The Background:

Soon after assuming office for the second term in May 2019, Prime Minister Narendra Modi aimed for a 5 trillion dollar economy by 2024. Earlier, speaking at the release of BJP election manifesto in April 2019, PM Modi said“India should aspire to be a developed country by 2047, the 100th anniversary of its Independence”, and added that his government “will lay the foundation for this in the next five years” (2019-2024). Both goals are interrelated to make empowered India.  

If you look at the last 5 years of India’s economy, on an average, India has grown at about 7.5%. Growth in recent times has dipped. But whether it’s cyclical or structural is the question.

The challenge for India is really to grow at high rates over a 3-decade period. It’s not just about a $5 trillion economy till 2024, or a $10 trillion economy by 2030. The challenge for India is to grow at 8% to 9% per annum, year after year, for coming decades.

Only then can we lift a very, very young population above the poverty line. India’s average age is 29, and rarely has a country not created wealth when it has such light dependency burdens. Post-World War II, Japan, Korea, Taiwan, and China have all grown at high rates for long periods of time.

The COVID-19 pandemic has set foot in India as across the globe and is likely to impact the country’s economy in a gigantic proportion. Industries and businesses are grappling with “tremendous uncertainty” about their future. INR 20 Lakh Crores economic package has been announced by the government of India to get the economy back on track after the fierce attack by COVID 19 which has wreaked havoc across the Globe.

Impact on Indian economy by sector

India’s Prime Minister Modi is not afraid to set bold visions, and this one perhaps is the boldest of all. His government aims to more than double the nation’s GDP to US$5 trillion by 2024, a task it has acknowledged will require fiscal prudence, improved access to and depth of financial markets, empowerment and inclusion. Other necessary catalysts to realising this dream include expanding infrastructure investment, improving ease of doing business, and secured governance reforms.

Role of Corporate Bond Markets:

The target of making India a USD 5 trillion economy calls for significant investment by the corporate sector, including by companies involved in infrastructure activities. Access to capital for all productive sectors of the economy is a critical prerequisite in this regard.

Traditional bank financing, on its own, may fall short in fulfilling this requirement. In this regard, the role of bond markets in facilitating long-tenor, fixed-rate, debt financing from nonbank credit channels becomes all the more significant. In order to achieve the target of making India a USD 5 trillion economy, access to domestic pools of debt capital alone may not necessarily be adequate. The measures for attracting foreign pools of capital, especially real money investors and sovereign wealth funds, assume equal significance.

The current low-to-negative interest rate environment around the world is making Indian bonds an even more attractive option for certain investors. India has an active and open financial market. The country’s stock market is among the top ten largest in the world, and its fixed income market is the fourth largest among emerging economies.

However, cultivating a stronger bond market to help underwrite the burgeoning economy is necessary if India is to reach its bold ambitions of becoming a $5 trillion economy by 2024, and, according to Bloomberg base-case estimates, $8.4 trillion by 2030. If it can do so, India’s economy could be the third largest by 2026, behind China and the U.S.

There is considerable optimism that improving ease of access to India’s debt markets is possible, but there are barriers that need to be addressed for India to achieve its ambitions:

Economy of India's financial markets

• A significant majority of investors (76%) admit it is more difficult to access India’s financial markets compared to other markets they participate in.

• 92% of respondents say that they would increase participation in Indian financial markets if access was easier

• Capital controls (37%) are cited as the greatest barrier to accessing India’s financial markets. Low market liquidity (22%) and lack of electronic access (14%) are also identified as significant roadblocks to accessing India’s financial markets.

• A majority of respondents said clearer regulatory guidelines would increase ease of access and lead to deeper foreign investor participation

 • Greater depth and a more active yield curve is needed in the Indian corporate bond market to drive global investor participation.

In the months ahead, overcoming and addressing these barriers will be critical for global investors to further participate in India’s bond market. This will require a review of capital controls, greater clarity of regulatory requirements for participation and an investment in advanced trading technology.

There are four key main criteria in creating an investible bond market – regulatory guidelines, market access, investor demand and improved benchmarks. Having these factors in place will enable India to capitalize on a robust bond market that will ultimately unlock new financing opportunities, enhance capital allocation and drive economic growth.

The Infrastructure Boost:

One of the sectors that the Modi government has been concentrating on is infrastructure.  The government’s push in this sector was evident last year when Sitharaman unveiled Rs 102 lakh crore of infrastructure projects, under the National Infrastructure Pipeline, to be implemented in the next five years. Infrastructure investment is widely recognised as a crucial driver of economic development. To achieve the target of US$5 trillion economy size by 2025, a robust and resilient infrastructure system is required, supported by adequate private investments.

