Print Friendly, PDF & Email

EDITORIAL ANALYSIS : The GDP surprise

 

Source: 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

  • The Indian economy expanded by a staggering 6(seven point six) percent in the second quarter of the ongoing financial year.

 

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.

 

Growth status:

  • The manufacturing sector grew at a robust 9(thirteen point nine)percent in the second quarter
    • compared to 7(four point seven)percent in the first quarter.
  • Growth in the second quarter was at a nine-quarter high.
    • The contribution of the sector reached a nine-quarter high of 5 percent.

 

Reason for upstick in manufacturing sector:

  • Policy initiatives like:
    • Government capital expenditure
    • PLI scheme (ensuring export competitiveness in specific sectors)
    • Formalization drives in both MSMEs (Udyam)
    • Labour force (e-shram)
    • Stabilization in incremental credit deployment.

The corporate sector:

  • The bottom line has grown in the second quarter (at 31 percent)
    • It is in line with the first quarter growth of 30 percent.
  • FMCG sector: A barometer of rural consumption
    • It reported revenue growth of 5 percent
    • EBIDTA (earnings before interest, depreciation, tax and amortization) and PAT (profit after tax) grew by 16 percent and 15 percent
  • Private consumption decelerated to 3 percent, perhaps reflecting the impact of higher inflation.

Sectors reporting higher credit rating upgrades to downgrade (U/D) ratios in the current year:

  • Auto components and ancillaries
  • Gas distribution utilities
  • Telecommunication services, hotels, restaurants and leisure, retailing
  • NBFCs

Agriculture:

  • It grew steadily during the pandemic
  • It grew by 2(one point two)percent in the second quarter
  • A weak monsoon has led to lower-than-normal kharif crop output this year.
    • It has delayed the harvesting of kharif crops and, in turn, affected the rabi crop sowing.
  • Within the farm sector: The share of “allied activities’ ‘ (this includes dairy, fisheries, etc)
    • It may serve as a counter-cyclical buffer in the agriculture ecosystem
    • It has increased from 6(thirty four point six)percent in 2011-12 to 46 percent in 2021-22.
    • It reduces dependence on farm income.
  • The banks have started financing the entire agri value chain.
  • Agri loans by banks have increased by 4 percent in 2022-23, from around 10 percent in the past two years.
    • In 2023-24, they have, on average, increased by 17 percent.

Service sector:

  • The growth moderated to 8(five point eight)percent due to low growth in trade, hotels, transport and communication.
    • This sector has the maximum weightage in services.
  • Service sector has expanded by 9 percent, which is much higher than the average 3 percent decline in the second quarter of every fiscal year till the pandemic.

Way Forward

  • Government consumption and investments registered healthy growth.
    • Investment as measured by gross fixed capital formation increased by 11 percent
    • Driven by strong capital expenditure by the Centre (49 percent of budgeted target)
    • States (32 percent of budgeted) in the first half of the current fiscal.
  • If there is one risk that foresees it is the possibility of much softer global growth.
  • Major economies have witnessed further tightening of financial conditions.
    • Global trade continues to face significant headwinds.
  • The economy is unlikely to slow down in line with other major economies of the world as the government continues to undertake reforms.
  • 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.

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)