India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.
- India’s real gross domestic product (GDP) at current prices stood at Rs. 135.13 lakh crore (US$ 1.82 trillion) in FY21, as per the provisional estimates of annual national income for 2020-21.
- India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.
- India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030’s, for productivity and economic growth according to McKinsey Global Institute. Net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.
- According to data from the RBI, as of the week ended on June 04, 2021, the foreign exchange reserves in India increased by US$ 6.842 billion to reach US$ 605 billion.
- With an improvement in the economic scenario, there have been investments across various sectors of the economy. Private Equity – Venture Capital (PE-VC) sector recorded investments worth US$ 20 billion in the first five months of 2021, registering a 2x growth in value compared with the same period in 2020. Some of the important recent developments in Indian economy are as follows:
- Merchandise exports stood at US$ 62.89 billion between April 2021 and May 2021, while imports touched US$ 84.27 billion. The estimated value of service exports and imports Cumulative FDI equity inflows in India stood at US$ 763.58 billion between April 2000 and March 2021. Foreign Direct Investment (FDI) inflows in India stood at US$ 6.24 billion in April 2021, registering an increase of 38% YoY.
- India’s Index of Industrial Production (IIP) for April 2021 stood at 126.6 against 143.4 for March 2021.
- Consumer Food Price Index (CFPI) – Combined inflation was 5.01 in May 2021 against 1.96 in April 2021.
- Consumer Price Index (CPI) – Combined inflation was 6.30 in May 2021 against 4.23 in April 2021.
- In June 2021, foreign portfolio investors (FPIs) turned net buyers by investing Rs. 12,714 crore (US$ 1.71 billion) into the Indian markets. According to depositories data, between June 1, 2021 and June 25, 2021, FPIs invested Rs. 15,282 crore (US$ 2.06 billion) in equities.
- between April 2021 and May 2021 stood at US$ 35.39 billion and US$ 19.86 billion, respectively.
- In May 2021, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 50.8.
- Gross GST collections stood at Rs. 141,384 crore (US$ 19.41 billion) in April 2021.
- The first Union Budget of the third decade of 21st century was presented by Minister for Finance & Corporate Affairs, Ms. Nirmala Sitharaman in the Parliament on February 1, 2020. The budget aimed at energising the Indian economy through a combination of short-term, medium-term and long-term measures.
- In the Union Budget 2021-22, capital expenditure for FY22 is likely to increase to increase by 34.5% at Rs. 5.5 lakh crore (US$ 75.81 billion) over FY21 (BE) to boost the economy.
- Increased government expenditure is expected to attract private investments, with production-linked incentive scheme providing excellent opportunities. Consistently proactive, graded and measured policy support is anticipated to boost the Indian economy.
- In May 2021, the government approved the production linked incentive (PLI) scheme for manufacturing advanced chemistry cell (ACC) batteries at an estimated outlay of Rs. 18,100 crore (US$ 2.44 billion); this move is expected to attract domestic and foreign investments worth Rs. 45,000 crore (US$ 6.07 billion).
- The Union Cabinet approved the production linked incentive (PLI) scheme for white goods (air conditioners and LED lights) with a budgetary outlay of Rs. 6,238 crore (US$ 848.96 million) and the ‘National Programme on High Efficiency Solar PV (Photo Voltic) Modules’ with an outlay of Rs. 4,500 crore US$ 612.43 million).
- In June 2021, the RBI (Reserve Bank of India) announced that the investment limit for FPI (foreign portfolio investors) in the State Development Loans (SDLs) and government securities (G-secs) would persist unaffected at 2% and 6%, respectively, in FY22.
- To boost the overall audit quality, transparency and add value to businesses, in April 2021, the RBI issued a notice on new norms to appoint statutory and central auditors for commercial banks, large urban co-operatives and large non-banks and housing finance firms.
- In May 2021, the Government of India has allocated Rs. 2,250 crore (US$ 306.80 million) for development of the horticulture sector in 2021-22.
- In November 2020, the Government of India announced Rs. 2.65 lakh crore (US$ 36 billion) stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction and housing. Also, India’s cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.
- Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India. Mr. Narendra Modi, Prime Minister of India, launched Make in India initiative with an aim to boost country’s manufacturing sector and increase purchasing power of an average Indian consumer, which would further drive demand and spur development, thus benefiting investors. The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector with an aim to take it to 25% of the GDP from the current 17%. Besides, the Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy.
