to external vulnerabilities stand in good stead, the report added. However, on one hand, it was estimated that the economy may have to grow at a pace of 8 per cent to reach the $5 trillion goal, on the other hand, Care Ratings now expects India to register a contraction of 8 per cent in the current year. 

Financial sector to take baton of India’s economic growth

It is expected that the path of India’s economic recovery will be dependent on how the country manages its infrastructure investment. The rating agency said that the fresh investments required to make the economy achieve the $5 trillion goal would amount to nearly Rs 500 lakh crores over the 7 year period 2021 to 2027. While a part of this investment would be borne by the central and state governments combined, the main enabler will be the financial sector such as banks, debt capital markets, and foreign capital, the report highlighted. 

Are banks capable to invest in infrastructure building?

However, the quantum of investment is likely to remain highly dependent on the ability of the financial system to generate resources. In recent years, Indian banks are struggling with the stressed assets and higher provisioning amount kept aside to compensate for the loss. The phenomenon has reduced the capital base of banks, harming their ability to lend. Adding to the woes, it is also difficult for the banks to make the large investment required for infrastructure creation as the duration of such borrowings are long. Therefore, markets are required to play an important role here, Care Ratings said.  

Meanwhile, the uncertainty over the control of the pandemic and the prospects of economic recovery poses a challenge for economic aspirations. However, the infrastructure building may give the much-needed multiplier effect as it would generate employment and demand across sectors, improve the ease of doing business, improve competitiveness, and raise the quality of life. 

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.