The Maharashtra government recently announced that it expects the state' economy to grow to $1 trillion by 2025.
That would seem to be a difficult task considering the fact that the Gross State Domestic Product (GSDP) currently stands currently at only $400 billion.
GSDP is the monetary volume of all goods produced and services rendered in a given time in a state
To meet the $1 trillion target, the state' GSDP would need to grow at 14% year-on-year until 2025.
Here is how the projections would look like:
The historical rate of economic growth in Maharashtra has varied between 7-10% per year, according to various reports.
The economy, however can be boosted to a trillion dollar economy by implementing several measures, most importantly increasing domestic production & manufacturing output, infrastructure, and focusing on trade/exports.
Maharashtra’s annual exports have hovered at Rs. 4.5 lakh crores for the last four years, while the state’s GSDP for 2017-18 was reported at approximately Rs. 19.6 lakh crore (according to a state survey compiled in 2017) - this means that exports contributed 23% to the state’s GSDP.
The importance of exports to the economy is shown by a data published by the World Bank. The data shows a high exports to GDP ratio of several developing economies such as Singapore* (173.3%), Vietnam (101.6%), and Malaysia even (71.5%).
*According to another report Singapore's trade accounts for 40% of re-exports which may not be linked to the GDP, hence a higher percentage. The same could be said for Vietnam.
Here is a graph from the World Bank on exports as a share of GDP.
Source: World Bank
The graph shows Global exports to GDP. Interestingly, the extension of the graph says Sri-Lanka's exports as a % of GDP stood at 21.93%, while India's stood at 18.87% and China's (Mainland) was reported at 19.76%
This is a clear indication of the importance of a robust export sector to GDP, and a signal to Maharashtra to focus on supporting its exporters.
If Maharashtra emulates a higher export ratio, it could pass the trillion dollar mark by 2025.
However, even if the growth rate is lower and remains at an annual level of about 9%, membership to the trillion-dollar club is assured by 2029.
Maha Economy at an inflection point
Maharashtra’s economic parameters are far ahead of many other Indian states. Per capita income in the state stood at Rs. 1.65 lakhs in 2016-17 as against a national average of Rs. 1.03 lakhs.
Exports from Maharashtra form a substantial part of the nation’s total exports. The top goods exported from the state include textiles, readymade garments, cotton yarn, metal & metal products, agro commodities, engineering items, drugs & pharmaceuticals, and plastic & plastic items.
The economic survey of the state of Maharashtra paints a vivid picture of its exports.
Take a glance:
Source: Economic Survey of Maharashtra 2017-18.
Let's put Maharashtra’s $1 trillion ambition into perspective. As of March 2018, there were only 16 countries with an economy of that size. The Indian economy itself grew to a trillion dollars as recently as 11 years ago.
International trade holds tremendous potential for the state as well as the country.
The government has set itself stiff targets on this front. Speaking at a recent Maharashtra global investor summit, Suresh Prabhu, India’s commerce minister said, “Exports is the driving force of our growth strategy. We are coming out with a comprehensive strategy to increase the share of global trade to 40% of GDP…”
$ 1 trillion? Probable?
Maharashtra’s export volumes are already far ahead of every other state in the country, but there is still enormous scope to boost these numbers.
Maharashtra is well-positioned to increase the size of its manufacturing sector. In addition to the highly developed Mumbai region, the state has industrialized areas in Nashik, Pune, Konkan, Nagpur, Aurangabad, and Amravati. Additionally, Maharashtra has over 20 Special Economic Zones, which can also play a pivotal role.
Apart from manufacturing, Maharashtra also has a huge agricultural sector and is the leading exporter of several products like cotton, raw sugar, grapes, etc. As the US-China trade war amps up, the state is seeing increasing demand for these goods from the US as well as China, making this the perfect opportunity for the state administration to focus on boosting these export segments.
China’s economy is currently going through a fundamental change. The country’s focus is shifting away from manufacturing as it tries to boost its services and tech sector. While it is true that China will remain the “factory to the world” for the foreseeable future, the move away from manufacturing provides Maharashtra’s exporters with the chance to push their products into overseas markets which have been saturated with Chinese goods for a long time.
Other factors are also playing to the state’s advantage. For example, the weakening of the Indian rupee has given exporters the opportunity to compete in a more effective manner in the international market. A CRISIL report from March 2018 states, "Global growth is gathering pace, and the momentum in global trade is expected to continue in 2018 as well."
Thus, if Maharashtra is to make its dream of a trillion-dollar-economy a reality, it needs to capitalize on existing favorable conditions and make a steady push to boost its exports.
Pushkar Mukewar is the Co-founder at Drip Capital. Drip Capital helps SMEs solve the gap of working capital.