Some of the recent initiatives and developments undertaken by the Government are listed below:
- In June 2021, RBI Governor, Mr. Shaktikanta Das announced the policy repo rate unchanged at 4%. He also announced various measures including Rs. 15,000 crore (US$ 2.05 billion) liquidity support to contact-intensive sectors such as tourism and hospitality.
- In June 2021, Finance Ministers of G-7 countries, including the US, the UK, Japan, Italy, Germany, France and Canada, attained a historic contract on taxing multinational firms as per which the minimum global tax rate would be at least 15%. The move is expected to benefit India to increase foreign direct investments in the country.
- In June 2021, the Indian government signed a US$ 32 million loan with World Bank for improving healthcare services in Mizoram.
- In May 2021, the Government of India (GoI) and European Investment Bank (EIB) signed the finance contract for second tranche of EUR 150 million (US$ 182.30 million) for Pune Metro Rail project.
- According to an official source, as of June 2021, 29 companies including global electronics manufacturing organisations, such as companies Foxconn, Sanmina SCI, Flex, Jabil Circuit, have registered under the Rs. 12,195 crore (US$ 1.64 billion) production linked incentive scheme for the telecom sector.
- In May 2021, Union Cabinet has approved the signing of memorandum of understanding (MoU) on migration and mobility partnership between the Government of India, the United Kingdom of Great Britain and Northern Ireland.
- In April 2021, Minister for Railways and Commerce & Industry and Consumer Affairs, Food & Public Distribution, Mr. Piyush Goyal, launched ‘DGFT Trade Facilitation’ app to provide instant access to exporters/importers anytime and anywhere.
- In April 2021, Dr. Ahmed Abdul Rahman AlBanna, Ambassador of the UAE to India and Founding Patron of IFIICC, stated that trilateral trade between India, the UAE and Israel is expected to reach US$ 110 billion by 2030.
- India is expected to attract investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23.
- The Government of India is going to increase public health spending to 2.5% of the GDP by 2025.
- For implementation of Agriculture Export Policy, Government approved an outlay Rs. 2.068 billion (US$ 29.59 million) for 2019, aimed at doubling farmers income by 2022.
- As indicated by provisional estimates released by the National Statistical Office (NSO), India posted a V-shaped recovery in the second half of FY21. As per these estimates, India registered an increase of 1.1% in the second half of FY21; this was driven by the gradual and phased unlocking of industrial activities, increased investments and growth in government expenditure.
- As per the Reserve Bank of India’s (RBI) estimates, India’s real GDP growth is projected at 9.5% in FY22; this includes 18.5% increase in the first quarter of FY22; 7.9% growth in the second quarter of FY22; 7.2% rise in the third quarter of FY22 and 6.6% growth in the fourth quarter of FY22.
- India is focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30% and have plans to increase its renewable energy capacity from to 175 gigawatt (GW) by 2022. In line with this, in May 2021, India, along with the UK, jointly launched a ‘Roadmap 2030’ to collaborate and combat climate change by 2030.
- India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by PricewaterhouseCoopers.
(i) Low per capita income
(ii) Heavy population pressure
(iii) Dependence of population on agriculture
(iv) Poverty and Inequality income distribution
(v) Higher level of capital formation which is a positive feature
(vi) Planned economy
(i) Low per capita income
- India is known in the world as a country with low per capita income. Per capita income is defined as the ratio of national income over population. It gives the idea about the average earning of an Indian citizen in a year, even though this may not reflect the actual earning of each individual. India’s per capita income for the year 2012-2013 is estimated at 39,168.
- This comes to about 3,264 per month. If we compare India’s per capita income with other countries of the world then it can be seen that India is well behind many of them. For example, the per capita income of USA is 15 times more that of India while China’s per capita income is more than three times of India.
(ii) Heavy population pressure
- India is world’s second largest populated country after China. As per 2011 census India’s population stands at more than 121 crores. It increased at a rate of 1.03 percent during 1990-2001. The main cause of fast rise in India’s population is the sharp decline in death rate while the birth rate has not decreased as fast. Death rate is defined as the number of people died per thousand of population while birth rate is defined as the number of people taking birth per thousand of population.
- In 2010, the birth rate was 22.1 persons per one thousand population while the death rate was only 7.2 persons per one thousand population. In fact it is a sign of development. Low death rate reflects better public health system. But high birth rate is a problem because it directly pushes the growth of population.
