Page 120 - Abhivruddhi

Indian Express July 2019.
During the BRICs boom, real GDP growth averaged above 9% for
three years in a row. The dominant consensus
To summarize, it would be accurate and fair to say that, as of 2019, the
criticisms of the target were largely misplaced, or not well founded.
The Underlying Conceptual Macroeconomic Framework
To further assess the validity of the original targets date, and then
the revised target date, a macroeconomic framework is needed. Such a
classical macroeconomic framework is outlined here and used for a more
detailed evaluation of the original target date of 2024 and subsequent
revised target date of 2027.
In a classical macroeconomic framework, actual GDP growth varies a
lot annually and cyclically, but on average is at its potential growth rate
over several years. We can denote the potential GDP growth as g(y*).
Although mechanical extrapolation of past data is often misleading, it is a
vital starting point for projecting g(y*). Thus, to begin with, g(y*) can be
taken as being the average growth rate, and then adjusted judgmentally
based on ongoing developments in the economy, both locally and globally,
as we shall do.
Based on the natural rate hypothesis of classical macroeconomics,
there is no long run tradeoff between inflation and unemployment. Then,
for an inflation targeting bank which India became in 2014, the projected
inflation rate, with ongoing adjustments, can be assumed to be the target
inflation rate of the central bank.
The basic macroeconomic identity which holds in any period is NGDP
growth = real GDP growth + Inflation.
Using g(y*) to project RGDP growth over a multiyear horizon and the
inflation target to project inflation, then
Projected Rs NGDP growth = g(y*) + Inflation Projection

Application of the Macroeconomic Framework
Turning to the actual numbers, adding Real GDP growth and inflation
projections we get Rs. NGDP growth.
(a)Real GDP Growth: During 2005 to 2018, real GDP growth averaged
6.9%. Time series methods to estimate potential GDP growth, rounded
off to one decimal, yielded the same value. As of June 2019, there was
adequate justification to lower projected potential GDP for two reasons:
deglobalization was spreading following US China trade wars under US
President Trump, the Brexit vote and the resurgence of protectionism

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