- Prelims: Indian Economy(GDP, BOP, GVA, IMF, liberalization, female labor force participation rate (FLFPR), World Bank, RBI, 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
- India has 7%-plus GDP growth rate and is the fastest-growing economy in the world
- This century is named ‘India’s century’.
- India’s vision: $30-trillion economy by 2047.
INSIGHTS ON THE ISSUE
Context
Vision India@2047:
- Vision India@2047 is a project initiated by the NITI Aayog, to create a blueprint for India’s development in the next 25 years.
- The project aims to make India a global leader in innovation and technology, a model of human development and social welfare, and a champion of environmental sustainability.
- Objective: Achieving a USD 30 trillion economy with a per-capita income of USD 18,000-20,000 and strong public finances and a robust financial sector.
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.
Background of India’s economic development:
- From Independence till 1991: India’s poverty rate stayed at approximately 50% despite socialist policies emphasizing poverty reduction.
- Between 1991 and 2011: The poverty rate fell to approximately 20%.
- India’s growth pulled 35 crore people out of abject poverty during this period.
- Between 1990 and 2013, exports as a percentage of India’s GDP grew from 7% in 1990 to 25% in 2013.
Issues in India’s economic growth:
- The data does not show much change in the gini coefficient.
- India’s high-growth years of 2000-10 were led by an IT services boom that spawned an affluent middle-class.
- However, 46% of our labor force remains in agriculture
- It is characterized by low productivity and under-employment, contributing just 18% of our GDP.
- India’s female labor force participation rate (FLFPR) — just 37%.
- It was 26% in 2019, and post-COVID-19, several women have gone back to work as agricultural labor.
- FLFPR in China, Vietnam, and Japan, all between 60%-70%.
- India’s working-age population – sized 950 million, only half of whom are employed
Economic growth of South Korea, Taiwan, Japan, and Vietnam(called the ‘Asian Tigers)
- Low-skilled, employment-intensive manufacturing with a strong focus on exports
- They regularly achieved double-digit growth between 1960-90.
- Economic policy, focused on rapid export-oriented industrialisation
- It was premised that growing exports require focusing on your advantages while being receptive to imports in other areas.
Import tariffs and their impact:
- They will disadvantage Indian manufacturers, say a mobile phone maker who has to import components from China.
- Tariffs will artificially inflate the prices of the many parts needed for their finished phones, ultimately raising the prices of downstream Indian exports.
Middle income trap:
- The middle-income trap refers to a situation where a country, after reaching a middle-income status, struggles to transition to high-income status.
- This happens when economic growth slows down after an initial period of rapid progress, and the country remains stuck at a middle-income level without advancing further to high-income levels.
- Of 101 middle-income economies in 1960, only 23 had attained high-income status by 2018
- India is a lower-middle-income economy that must graduate to middle-income status by the early part of the next decade.
- Reasons countries get in the middle-income trap:
- Economies losing their edge in lower-end sectors
- Economies not being competitive enough with more prosperous countries in high-tech sectors.
India’s problem of middle income trap:
- India has been unable to leverage surplus labor to grow in low-end sectors.
- The IT boom gave us an alternative pathway to growth, but the headroom there is limited.
How should India avoid the middle income trap?
- India’s social sector and civil society should view campaigns that paint factories (hubs of low-tech manufacturing) as sweatshops, decrying their work conditions and low wages.
- A market-led economy that lets private enterprise thrive, without the government, or perceptions of factory jobs, getting in the way
- Minimum Government, Maximum Governance.
- Reforms to enhance ‘ease of doing business’ must not stall.
Way Forward
- As India tries to capitalize on the China+1 moment to attract global manufacturers and their supply chains, and further augment its exports
- India must resist the temptation of putting up huge tariff walls for imports.
- The government must double down on its impressive achievements in revamping India’s infrastructure by building industrial clusters that are on a par with those in China and Vietnam
- Supply with plug-and-play infrastructure and ancillary ecosystems, for education, health care and entertainment, which would attract both employers and workers.
- A cluster-led model of industrial development, whereby stringent regulations are relaxed in designated areas
- It helps to create a favorable environment for manufacturing.
- The government must leverage the strengths of the private sector and its own penchant for reforms to focus on low-skilled manufacturing
- That can employ multitudes of people in sectors such as electronics assembly and apparel.
- This opportunity needs to be made more lucrative for scores of Indians.
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)
