Page 118 - Abhivruddhi

relevant for human welfare than GDP per capita. Even ignoring human
development considerations, on purely marginalist grounds (the diamond
water paradox) it can be argued that GDP is misleading. Basically, GDP
is based on exchange value or the amount paid, not the use value or the
total utility and the consumer surplus. This author himself has expressed
the view that employment data are far more important than GDP data for
macroeconomics aspects of welfare and are more timely too (Moorthy,
2017, pg 176).

A few months later, the renowned former RBI Governor Rangarajan
strongly criticized the target. In a speech at ICFAI Business School, he
emphatically stated that the “..$5 trillion GDP target by 2025 is simply out
of the question.” His detailed statement was:
Today our economy is about $ 2.7 trillion and we are talking about
doubling this over the next five years at $ 5 trillion. The required rate of
growth to achieve that level is in excess of 9% per annum. Reaching $ 5
trillion by 2025 is simply out of the question…You have lost two years.
This year it is going to be under 6% growth and next year it may be about
7%. (Business Today, 2019 )
However, according to us, his scepticism can be questioned. His
detailed statement seems to imply that he was criticizing a real GDP target
while, as explained above, the IMF target was in NGDP terms. While Dr.
Rangarajan was certainly correct to assert that 9% real GDP growth is
impossible, the $5trn. NGDP target implied much lower than 9% real
GDP growth he had ascribed to it, as will be explained below.
One cannot accurately assess a $NGDP target for India without first
specifying Rs. values for real GDP, inflation and the exchange rate. That
is what his above cited statement seems to have done.
Our assessment below will be based on such specifications. Indeed, the
logical way to go about assessing any $NGDP target is to start from the
underlying projected real GDP growth and inflation, add them to get the
‘endogenous’ NGDP in rupees, and then convert that to $. This numerical
exercise is done below with real time data as of mid 2019 to assess the $
5 trillion target when it was announced. By real time data is meant the
data available at that point of time on the basis of which a given forecast
or statement. It is not the latest data that will pop up if downloaded from
the website, which can be quite different and may mistakenly imply that
the statement in question is wrong.

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