- After 1921, India’s population increased very fast because birth rate declined very slowly while death rate declined very fast. From 49 in 1921 the birth rate declined to 22.1 in 2010 while during the same time period, death rate declined from 49 to 7.2. Hence the population growth was very rapid in India.
- Heavy population pressure has become a major source of worry for India. It has put burden on the public exchequer to mobilize enough resources to provide public education, health care, infrastructure etc.
(iii) Dependence on Agriculture
- Majority of India’s working population depend on agricultural activities to pursue their livelihood. In 2011 about 58 percent of India’s working population was engaged in agriculture. In spite of this, the contribution of agriculture to India’s gross domestic product is a little over 17 percent.
- A major concern of agriculture in India is that productivity in this sector is very less.
- There is heavy population pressure on land to sustain huge number. Due to population pressure on land the per capita availability of land area is very low and not viable for extracting higher output. Two, since per capita land availability is less, a majority of people are forced to become agricultural labour working at low wages.
- Three, Indian agriculture suffers from lack of better technology and irrigation facilities.
- Four, mostly people, who are not educated or not trained properly, are engaged in agriculture. So it adds to low productivity in agriculture.
(iv) Poverty and inequality
- As per reports of government of India, in 2011-12 about 269.3 million people in India were poor. This was about 22 percent of India’s population. A person is termed poor if he/she is not able to consume the required amount of food to get a minimum calorie value of 2400 in rural area and 2100 in urban area. For this the person must earn the required amount of money as well to buy the food items.
- The government has also estimated that the required amount of money is 816 in rural area and ` 1000 in urban area per head per month. This comes to about ` 28 in rural area and ` 33 in urban area per head per day. This is called poverty line. This implies that 269.9 million people of India were not able to earn such little amount in 2011-12. In 2018, almost 8% of the world’s workers and their families lived on less than US$1.90 per person per day (international poverty line).
- Poverty goes with inequality in income and wealth distribution. Very few in India posses materials and wealth while majority have control over no or very little wealth in terms of land holding, house, fixed deposits, shares of companies, savings etc.
- Only top 5 percent of households control about 38 percent of total wealth in India while the bottom 60 percent of household has control over only 13 percent of the wealth. This indicates concentration of economic power in a very few hand.
- Another issue linked to poverty is the problem of unemployment. One of the most important reasons of poverty in India is that there is lack of job opportunities for all the persons who are in the labour force of the country.
- Labour force comprises of the adult persons who are willing to work. If adequate number of jobs are not created every year, the problem of unemployment will grow.
- In India every year large number of people are added to the labour force due to increase in population, increase in number of educated people, lack of expansion of industrial and service sector at the required speed etc.
(v) Higher rate of capital formation or investment
- At the time of independence, one of the major problem of Indian economy was deficiency in capital stock in the form of land and building, machinery and equipment, saving etc.
- In order to continue the cycle of economic activities such as production and consumption, a certain ratio of production must go towards saving and investment.
- However, the required ratio was never generated in the first four to five decades after independence. The simple reason being higher consumption of necessary items by the population of whom most happened to be poor and lower middle income class.
- Collective household saving was very less due to this. Consumption of durable items was also very less. But in recent years things have charged. Economists have calculated that in order to support the growing population,
- India requires 14 percent of its GDP to be invested. It is encouraging to note that the saving rate of India for the year 2011 stands at 31.7 percent. The ratio of gross capital formation was 36.6 percent. This is possible because people are now able to save in banks, consume durable goods and there has been large scale investment taking place on public utilities and infrastructure.
(vi) Planned economy
- India is a planned economy. Its development process has been continuing through five year plan since the first plan period during 1951-56. The advantage of planning is very well known. Through planning the country sets its priorities first and provides the financial estimates to achieve the same.
- Accordingly efforts are made to mobilise resources from various sources at least cost. India has already completed eleven five year plan periods and the twelfth plan is in progress. After every plan a review is made analysing the achievements and short falls.
- Accordingly, things are rectified in the next plan. Today India is a growing economy and recognised every where as a future economic power. The per capita income of India is growing at a higher rate than before. India is seen as a big market for various products. All these are possible due to planning in India.
- Agriculture is one of the most important sectors of Indian economy. It is the supplier of food and raw materials in the country. At the time of independence more than 70 per cent of India’s population depended on agriculture to earn livelihood. Accordingly the share of agriculture in the national product/income was as high as 56.6 per cent in 1950-51.
