Prime Minister Narendra Modi set himself the task of making India a $5-trillion economy by 2024 after he was returned to power in May 2019 with a record mandate.
His government reaffirmed the commitment in the Budget by shifting focus from traditional consumption-driven methods to investment-led growth, with a focus on boosting startups, incentivising affordable housing and promoting cashless transactions among others.
Some analysts were not convinced and thought the target was ambitious and seems to have been proven right in the face of global and domestic headwinds.
Global analytical firm CRISIL on August 1 cut India's GDP growth forecast for this fiscal to 6.9 percent from 7.1 percent, citing weak monsoon, decelerating global growth, and sluggish high-frequency data in the first quarter of FY20.
In its report ‘Uphill trek’, the rating agency said there were no immediate signs of growth reclaiming its 14-year average of 7 percent. Monetary policy was failing to stimulate growth while fiscal constraints meant that public spending could not grow above 7 percent, it said.
“The crucial question, therefore, is whether a trough is in sight. Given the fiscal constraints, public spending is unlikely to have the heft to pull growth above 7 percent. And some of the recent, and much-needed, reforms would pay off only over the medium term. There would, therefore, be some near-term onus on monetary policy to stimulate. But how effective that can be is the big question,” said Dharmakirti Joshi, Chief Economist, CRISIL.
In June, the International Monetary Fund (IMF) had cut the GDP forecast to 7 percent. IMF had earlier revised its projections in April 2019, cutting growth outlook for FY20 by 0.2 percentage points to 7.3 percent on expectations that weaker domestic demand will limit economic recovery.
“The downward revision of 0.3 percentage point for both years reflects a weaker-than-expected outlook for domestic demand," IMF had said in its update to the World Economic Outlook.
According to IMF, the broad-based slowdown in consumption and investment demand was partly a reflection of the uncertainties inferred by the Lok Sabha election and tightening of borrowing conditions for small and medium enterprises.
In July, Asian Development Bank also lowered its GDP forecast to 7 percent on the back of fiscal shortfall concerns.
"India is expected to grow by 7 percent in FY20 and 7.2 percent in FY21, slightly slower than projected in April because the fiscal 2018 outturn fell short," ADB had said in its supplement to the Asian Development Outlook 2019.
The agency had earlier revised its projections for FY20 in April, lowering outlook by 0.4 percentage points from 7.6 percent.
To achieve the target of $5 trillion over the next few years from the current $2.7 trillion, India needs to maintain growth rate at 7-8 percent per annum, experts say.
This looked "achievable" as the country had maintained GDP growth rate at around 7 percent in the last few fiscals.
In FY17, India’s GDP had grown at an impressive 8.2 percent, the fastest in a decade. However, weak consumer demand, rising unemployment rate and slower growth in investments have put the country into a state of slowdown.
Government data in late May revealed that India's economy grew at a much-lower-than-expected 5.8 percent in the first three months of 2019, a sharp decline from the previous quarter when growth was clocked in at 6.6 percent.