Page 122 - Abhivruddhi

TABLE TWO: Computations for Target Date to Achieve $ 5 Trillion
goal (as of mid 2019)
Rs.
Year NGDP Assumed Projected $
(bn.) Growth% Rs/$ NGDP

2018 188869.6
2019 211534.0 12 70.8 2987.8
2020 236918.0 12 71.7 3304.3
2021 265348.0 12 72.6 3654.9
2022 297190.0 12 73.4 4048.9
2023 332852.8 12 74.3 4479.8
2024 372795.1 12 75.2 4957.4

Thus the projected $NGDP for 2024 is close enough (about $ 50 bn.
or about 1 % below) the PM’s target. By breaking down the implicit 12%
NGDP growth in the previous Section into rs. and real and inflation
components, we have shown that the underlying values to arrive at target
date 2024 are reasonable.
Assumptions under which varying inflation rate will not affect the
target date
For given real GDP growth, lower inflation implies that Rs NGNP
growth will be lower. Suppose inflation averaged 4% over the horizon,
bang on the RBI’s mandated inflation target, and not 6% as we have
assumed, based on our assumed dovish bias in policy. Does this imply
that the $ NGDP target cannot be met? The answer is that it depends
upon the prevailing exchange rate at which Rs. NGDP is converted into
$ values.
We assumed a 1.2% annual Rs. decline in the above Table. With US
inflation about 2% per year and India’s say 6% per year, based on relative
purchasing power parity (or PPP) the rupee should fall by about 4% a
year. However, we have projected a much smaller fall of 1.2% per year,
which implies a real exchange rate appreciation of the rupee by about 3% a
year. This has been occurring and is to be expected: emerging economies
appreciate in real terms as they catch up with developed ones.
Far more crucial, certainly for India with a capital account very open
to inflows, is that they attract capital which strengthens their currencies.
Indeed, it must be kept in mind the fundamental basis of our optimistic
numerical assessment that the $ 5 trillion. was a realistic target, as of
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