- However with development of industries and service sector during the plan periods, the percentage of population depending on agriculture as well as the share of agriculture in the national product has come down. In 1960, the percentage of labour force engaged in agricultural activities was 74 which gradually came down over the years to 51 per cent in 2012.
- In 1960 the share of labour force in industry and service sectors stood at 11 and 15 percent respectively. But in 2012 these shares increased to 22.4 and 26.5 percent respectively. It has been observed in most of the economies that along with economic development shift in labour force from agriculture to industry and service sector takes place.
- Agriculture is the source of food supply. The production of food grains has increased from nearly 55 million tonnes in 1950-51 to 259 million tones in 2012- 13. Because of the growth in food grain production,
- India’s dependence on import of food grains has declined and almost become nil. Keeping in view the rapid growth in India’s population, increase in food grain was a necessity which the country achieved significantly. Except for pulses, increase in food grains has been mode possible by increase in cereals and various cash crops.
- Agriculture is also a major source of foreign exchange earning through export. The share of agriculture in India’s export in the year 2011-12 was 12.3 percent. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables etc.
In Current Scenario,
- Agriculture is the primary source of livelihood for about 58% of India’s population. Gross Value Added by agriculture, forestry, and fishing was estimated at Rs. 19.48 lakh crore (US$ 276.37 billion) in FY20. Share of agriculture and allied sectors in gross value added (GVA) of India at current prices stood at 17.8 % in FY20. Consumer spending in India will return to growth in 2021 post the pandemic-led contraction, expanding by as much as 6.6%.
- The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.
- Principal agricultural commodities export for April 2020 – January 2021 was US$ 32.12 billion.
- The Economic Survey of India 2020-21 report stated that in FY20, the total food grain production in the country was recorded at 296.65 million tonnes—up by 11.44 million tonnes compared with 285.21 million tonnes in FY19. The government has set a target to buy 42.74 million tonnes from the central pool in FY21;
- This is 10% more than the quantity purchased in FY20. For FY22, the government has set a record target for farmers to raise food grain production by 2% with 307.31 million tonnes of food grains. In FY21, production was recorded at 303.34 million tonnes against a target of 301 million tonnes.
- Production of horticulture crops in India was estimated at a record 326.6 million metric tonnes (MMT) in FY20 as per third advance estimates, an increase of 5.81 million metric tonnes over FY20. India has the largest livestock population of around 535.78 million, which translates to around 31% of the world population. Milk production in the country is expected to increase to 208 MT in FY21 from 198 MT in FY20, registering a growth of 10% y-o-y. Area under horticulture is projected to rise by 2.7% in FY21.
- Sugar production in India reached 26.46 MT between October 2019 and May 2020 sugar season according to Indian Sugar Mills Association (ISMA).
- India is among the 15 leading exporters of agricultural products in the world. Agricultural export from India reached US$ 38.54 billion in FY19 and US$ 35.09 billion in FY20.
- The organic food segment in India is expected to grow at a CAGR of 10% during 2015-25 and is estimated to reach Rs. 75,000 crore (US$ 10.73 billion) by 2025 from Rs. 2,700 crore (US$ 386.32 million) in 2015.
- The processed food market in India is expected to grow to Rs. 3,451,352.5 crore (US$ 470 billion) by 2025, from Rs. 1,931,288.7 crore (US$ 263 billion) in FY20 on the back of government initiatives such as planned infrastructure worth US$ 1 trillion and Pradhan Mantri Kisan Sampada Yojna. The food processing industry employs about 1.77 million people. The sector allows 100% FDI under the automatic route.
- According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 10.24 billion between April 2000 and December 2020.
- In March 2020, Fact, the oldest fertiliser manufacturer in the country, crossed one million production and sales mark.
- Nestle India will invest Rs. 700 crore (US$ 100.16 million) in construction of its ninth factory in Gujarat.
- In November 2019 Haldiram entered into an agreement for Amazon’s global selling program to E-tail its delicacies in the United States.
- In November 2019, Coca-Cola launched ‘Rani Float’ fruit juices to step out of its trademark fizzy drinks.
- Two diagnostic kits developed by Indian Council of Agricultural Research (ICAR) – Indian Veterinary Research Institute (IVRI) and the Japanese Encephalitis lgM ELISA were launched in October 2019.
- Investment worth Rs. 8,500 crore (US$ 1.19 billion) have been announced in India for ethanol production.
