EDITORIAL ANALYSIS  :    Acknowledge India’s economic successes too

Source: The Hindu

• 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

• In FY2023 India grew year-over-year (YoY) at 2%(seven point two), the fastest among major economies.
• In FY2024, the International Monetary Fund (IMF) projects India’s YoY growth at 3(six point three)%, again the fastest among major economies.

INSIGHTS ON THE ISSUE

Context

International Monetary Fund (IMF) projections:

• India is currently the fifth largest economy in the world in U.S. dollar terms
• It projects that India will be the third-largest economy by 2027.
• India has registered the highest growth rate amongst G20 countries, surpassing China’s for two successive years.
• IMF’s historical data shows that India took six decades (1947 to 2007) to cross the one trillion-dollar GDP mark in 2007 ($1.2 trillion).
  • It took India just seven years to become a $2 trillion economy in 2014.
  • It added another $1.2(one point two)trillion by 2021.
• If India hits the IMF’s projected figure of $5.2(five point two)trillion by 2027: It would be adding $2 trillion in just six years.

GDP and per capita GDP in purchasing power parity (PPP)

• It determines what a US dollar can buy in that country.
• Measuring GDP on a PPP basis shows that India already has the third highest with a GDP of $13 trillion (PPP)
  • China is at the top ($33 trillion, PPP)
  • The US is second ($9(twenty six point nine)trillion).
• PPP conversion ratios can vary widely across countries
  • The price levels of goods and services could differ significantly.
• India’s conversion ratio from dollar to PPP is 3.5(three point five)-almost twice that of China at 7(one point seven).
  • Example: If a US dollar can buy a burger in its home country, the currency can buy 3.5 burgers in India and 1.7 burgers in China.
• India’s per capita income is the lowest in G20 countries in both dollar ($2,601) and PPP terms ($9,073)
• China’s one-child family policy from 1981 to 2016 has given the dividend of raising per capita GDP to $23,382 PPP,
  • The US is at the top with a per capita GDP of $80,035.

Components of YoY growth rate of 7.2% in FY23:

• Which measures annualized progress over the pre-pandemic year.
• Which measures annual recovery of the output lost to the pandemic.
  • The latter in no way is less significant than the former.

Economic challenges of the pre-COVID-19 period:

• In the aftermath of the global financial crisis of 2007-08, growth in world trade fell, dampening the trade stimulus for economies worldwide, including the Indian economy.
• The domestic credit bubble burst as high leverage in the corporate sector
  • It led to frequent defaults in repayments and a consequent surge in non-performing assets of public sector banks.
• The twin stresses on the balance sheets combined with elevated prices in real estate led to a lower investment rate in the Indian economy.
• Public capex could not add much to the investment rate.
• The new government opted for fiscal discipline to address the legacy challenges of large fiscal deficits, high inflation, and a widened current account deficit.
• With trade and domestic investment weakening, the Indian economy grew at a rate less than its potential in the second decade.

Government’s measures:

●      Liberalization of the economy has resulted in an upward-level shift of net foreign direct investment inflows.

●      The Insolvency and Bankruptcy Code (IBC) introduced in 2015 has

○      addressed delinquency

○      lowered the non-performing assets in the banking sector

○      setting the stage for private corporate investment to take off.

●      The demonetisation drive of 2016 has reduced black money by improving tax compliance.

●      The Goods and Services Taxes (GST) rolled out in 2017 has mobilized higher revenues and unified fragmented markets to build economic synergies.

●      The reduction in the corporate tax rate in 2019 to one of the lowest in the world has increased corporate reserves, which are being leveraged to finance higher investments.

●      In FY22, the government embarked on a large Capex programme and provided resource support to State governments to increase their Capex budget.

○      Reasons for upscaling of the Capex budget:

■      Plug gaps in physical infrastructure

■      “crowd-in” private corporate investment

●      Data from Axis Bank: It shows private corporate investment rose by 22.4(twenty two point four)% in FY23, with 15 out of 19 sectors witnessing an expansion in private capital investment.

●      Government has been focusing on inclusive growth, as reflected in its commitment to Sabka Saath Sabka Vikas.

●      Government support towards livelihood enhancement, skill development, women’s empowerment, and infrastructure development.

Way Forward

• Report by NITI Aayog: A remarkable decline in the prevalence of multidimensional poverty in India;
  • 5(thirteen point five)crore Indians are estimated to have escaped multidimensional poverty between 2015-16 and 2019-21
  • Rural areas largely drive the decline in the headcount ratio of the Multidimensional Poverty Index.
• There has been tangible progress in rural living standards, aided by a policy focus on basic amenities.
• The National Family Health Survey for 2019-21 provides ample evidence of a significant improvement in an array of indicators concerning the:
  • quality of rural lives
  • including access to electricity
  • improved drinking water sources
  • coverage under health insurance schemes.
• Various health-related indicators, such as institutional births, immunization and health insurance coverage, have also seen an uptrend.
• The government’s support for agriculture has led to fruits, vegetables, the ‘dairy and livestock products combined’, and fishery growing at unprecedented growth rates.
• The share of fruits and vegetables in the food basket has increased to 4(nineteen point four)% in 2021.
• The percentage of livestock products has come to account for about 38% of the total value of agri-food.
  • The country’s food basket is more nutritious today than ever.
• India is aware of the long road ahead to achieve high-income status and a high quality of life for a majority of its citizens.

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)