Today we can take water and power almost anywhere. Connecting these areas with roads and making new growth centres of development will be more beneficial and cost effective than trying to develop projects in areas already populated.

It will relieve pressure on existing urban areas if we setup various HUBs, Mini HUBs and Nano HUBs in waste lands of India. Wastelands are suited for green field Smart cities. Our country has approximately 557,600 sq. km (16.96% of total India Geographical area) of degraded wasteland.

This becomes highly significant as these wastelands could be effectively put to productive use through various land development programmes. Development of these wastelands offers enormous potential both for economic development and sustainable employment generation. Besides, it would not adversely affect the farm land and farmers.

The development of Smart Cities in the form of Nano, Mini and large Hubs in Wastelands across the country would have multi-fold benefit for the country. The developments of these could be strategically funded by properly offering incentives of FSI, sectorial benefits, regional preferential as also routing existing grants in these upcoming projects like THE MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE ACT(MGNREGA) and many others.

This would give multiple outcomes in not only getting the much needed funds internally and externally but also many of the present problems of imbalance in over saturated cities and deprived rural areas would be addressed and they too become active partners in progress.

Ease of Doing Business:

Over the last four years, the government has scrapped a number of laws; over 1,300 to be precise. We’ve done away with a lot of procedures, rules and regulations. We’ve tried to digitize the Indian economy. We’ve tried to see that every single department of the government speaks to its applicants digitally.

Through a series of reforms, India has jumped up 65 positions in The World Bank Ease of Doing Business. No other large country has been able to do this. We’ve jumped up 65 positions, but our challenge is that in the next two years we must reach the top 50 and in the next five years reach the top 25. India is a very, very large country. It’s bigger than 24 countries of Europe, plus another 30,000 kilometers.

The challenge is making it easy and simple at the state level and getting them to compete with each other in the spirit of competitive federalism. This spirit of competitive federalism – ease of doing business to health, education; and ranking states accordingly helps to make good governance as good politics, and puts out the data in public domain. This is something which we will continue to do unabated in the days to come.

Secured Governance for Self-Sustained Economy:

Secured Governance is a concept that is catching the attention of many as a holistic approach to infrastructure needs, offering a great deal. It professes taking advantage of valuation of assets created, and delivering at almost no cost to the government. In addition the infrastructure assets provide an opportunity for capital recycling, reducing the need for capital replenishment. It offers self – sustained economic growth, more societal participation and benefit sharing with transparency.

It has made mobilising private investment for HUB development to address these needs a key goal. If doing so as “a win-win situation” that requires international cooperation and set goals for public private participation to enhance revenue generation and huge employment opportunity. Secured Governance is a novel concept which equips to create adequate and coordinated measures to ensure the provision of financial, human, technical, information and sustainable economic growth of the state and nation.

Empowering People:

On human development front, we have much to achieve. India has a rank of 129 out of 189 countries according to Human Development Index (2019). India accounts for 28 per cent of the 1.3 billion multi-dimensional poor in the world. One third of the children are undernourished. The undernourished children grow up to be incapable of handling school curriculum and drop out and remain poor throughout life.

The government has to have many more welfare schemes for women in order to promote gender equality and empowerment and increase their earning power to reduce the hold of patriarchy. From being the most dangerous country for women, the government should ensure safety for women by spending on lighting the streets and having more police patrolling.

India has to address the root causes of poverty and inequality in order to empower people. Persistent poverty and inequality are not just a violation of the basic human rights of the people but they also undermine the economic growth of a nation by wasting talents and human resources.

It leads to a skewed society where power and decision-making remain in the hands of a few, leading to greater conflicts and undermining social cohesion. And that is happening in India. Commenting on the poor quality of human development, measured in terms of HDI, Bill Gates and Ratan Tata (2016) rightly noted:  “Human capital is one of India’s greatest assets. Yet, the world’s fastest-growing economy hasn’t touched millions of Indian citizens at the bottom of the economic pyramid”. 

The Final Coverage:

Lastly, we need a system to integrate economic interdependence in today’s modern societies which not only decreases uncertainty regarding where risks begin and end, but also help in judicious planning and development of new empowered, transparent and interdependent Governance systems with higher degree of society participation in nation building process. For achieving the $5 trillion economy, there has to be high economic growth . Whether this can be achieved in the present forecast of a world-wide slowdown in trade and output in the face of COVID19 is skeptical and so also the $5 trillion economy.