Some of the recent major Government initiatives in the sector are as follows:
- As per Union Budget 2021-22, Rs. 4,000 crore (US$ 551.08 million) was allocated towards implementing Pradhan Mantri Krishi Sinchayee Yojana (PMKSY-PDMC).
- The Ministry of Food Processing has been allocated Rs. 1,308.66 crore (US$ 180.26 million) in the Union Budget 2021-22.
- In April 2021, the Government of India approved a PLI scheme for the food processing sector with an incentive outlay of Rs 10,900 crore (US$ 1,484 million) over a period of six years starting from FY22.
- In November 2020, the government inaugurated a mega food park in Punjab worth Rs. 107.83 crores (US$ 14.6 million) that will be spread across over 55 acres of land.
- In October 2020, the Tribal Cooperative Marketing Development Federation of India (TRIFED) included 100 new Forest Fresh Organic Products sourced from tribes across India on its e-marketplace (tribesindia.com).
- In October 2020, Agri-lender Nabard (National Bank for Agriculture and Rural Development) proposed plans to set up a subsidiary to provide guarantee for loans under agriculture and rural development.
- In October 2020, the government announced that it is putting up a common data infrastructure for farmers in the country. PMFBY (Pradhan Mantri Fasal Bima Yojana), PM-Kisan and the Soil Health Card will be integrated through a common database, along with land record details.
- In September 2020, the government launched the PM Matsya Sampada Yojana, e-Gopala App and several initiatives in fisheries production, dairy, animal husbandry and agriculture. Under this scheme, an investment of Rs. 20,000 crore (US$ 2.7 billion) will be made in the next 4-5 years in 21 states.
- In May 2020, Government announced the launch of animal husbandry infrastructure development fund of Rs. 15,000 crore (US$ 2.13 billion).
- In September 2019, Prime Minister, Mr Narendra Modi launched National Animal Disease Control Programme (NADCP), expected to eradicate foot and mouth disease (FMD) and brucellosis in livestock. In May 2020, Rs. 13,343 crore (US$ 1.89 billion) was allocated to the scheme.
- The Government of India came out with Transport and Marketing Assistance (TMA) scheme to provide financial assistance for transport and marketing of agriculture products in order to boost agriculture exports.
- The Agriculture Export Policy, 2018 was approved by the Government of India in December 2018. The new policy aimed to increase India’s agricultural export to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime.
- The Government of India is going to provide Rs. 2,000 crore (US$ 306.29 million) for computerization of Primary Agricultural Credit Society (PACS) to ensure cooperatives are benefitted through digital technology.
- The Government of India launched the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) with an investment of Rs. 50,000 crore (US$ 7.7 billion) aimed at development of irrigation sources for providing a permanent solution from drought.
- Government plans to triple the capacity of food processing sector in India from the current 10% of agriculture produce and has also committed Rs. 6,000 crore (US$ 936.38 billion) as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA).
- The Government of India has allowed 100% FDI in marketing of food products and in food product E-commerce under the automatic route.
Achievements in the sector
- Paddy procurement in Kharif Marketing Season (KMS) 2020-21 until January 10, 2020, reached over 534.44 lakh metric tonnes (LMT), an increase of 26.24% against the last year corresponding purchase of 423.35 LMT.
- In November 2020, the planting of winter crops exceeded by 10% compared with the last year and witnessed 28% increase in area under pulses. The total area acreage under pulses increased to 8.25 million hectares from 6.45 million hectares last year.
- Out of the total 37 mega food parks that were sanctioned, 22 mega food parks are operational, as of January 2021.
- In November 2020, Minister of Consumer Affairs, Food and Public Distribution, Mr. Piyush Goyal announced that the Food Cooperation of India and state agencies are set to procure a record quantity of 742 LMT (lakh metric tonnes) paddy during the ongoing Kharif crop season as against 627 LMT paddy last year.
- The Electronic National Agriculture Market (e-NAM) was launched in April 2016 to create a unified national market for agricultural commodities by networking existing APMCs. It had 16.9 million farmers and 157,778 traders registered on its platform until February 2021. Over 1,000 mandis in India are already linked to e-NAM and 22,000 additional mandis are expected to be linked by 2021-22.
- Sale of tractors in the country stood at 880,048 units in 2020 with the export of 77,378 units.
- The total agricultural exports stood at US$ 37.31 billion between April 2020 and February 2021.
