‘We are not growing at the rate needed to reach the $5 trillion target’

Former Planning Commission Deputy Chairman says steps taken by the government are not going to succeed in reviving private investment

Reaching a $5 trillion economy will require a GDP growth of 9% and revival of private investment, which the Union Budget does not address, says former Planning Commission Deputy Chairman Montek Singh Ahluwalia . His latest book, Backstage , offers an insider’s view of how economic policies were formulated during the UPA tenure.

From a ‘Hindu rate of growth’, we are talking about a $5 trillion economy by 2024-25. Is it possible in this time frame?

To reach the $5 trillion target by 2024-25, the economy has to grow at something close to 9% starting with 2019-20. [But] We are going to end the year 2019-20 with growth below 5%. The economy may have bottomed out and next year, growth will be somewhere between 5% and 6% on optimistic assumptions.

But with that pace of recovery, we will not get to $5 trillion in 2024-25. We must acknowledge that we are not growing at the kind of growth rate needed to reach that target. We will get to $5 trillion ultimately, but not by 2024-25.

Finance Minister Nirmala Sitharaman recently said there were green shoots and the economy was not really in trouble. You, too, have said the economy may have bottomed out.

Bottoming out just means that next year will be better than 4.5%. You could claim to have bottomed out if growth next year is above 5%. But it would be wrong, on that basis, to say the economy is not in trouble. What people are now looking for, is a quick and strong recovery.

What we are likely to get is a rather slow recovery. And there is no evidence of an early return to 8%-plus, which is what we need.

Many experts have said the focus of the government has been wrong — instead of pushing consumption, focus has been on the supply side.

For a cyclical revival, you have to look at the demand side and I don’t think the actions taken so far will actually have the impact that is expected on the demand side. I think the key areas on the demand side are reviving investment and reviving exports. I don’t believe that the steps taken are going to succeed in reviving private investment.

Private investment is subdued because of a lack of animal spirits. Investors, who have the capacity to invest, are not able to get credit from the banks. Banks are not extending credit because they are very cautious. Some people have also talked of a fear factor depressing investment. Many people say that our tax laws have become so complex and cumbersome, and we are also criminalising certain aspects of tax avoidance, that people are discouraged from adopting a high profile and are trying to cover their tracks. I don’t think there is anything in the Budget that changes all this.

These days, there is a lot of questioning about the reliability of our data. What is your view on this?

It is worrying that there is a widespread perception that we are not adopting totally transparent methods of producing and clearing data. We did change the method of calculating Gross Domestic Product [GDP]. And the way it’s calculated, the negative impact of demonetisation on the informal sector was not reflected in GDP growth. There have been other instances when survey [NSSO] data have been held up and trashed.

You have seen several Prime Ministers from close quarters. Who do you think was the most decisive and also a quick decision-maker?

That is very difficult because each Prime Minister operated in a different political and economic context. Indira Gandhi’s decision to go in for imported wheat seeds was a highly controversial decision at the time, but we wouldn’t have had the Green Revolution now.

I worked directly in the office of Prime Minister Rajiv Gandhi, and he was the first to signal the need for getting ready for the 21st century. He said in Parliament that we could not expect to be competing with other countries if we were working with systems that were 20 years out of date.

Under Prime Minister Narasimha Rao’s government, very dramatic changes were made. He gets full marks for backing his Finance Minister [Dr. Manmohan Singh], who orchestrated a broad-ranging reform programme. Prime Minister [A.B.] Vajpayee continued the reforms and also brought in privatisation.

In the case of the UPA 1, the coalition by itself didn’t have a majority and had to depend on the Left for outside support. And of course, Dr. Singh was not the political head of the Congress. Nevertheless, working within those constraints, in the first seven years of the UPA, we saw a growth rate of 8.4%, which had never been seen earlier. The Indo-U.S. nuclear deal was a very bold decision by Prime Minister Manmohan Singh taken in the face of opposition.

If you were to advise this government on key issues, what will you tell it to do?

In my book, I have outlined a number of ideas which I think should be on the future agenda. The bottomline is that the government should outline a credible action plan to get the economy back to 8% growth as quickly as possible.

Reviving private investment and rejuvenating public sector banks is critical. We also need to bring about much-needed reform in GST. In all this, we need the widest possible consultation, listening to expert opinion outside the government.

But to do this, we need to be realistic. If we feel we are on track to hit the $5 trillion target, nothing more needs to be done. The trouble is we are not. The problems are very clear. We have to get the GDP growth up to 8% as quickly as possible. Unless we do this, we will not be able to generate the jobs we need. We also need to improve our export performance which has actually deteriorated.

( For full interview, visit

There is a perception that we are not adopting totally transparent methods of producing data

Recommended for you