GS Paper 3
Syllabus: Indian Economy
Source: The Hindu
Direction: Just go through it once
Context: Success of India’s economy in the last 75 years
At the time of Independence: The newborn nation was highly impoverished, thanks to centuries of colonial exploitation.
- It was critically dependent on foreign aid for food and forex and had an average life expectancy of only 32 years.
- The level of illiteracy was very high.
Status today:
- Third largest economy: India is today the third largest economy in terms of purchasing power parity, and in terms of the nominal exchange rate of the dollar, India is the sixth largest economy.
- Growth rate: It has grown at an average rate of 7% per annum for the past 40 years, growing from a size of $189 billion in 1980 to nearly $3 trillion today.
- Comparison with China: This growth rate is about 2% lower than that of China over the same period but represents a higher rate of return when compared with the investment rate of the GDP.
- Foreign exchange: It holds the fifth largest stock of foreign exchange and is a net lender to the International Monetary Fund, a far cry from having to go with a begging bowl to the IMF on the brink of forex bankruptcy in 1991.
- Extreme Poverty: The level of extreme poverty is down sharply from nearly 50% to possibly single digits, and life expectancy has more than doubled since 1947.
- BOP surplus: India is the rare Asian country with a persistent current account deficit, as imports always exceed exports. And yet, foreign investors, pour investment, leading to a consistent balance of payment currency surplus for India.
- Strong fundamentals of the economy: The foreign investor is confident that even with twin deficits (fiscal and external), the growth of the economy, driven by demography and dynamism, can pay for the deficits.
- Strong democracy: India’s robust democracy stands in sharp contrast to the authoritarian regime of its more affluent northern neighbour. Many large countries such as the USSR broke up into smaller splinters meanwhile.
- India has witnessed largely bloodless and peaceful transfer of power — 16 times — something that other former colonial, developing countries can only envy.
- High exports: India’s trade to GDP ratio, an indicator of its openness is higher than the United States. It is now the world’s leading exporter of software and an outsourcing powerhouse.
- High remittances: Indian workers send nearly 100 billion dollars of inbound remittance, which strengthens the Indian economy. In an indirect way, it is like India’s labour export income.
- Proliferation of unicorns (valued highly by equity investors), the exponential growth of e-commerce and digital payments, and a widening industrial base.
- Consistent growth in agriculture: Agriculture is much less dependent on the vagaries of the weather, and diversification towards more climate, soil and market-appropriate crops is evident, as is the huge growth in the animal husbandry and dairy sector.
Issues that remain:
- Unemployment remains a huge challenge, as the youth still scramble for government jobs. The government disclosed in Parliament recently that 220 million Indians had applied for just seven lakh government jobs in the past seven years.
- Labour force participation rate is low, alarmingly so for women. Job creation is priority number one, even as nearly 70% of industrial jobs are vulnerable to becoming extinct, thanks to automation and robotics.
- High level of hunger: Despite PDS, India’s ranking in the world hunger index is abysmal, signifying the lopsided distribution of economic growth.
- Inequality in income, wealth, and access to quality education and health facilities is widening.
- Was late to adopt a free market economy: India was more inward-looking and influenced, by the Soviet planning model of development. One could argue, with hindsight, that it should have been abandoned much earlier than when we actually did.
- But it did pay dividends in terms of infrastructure and green revolution. It just stayed longer than it needed to.
- Late on capitalizing on export-led growth: India also missed the bus, unlike her East Asian neighbours, on capitalising on labour-intensive export-led growth. But after the shock of 1991, the economy opened up dramatically.
Conclusion: To generate 10 million jobs annually, we need lakhs of new enterprises to be born. That calls for ease of doing business, especially in areas such as dispute resolution and contract enforcement. Judicial reform is as urgent as job creation. India is the fastest-growing large economy, proud of its democratic foundations, but much work remains to be done.
Insta Links
Indian economy in the present times
Mains Links
Q. Evaluate the performance of the Indian economy in the last 75years since Indian independence. Has it been able to live up to the initial expectations? (250 Words)