- The principal commodities that posted significant positive growth in exports between FY20 and FY21 were the following:
- Wheat and Other Cereals: 727% from Rs. 3,708 crore (US$ 505 million) to Rs. 5,860 crore (US$ 799 million)
- Non-Basmati Rice: 132% from Rs. 13,130 crore (US$ 1,789) to Rs. 30,277 crore (US$ 4,126 million)
- Soya Meal: 132% from Rs. 3,087 crore (US$ 421 million) to Rs. 7,224 crore (US$ 984 million)
- Raw Cotton: 68% from Rs. 6,771 crore (US$ 923 million) to Rs. 11,373 crore (US$ 1,550 million)
- Sugar: 39.6% from Rs. 12,226 crore (US$ 1,666 million) to Rs. 17,072 crore (US$ 2,327 million)
- Spices: 11.5% from Rs. 23,562 crore (US$ 3,211 million) to Rs. 26,257 crore (US$ 3,578 million)
- During FY20 (till February 2020), tea export stood at US$ 709.28 million.
- Coffee export stood at US$ 742.05 million in FY20.
- India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price.
- In the next five years, the central government will aim US$ 9 billion in investments in the fisheries sector under PM Matsya Sampada Yojana. The government is targeting to raise fish production to 220 lakh tonnes by 2024-25.
- Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP) by the food processing industry will offer several benefits. The agri export from India is likely to reach the target of US$ 60 billion by the year 2022.
(References: Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2021-22, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports, Ministry of Agriculture and Farmers Welfare, Crisil)
- Industry or the secondary sector of the economy is another important area of economic activity. After independence, the government of India emphasized the role of industrialization in the country’s economic development in the long run. Accordingly, the blue print for industrial development was made through the Industrial Policy Resolution (IPR) in 1956.
- The 1956 policy emphasized on establishment of heavy industries with public sector taking the lead in this area. Adoption of heavy or basic industries strategy was justified on the ground that it will reduce the burden on agriculture, enable growth in the production of consumer goods industries as well as small industries that are helpful for employment generation and achieving self reliance.
- After the adoption of the IPR, 1956 there was tremendous growth in industrialization during the second and third plan periods i.e. 1956-61 and 1961-66. Public sector contributed maximum to this growth.
- But towards the end of 1960s, investment in industries was reduced which adversely affected its growth rate.
- In the 1980s, this trend was reversed and investment in industries was increased by making the infrastructure base such as power, coal, rail much stronger.
- In early 1990s it was found that the public sector undertakings were not performing upto expectation. There has been reports of mismanagement in these under takings resulting in loss. So in 1991 the government of Indian decided to encourage the role of private sector in industrial development, remove the rigid licence system which is known as liberalization and allow international players to compete in the domestic country as well as domestic players to explore foreign territories.
- The aim of taking all these steps was to strengthen the process of industrialization in the country. Such a model of industrial development is called Liberalization, Privatization and Globalization (LPG) model. After the adoption of this new policy in 1991, there has been phases of growth followed by slowdown in the industrial development process.
- In the early years of 1990s there was significant growth in industrialization due to increase in investment in infrastructure, reduction in excise duty, availability of finance etc.
- But towards the end of 1990s the growth rate slowed down due to stiff competition from international companies, inadequate infrastructure support etc. However, in the beginning of the new millennium, between 2002-08 there was again some recovery due to increase in saving rate from 23.5 percent in 2001-2 to 37.4 percent in 2007- 08.
- Even the competition from the foreign companies helped during this phase as the domestic companies could create enough internal strength in term of quality control, finance and customer care etc. to withstand the competition. However after 2008-09 there was some slow down in industrial growth due to rise in petroleum price, interest rate and borrowings from abroad which has created lot of liabilities for the domestic companies.
- The sector’s gross value added (GVA) at current prices was estimated at US$ 348.53 billion as per the second advanced estimates of FY21. The IHS Markit India Manufacturing Purchasing Managers Index (PMI) reached 55.5 in April 2021 from 55.4 in March 2021. The manufacturing GVA accounts for 19% of the country’s real gross value added.
- As per the latest survey, capacity utilisation in India’s manufacturing sector stood at 66.6% in the third quarter of FY21.
- The manufacturing component of the IIP stood at 116.9 between April 2020 and March 2021.
- According to the Ministry of Statistics & Programme Implementation, India’s industrial output measured by the Index of Industrial Production (IIP) stood at 143.4 in March 2021.
