Maharashtra, the most productive state in India with $400 billion GDP, aims to become $1 trillion economy by 2025. “We want (Maharashtra) to become a trillion-dollar economy by 2025,” said Fadnavis. Currently, the annual GDP of Maharashtra at $400 billion, is more than many neighboring countries like Pakistan and Bangladesh.
1 Trillion economy at Sub-national level
There are only 16 countries around the world with more than $1 trillion annual output, and if a sub-national unit achieves the mark, it will be huge achievement for the country.
The economy of India has grown exponentially since economic liberalization under PM P.V. Narasimha Rao government when the National output was a mere $274 billion. Today at least five states (Maharashtra, UP, Tamil Nadu, Gujarat, and West Bengal) have larger output than total Indian output in 1991. From $274 billion in 1991, the GDP touched the mark of $1 billion in 2007.
PM Modi has set the target of $5 trillion economy of 2025. The Economic Survey set the vision for $5 trillion economy; as per the document, “To achieve the objective of becoming a USD 5 trillion economy by 2024-25, as laid down by the Prime Minister, India needs to sustain a real GDP growth rate of 8%.”
India would be able to achieve the $5 trillion target only if few sub-national units like Maharashtra and Uttar Pradesh become trillion dollar economies. Currently there are eight trillion dollar plus sub -national units, four (California, Texas, New York, and Florida) are in United States, three (Guangdong, Jiangsu, Shangdong) are in China and one is in Japan.
Current Status of Maharashtra economy
The competition to become $1 trillion economy at sub-national level is very important to become $5 trillion economy at national scale. And the current growth rate is not satisfactory.
The growth rate of Maharashtra varied between 10-12 percent in last four fiscal years. At this rate, the state will be able to achieve 1 trillion target by 2030, which is not satisfactory at any level. Therefore, the state needs to jack up the growth rate to achieve the ambitious target.
Where the State can improve
The Economic Survey has laid the roadmap for $5 trillion economy goal. As per the vision document, “Investment, especially private investment, is the “key driver” that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs.”
The states aiming to achieve $5 trillion goal, must aggressively push for private investment. The Union government has done its job by making the corporate tax rate among the most competitive in the world. In fact, the tax rate for new manufacturing units (17 percent) is comparable to that of smaller economies like Singapore.
India was losing its manufacturing competitiveness to Southeast Economies like Vietnam and Indonesia, but with the new corporate tax rates, the states could compete for FDI and Foreign Institutional Investment.
Maharashtra reduced capital expenditure by 2.7 percent in budgeted estimate of 2019-20. In FY 20 budget, the Maharashtra government allocated 69,861 crore rupees (16 percent) out 4, 04,794 crore rupees. Economic growth in double digit could not be sustained without 20 percent capital expenditure, and therefore the state must cut revenue expenditure and increase capex.
Over the years, it has been seen the states can meet the fiscal deficit target but they cut the capital expenditure. The state government finds it easy; to reduce capital expenditure to increase spending social security benefits because no one will hold them accountable for cutting Capex and increasing social security benefits will help them in getting re-elected.
Maharashtra needs to be more prudent revenue expenditure and increase capital expenditure (investment) to spur up economic growth. The state needs to increase capital expenditure and aggressively push for private investment to become 5 trillion economy by 2025.
Strategy adopted by Maharashtra Government
Fadnavis government has made investment in infrastructure to be the ‘key driver’ of economic growth. “Our key to growth is infrastructure-led development,” he said. “We have focused on building infrastructure, which has subsequently opened up lot of opportunities for international investors in the state,” added Fadnavis.
This is the right strategy as China posted double digit growth for almost four decades through investment in infrastructure and therefore the Fadnavis government is on the right track.
The steps already taken by Fadnavis Government
In last five years, Fadnavis government has aggressively pushed for infrastructure development, especially in the city of Mumbai which accounts for more than one fourth of the annual output of the state. The underdeveloped Vidarbha region also bagged major investment in infrastructure projects.
In FY 19, Mumbai Metropolitan Region (MMR) received its highest ever budget with allotment of 16,909 crore rupees urban agglomerate. This was fourfold more than 3,830 crore rupees allotted in 2015-16 and 39 percent higher compared allotment in FY 19.
The Fadnavis government aims to connect satellite towns Greater Mumbai, Thane, Kalyan-Dombivali, Navi Mumbai, Ulhasnagar, Bhiwandi-Nizamapur, Vasai-Virar and Mira-Bhayandar with world class infrastructure.
The most promising project aimed at changing the face of the city is Mumbai Metro. The Congress-NCP government had started the project back in 2004 and planned to build 146 km metro network in the city by 2021. However, after the inefficient execution of Line 1 of Mumbai Metro, which suffered inordinate delays, the whole project was put on hold. The Fadnavis government not only restarted the project but also expanded the pan of the network to 276 Km. Two lines of the Mumbai Metro network are expected to complete by July 2020, third by 2021 and the fourth by 2022.
Mumbai Trans Harbour Link (MTHL), a 21.8 km Freeway Bridge to connect Mumbai and Navi Mumbai is another big-ticket infrastructure project which has the capacity to change the face of the city.
The Maharashtra government is on right track with its infrastructure led growth strategy. The countries like China ‘achieved and sustained’ double digit growth through a similar agenda. The steps government needs to take is optimization of revenue expenditure and increase in capital expenditure. To achieve the trillion dollar economy target by 2025, the Maharashtra government also needs to aggressively push for private investment, and as union government has made corporate investment competitive, the time is ripe.