Source: The Hindu, Indian Express
- Prelims: Indian Economy(GDP, BOP, GVA, Economic reforms etc
- Mains GS Paper III: Indian economy and issues related to planning, mobilization of resources, Effect of liberalization on the economy etc
ARTICLE HIGHLIGHTS
- By 2047, India will complete 100 years after Independence. By that time
- If India will achieve the status of a developed economy, it means achieving a minimum per capita income equivalent to $13,000.
INSIGHTS ON THE ISSUE
Context
Background of Indian Economy:
After Independence India’s strategy of development comprised four elements:
- Raising the savings and investment rate
- Dominance of state intervention
- Import substitution
- Domestic manufacture of capital goods
Reason for Economic reforms of 1990-91:
- Economic crisis of 1990-91.
- Model India had chosen was not delivering.
What directions were chosen for reforms?
- Dismantling the complex regime of licenses and permits
- Redefining the role of state
- Giving up the inward looking trade policy.
How did the Indian economy perform before the economic reforms of 1991?
- Per capita income growth rate was extremely modest at 1.4(one point four)%.
- Health and social parameters: literacy rate and life expectancy, there were noticeable improvements.
- Rely on the heavy imports of foodgrains on a concessional basis.
- Breakthrough in agriculture after the Green Revolution.
- Industrial base widened: India was capable of producing a wide variety of goods including steel and machinery.
- Growth: The Indian economy grew at 5.6(five point six)% in the 1980s.
- Sharp deterioration in the fiscal and current account deficits
- Economic crisis: the economy faced its worst crisis in 1991-92.
Growth after economic reforms:
- GDP at factor cost: The best performance was between 2005-06 and 2010-11 when GDP grew by 8.8(eight point eight)%.
- Investment rate: investment rate reached a peak of 39.1(thirty nine point one)%(2007-08)
- Savings rate: increase in the savings rate.
- Current account deficit in the Balance of Payments (BOP) remained low at an average of 1.9(one point nine)%
- Growth rate: The growth rate touched the 3.7(three point seven)% level in 2019-20.
Problems faced since 2011-12:
- Twin-balance sheet problem: Indian banks being burdened with a rising mountain of Non-Performing Assets (NPAs)
- Indian companies being over-leveraged on the other.
- In 2020(before pandemic): India’s economic growth rate had decelerated to less than 4%.
- Unemployment: It was at a 45-year high.
- Nomura Research: It expects India to grow at just 4.7(four point seven)% in 2023.
Morgan Stanley (MS) report:
- Four global trends of Demographics, Digitalization, Decarbonization and Deglobalization: They imply that India is set to become the third-largest economy within the coming decade.
- India’s GDP: It is likely to surpass $7.5(seven point five) trillion by 2031.
- Per-capita income: It is expected to rise from $2,278 now to $5,242 in
What will trigger this rise?
- Off-shoring: The pandemic enhanced India’s attractiveness as the office to the world.
- The emergence of distributed delivery models, along with tighter labor markets globally, has accelerated outsourcing to India.
- Digital differentiation: India is pursuing a distinct model for the digitalization of its economy, supported by a public utility called IndiaStack”.
- Energy transition: The difference for India is that both its energy consumption and energy sources are changing simultaneously in a disruptive fashion.
- India’s energy needs are still growing, and therefore legacy capacity using fossil fuels will not be destroyed as it transitions to a higher share of renewables.
What are the risks involved?
- Global recession: Prolonged global recession or sluggish growth
- Adverse geopolitical developments
- Domestic politics and policy errors
- Shortages of skilled labor
- Steep rises in energy and commodity prices
Present Economic status of India:
- Fifth largest economy: India today is the fifth largest economy
- Per capita income: In 2020, India’s rank was 142 out of 197
How will India achieve the status of a developed nation?
- Growth rate: If India achieves a 7% rate of growth continuously over the next two decades and more.
- Gross Fixed Capital Formation rate: India needs to raise the Gross Fixed Capital Formation rate from the current level of 28% of GDP to 33% of GDP.
- Incremental capital output ratio: maintain the incremental capital output ratio at 4.
UN Definition of Developed country:
- It classifies countries into low, lower-middle, upper-middle, and high-income
- This classification is based on an individual country’s gross national income (GNI) per capita.
- Low –Income Economy: GNI per capita of up to $1,085
- Lower Middle-income: GNI per capita up to $4,255
- Upper-Middle-income: GNI per capita $13,205
- High-Income economy: GNI per capita above $13,205
Way Forward
- Investment: A proper investment climate must be created and sustained.
- Public investment should also rise, the major component of investment is private investment(both corporate and non-corporate).
- New technologies: India needs to absorb the new technologies that have emerged, and that will emerge.
- Development strategy must be multidimensional; India needs:
- strong export sector.
- strong manufacturing sector
- Social safety: India must also strengthen the system of social safety nets.
- Growth without equity is not sustainable.
- OECD reports: A decline in growth in developed countries.
- Some adjustment on the composition of growth may become necessary.
- UN’s demographic data and IMF economic data: China and India will become the world’s top two economies with 0 percent and 16.2(sixteen point two)percent respectively of 2100 world GDP, respectively
QUESTION FOR PRACTICE
Do you agree that the Indian economy has recently experienced recovery ? Give reasons in support of your answer.(UPSC 2021) (200 WORDS, 10 MARKS)