- With the help of Make in India drive, India is on a path of becoming the hub for hi-tech manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in process of setting up manufacturing plants in India, attracted by India’s market of more than a billion consumers and an increasing purchasing power.
- In May 2020, the Government of India increased FDI in defence manufacturing under the automatic route from 49% to 74%.
- India has become one of the most attractive destinations for investment in the manufacturing sector. Some of the major investments and developments in this sector in the recent past are:
- In FY21, India received a total foreign direct investment (FDI) inflow of US$ 81.72 billion, a 10% increase YoY.
- On February 16, 2021, Amazon India announced to start manufacturing electronic products in India, starting first with Amazon Fire TV stick manufacturing. The company plans to start manufacturing with contract manufacturer Cloud Network Technology, a subsidiary of Foxconn in Chennai by end-2021.
- In April 2021, Samsung started manufacturing mobile display panels at its Noida plant and plans to ramp up manufacturing IT display panels soon.
- Samsung Display Noida, which has invested Rs. 4,825 crore (US$ 650.42 million) to move its mobile and IT display manufacturing plant from China to Uttar Pradesh, has received special incentives from the state government.
- In April 2021, Bharti Enterprises Ltd. and Dixon Technologies (India) Ltd., formed a joint venture to take advantage of the government’s PLI scheme for the manufacturing of telecom and networking products.
- In April 2021, Godrej Appliances launched a range of Made-in-India air conditioners (AC). The company plans to invest Rs. 100 crore (US$ 13.48 million) in its manufacturing units (located in Shirwal and Mohali) to increase its AC production capacity to 8 lakh units by 2025.
- The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:
- The government approved a PLI scheme for 16 plants for key starting materials (KSMs)/drug intermediates and active pharmaceutical ingredients (APIs). The establishment of these 16 plants would result in a total investment of Rs. 348.70 crore (US$ 47.01 million) and generation of ~3,042 jobs. The commercial development of these plants is expected to begin by April 2023.
- As part of efforts to expand its smartphone assembly industry and improve its electronics supply chain, the government, in March 2021, announced funds worth US$ 1 billion in cash to each semiconductor company that establishes manufacturing units in the country.
- The Union Budget 2021-22 is expected to enhance India’s domestic growth in manufacturing, trade and other sectors. Development of a robust infrastructure, logistics and utility environment for the manufacturing sector is a primary focus field.
Some of these initiatives are as follows:
- In May 2021, the government approved a PLI scheme worth Rs. 18,000 crore (US$ 2.47 billion) for production of advanced chemical cell (ACC) batteries; this is expected to attract investments worth Rs. 45,000 crore (US$ 6.18 billion) in the country, and further boost capacity in core component technology and make India a clean energy global hub.
- In India, the market for grain-oriented electrical steel sheet manufacturing is witnessing high demand from power transformer producers, due to the rising demand for electric power and increasing adoption of renewable energy in the country.
- In line with this, in May 2021, JFE Steel Corporation in collaboration with JSW Steel Limited (JSW) signed a MoU to evaluate a study to establish a grain-oriented electrical steel sheet manufacturing & sales joint-venture company in India.
- To facilitate manufacturing and investment in sectors such as ICT and telecom, in May 2021, TEMA (Telecom Equipment Manufacturers Association of India) signed a collaboration deal with ICCC (Indo-Canada Chamber of Commerce) to promote ‘Make in India’ and ‘Self-reliant India’ initiatives.
- India’s display panel market is estimated to grow from ~US$ 7 billion in 2021 to US$ 15 billion in 2025.
- The Mega Investment Textiles Parks (MITRA) scheme to build world-class infrastructure will enable global industry champions to be created, benefiting from economies of scale and agglomeration. Seven Textile Parks will be established over three years.
- The government proposed to make significant investments in the construction of modern fishing harbours and fish landing centres, covering five major fishing harbours in Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat, along with a multipurpose Seaweed Park in Tamil Nadu. These initiatives are expected to improve exports from the textiles and marine sectors.
- The ‘Operation Green’ scheme of the Ministry of the Food Processing Industry, which was limited to onions, potatoes and tomatoes, has been expanded to 22 perishable products to encourage exports from the agricultural sector. This will facilitate infrastructure projects for horticulture products.
- The Union Budget 2021-22 allocated funds of Rs. 1,000 crore (US$ 137.16 million) for the welfare of tea workers, especially women and their children. About 10.75 lakh tea workers will benefit from this, including 6.23 lakh women workers involved in the large tea estates of Assam and West Bengal.
