Page 121 - Abhivruddhi

sentiment globally, and in India too. Second, the BRICs boom which
pushed GDP well above potential to 9% for three years in a row to 9% had
corrected, implying lower growth ahead than the 6.9% average. Hence,
it would have been reasonable to lower, as of June 2019, the projected
potential GDP growth to 6 %.
(b) Inflation: During 2005-2018, the Rs NGDP growth was comprised
on 6.9% real growth and residual inflation of 6.7% (the implicit deflator
subtracting 6.9% from 13.6%). Under the inflation targeting regime
mandated in 2014, RBI is required to keep inflation at 4% with a tolerance
for + or – 2% variation. Based on recent developments, and some
demand stimulus efforts to revive growth to make up for the big post
demonetization drop, we conjecture a 6% inflation rate as of 2019 was
reasonable projection.
The sum of 6% real GDP growth and 6% inflation yields Rs NGNP
growth of 12%.
(c) Exchange Rate: To arrive at $NGDP values, the (projected) NGDP
need to be converted to $, based on some assumed Rs/$ rate.
In 2018, the exchange rate was Rs 69.9/$, which can be rounded off
to Rs 70/$. Assuming a drop of 1.2% per year, it falls to Rs. 75 by the
target year 2024. Starting with the 2018 value of Rs. 188869.6 bn. and
12% NGDP growth, projecting out to 2024, the value of $NGDP, growing
at 10.8% are as follows:

During the BRICs boom, real GDP growth averaged above 9% for three
years in a row. The dominant consensus, shaped and shared by eminent
economists and policy makers at that time was that it would continue and
that India’s potential GDP growth was 9%. For a critique of mechanical
extrapolation of the high growth rate of the booming phase, See Section
7.1.1. Chronicling the 9% Euphoria in Moorthy (2017, pg. 157-158). After
stagflation hit in 2012-2014, the consensus about potential GDP growth
became much lower.

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