Get ready for $2 Trillion India's Economy next year

[sid_22]

India is poised to join the coveted club of economies whose national income, or gross domestic product (GDP), exceeds $2 trillion. According to recently released data, India's nominal GDP is expected to grow at 14 per cent in 2011-12, to reach Rs 90 lakh crores. At a dollar exchange rate of Rs 45, this works out to $2 trillion. However, if inflation is assumed to be 7 per cent and the real growth rate is 9 per cent as projected, the growth rate of 14 per cent may actually understate nominal growth rate by 2 percentage points, which means India's nominal GDP in dollar terms will actually exceed $2 trillion this fiscal!

India's nominal GDP crossed the $1 trillion mark in 2007-08, which implies GDP has doubled in four years. Applying the rule of 72' would mean India's average annual growth rate of nominal GDP during the period is a stupendous 18 per cent! That it was achieved in a milieu of pervasive economic gloom makes the feat even more impressive. Amidst the prevailing euphoria, it may be time to take a pause. The future may well be less perfect than we imagined. First, the magic number of $2 trillion is based on an exchange rate of $45 to the dollar. If the rupee were to depreciate, India's nominal GDP would be lower for the same level of output. Second, in celebrating the nominal as opposed to the real GDP, we may be losing sight of the contribution of inflation. The difference between real and nominal GDP is inflation, and so for a given level of real GDP, the higher the inflation the more rapidly would nominal GDP increase. This is clearly an undesirable outcome for everybody.


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[NaughtyBoy]

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