Budget 2019 - The Next Giant Leap?

Prime Minister Narendra Modi’s big pitch for this budget looks past all current economic challenges. Experts agree that for a real shot at this target, India will have to usher in transformative reforms

- Raj Chengappa With Shwweta Punj

In an unusual exposition, the Economic Survey 2018-19, released before the Union budget by chief economic advisor Krishnamurthy Subramanian, devoted an entire chapter to behavioural economics that enunciated four major tactics to implement public policy:

Laissez faire: Leaving individuals/ firms to follow their own course;

Nudge: Gently steering people to a desired goal;

Incentivise: Using positive and negative inducements to change behaviour; and

Mandate: Using diktat to enforce a particular outcome.

While his economists favoured the nudge approach, Narendra Modi is employing all the four drivers of change to achieve the goals he has set for his second term as prime minister. First, he employed the ‘mandate’ approach. He used Budget 2019 to signal his intent and, as is typical of his style, he thought big—really big. He got Finance Minister Nirmala Sitharaman to commit in the budget document how his government will work towards nearly doubling the size of the Indian economy—from the current $2.61 trillion to a staggering $5 trillion by 2024-25.

To get a sense of how enormous that target is, consider these facts: when Modi took over as prime minister in 2014, the size of the economy was $1.85 trillion. At the end of his five-year term in 2019, the economy had grown at an annual average of 8 per cent to reach $2.67 trillion. To reach $5 trillion by 2024, the economy needs to maintain that growth.

As Modi put it, “Earlier, India was walking, but New India will be running.” If the economy does get to $5 trillion by 2024, and maintains its growth momentum till 2030, India, currently ranked #6 by size, could become the third-largest economy, behind only the US and China.