- 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)
