GS Paper 3
Syllabus: Indian Economy and issues
Source: The Hindu
Directions: The source article is a lead op-ed that analyses issues with the ‘India story. The article is important as questions on issues in the Indian economy and post-COVID recovery have been asked in mains.
Context: COVID-19 pandemic is receding and economies are on the path of re-growth with similar bullishness for the Indian economy but the worrisome issue is that the slowdown in India began much before the pandemic.
Indicators of structural issues:
- Economic disruptions even in the pre-COVID era like demonetization and GST reforms.
- Economic Survey 2020-21 also points out the debt forbearance by RBI and other regulators after the 2008 Global Financial crisis that led to NPA (Non-Performing Assets) crisis.
- Forbearance is a form of repayment relief involving the temporary postponement of loan payments, typically for home mortgages or student loans.
- The NPA crisis also had the cascading effect of low credit supply. The imbalance was led by the decline of credit by Public sector banks as well as the NBFC liquidity crisis.
- Youth employability is low due to a lack of skills and vocational training in formal education.
- Low manufacturing base: Decline of agriculture led to gross rural-to-urban migration. However, this youth could not be absorbed into higher productivity due to a lack of skill (needed in the service sector) and industrial base.
- The investment rate in the economy fell from nearly 40% in FY14 to 32.2% in FY20.
- The investment rate (business statistics) is the ratio of gross tangible investment to value added.
- Shift the policy focus from a few rich corporations to the larger segments of the population — small businesses, farmers, and ordinary labourers.
- Focussing on the skilling of youth and re-skilling of employed workers to increase employment as well as productivity.
- Capacity building and welfare measures to provide basic amenities. This is seen in schemes like PM-Gareeb Kalyan Yojana, Ayushman Bharat (PM-JAY), and PM-Awas Yojana.
- Improving credit supply by rationalisation of public sector banks and pushing for last mile reach of formal credit via institutions like NABARD.
- Leveraging diplomatic might to include India in global supply chains, attract FDI and long-term credit from Global Development Finance institutions (World bank, AIIB, NDB, et al)
Recent steps like the PLI (Production Linked Incentive) scheme for the manufacturing sector and various skilling programs paired with COVID-led welfare measures have the potential to turn around growth and make ‘the India story’ a reality. India’s current already outpaces most developed and developing economies and hence, it has the potential.
Q.“ Economic growth is a precondition for inclusive growth”, Do you agree? Analyse.