- 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
- Semi-annual report of IMF: World Economic Outlook, ‘Navigating Global Divergences’ October 2023:
- It has revised its projected GDP growth rate for India for 2023-24 to 6.3(six point three)%, up from the earlier 6.1(six point one)%.
INSIGHTS ON THE ISSUE
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.
Other projections in IMF report:
- IMF revised downwards world GDP growth projection, including China’s by 3(zero point three)percentage points, to 4.2%.
- Economies that were worst affected during the COVID-19 pandemic were also the ones to record a steep recovery is widely acknowledged.
Projections for India:
- During the second quarter of 2020, India’s GDP contracted by 6(twenty five point six)%, quarter on quarter.
- The output contraction in 2020-21, at 8.5(eight point five)% over the previous year, was one of the worst among the world’s large economies.
- India’s real (inflation adjusted) annual GDP growth rate slowed down from 8(six point eight)% in 2016-17 to 2.8(two point eight)% in 2019-20.
- Real per capita income level in 2021-22, at ₹1.09 lakh, was higher than that in 2019-20 by about ₹600.
- In 2022-23, recovery gained momentum as domestic supplies were restored and global supply chains were straightened out.
- Susceptibility to its soaring deficit with China: India’s economic frailty has increased even as the net exports (exports minus imports) to GDP ratio has declined sharply.
- India’s dependence on Chinese imports of manufactures seems structural, and not easily corrected by changes in relative prices.
- China accounts for 15%-16% of India’s imports and a third of India’s trade deficit.
- Steady decline in industrial growth rate, from 1(thirteen point one)% per year in 2015-16 to negative 3.5% per year in 2019-20 (before COVID-19).
- Industrial growth rates as per the Index of Industrial Production (IIP): It shows an alarming regression over a longer period.
- From 2011-12 to 2021-22, gross fixed capital formation to GDP ratio at current prices, declined steadily from 3(thirty four point three)% to 28.9(twenty eight point nine)% — an unprecedented fall in post-independent India.
- The public sector share has remained constant at 8% (National Accounts).
- Net foreign direct investment (excluding disinvestment and outward foreign direct investment), to current GDP ratio fell from 6(three point six)% in 2008 to 2.4(two point four)% in 2022 (World Development Indicators).
Public investment has three parts:
- The central government
- The States
- Central public sector undertakings (PSUs).
- Public investment by State governments, based on the Centre’s loans and advances to States, is conditional upon policy reforms.
- The rise in the Centre’s investment is due to the merging of extra-budgetary borrowing by central PSUs with the Centre’s own Budget.
- Public investment seems around 6% of GDP — perhaps similar to its pre-COVID-19 levels.
- Policymakers need to temper their optimism by taking a slightly longer view with a wider angle — appreciating the fast-changing geopolitical underpinnings of economic policy making.
- The value of India’s HDI index moderated from 0.645 in 2018 to 0.633 in 2021; Its global rank went down by one rank during 2015-21 — meaning that other countries have performed better than India.
- The strategic threat posed by an unrelenting rise in trade deficit with China, despite government’s best efforts; its mirror image is a decline in industrial output growth rates, especially capital goods’ decimation;
- 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.
- 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.
- The government’s support for agriculture has led to fruits, vegetables, the ‘dairy and livestock products combined’, and fishery growing at unprecedented growth rates.
- 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)