- India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country.
- The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. The Indian Cellular and Electronics Association (ICEA) predicts that India has the potential to scale up its cumulative laptop and tablet manufacturing capacity to US$ 100 billion by 2025 through policy interventions.
- With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.
- References: Central Statistics Office, FICCI, Economic Survey of India, DPIIT, Media sources, Ministry of Skill Development and Entrepreneurship
The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment, has contributed significantly to export and has provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
- The services sector is a key driver of India’s economic growth. The sector contributed 55.39% to India’s Gross Value Added at current price in FY20#. GVA at basic prices at current prices in the second quarter of 2020-21 is estimated at Rs. 42.80 lakh crore (US$ 580.80 billion), against Rs. 44.66 lakh crore (US$ 633.57 billion) in the second quarter of 2019-20, showing a contraction of 4.2%. According to RBI, in February 2021, service exports stood at US$ 21.17 billion, while imports stood at US$ 10.61 billion.
- The India Services Business Activity Index/Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 54 in April 2021, from 54.6 in March 2021, due to pandemic-induced constraints in business activities and weakened sentiments towards growth prospects.
Some of the developments in the services sector in the recent past are as follows:
- The services category in India attracted cumulative foreign direct investment (FDI) worth US$ 85.86 billion between April 2000 and December 2020. The services category ranked 1st in FDI inflow as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
- In April 2021, the Ministry of Education (MoE) and University Grants Commission (UGC) started a series of online interactions with stakeholders to streamline forms and processes to reduce compliance burden in the higher education sector, as a follow-up to the government’s focus on ease of doing business to enable ease of living for stakeholders.
- On March 17, 2021, the Health Ministry’s eSanjeevani telemedicine services crossed 3 million (30 lakh) teleconsultations since its launch, enabling patient-to-doctor consultations from the confines of their home and doctor-to-doctor consultations.
- In April 2021, Elon Musk’s SpaceX has started accepting pre-orders for the beta version of its Starlink satellite internet service in India for a fully refundable deposit of US$ 99. Currently, the Department of Telecommunications (DoT) is screening the move and more developments will be unveiled soon.
- In December 2020, a cohort of six health-tech start-ups—AarogyaAI, BrainSightAI, Fluid AI, InMed Prognostics, Wellthy Therapeutics, and Onward Assist—have been selected by the India Edison Accelerator, fuelled by GE Healthcare. India Edison Accelerator, the company’s first start-up partnership programme focused on Indian mentors, creates strategic partners to co-develop healthcare solutions.
- The Indian healthcare industry is expected to shift digitally enabled remote consultations via teleconsultation. The telemedicine market in India is expected to increase at a CAGR of 31% from 2020 to 2025.
- In December 2020, Gamma Skills Automation Training introduced a unique robotics & automation career launch programme for engineers, an ‘Industry 4.0 Hands-on Skill Learning Centre’ located at IMT Manesar, Gurgaon in Haryana.
- In December 2020, the ‘IGnITE’ programme was initiated by Siemens, BMZ and MSDE to encourage high-quality training and technical education. ‘IGnITE’ aims to develop highly trained technicians, with an emphasis on getting them ready for the industry and future, based on the German Dual Vocational Educational Training (DVET) model. By 2024, this programme aims to upskill ~40,000 employees.
- In October 2020, Bharti Airtel entered cloud communications market with the launch of business-centric ‘Airtel IQ’.
The Government of India recognises the importance of promoting growth in services sector and provides several incentives across a wide variety of sectors like health care, tourism, education, engineering, communications, transportation, information technology, banking, finance and management among others.
The Government of India has adopted few initiatives in the recent past, some of these are as follows:
- Under Union Budget 2021-22, the government allocated Rs. 7,000 crore (US$ 963.97 million) to the BharatNet programme to boost digital connectivity across India.
- FDI limit for insurance companies has been raised from 49% to 74% and 100% for insurance intermediates.
- In May 2021, the Ministry of Commerce and Industry announced that India received an FDI inflow of US$ 81.72 billion, the highest FDI during FY 2020-21.
- In March 2021, the central government infused Rs. 14,500 crore (US$ 1.99 billion) capital in Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank through non-interest-bearing bonds.
- On January 15, 2021, the third phase of Pradhan Mantri Kaushal Vikas Yojana (PMKVY) was launched in 600 districts with 300+ skill courses. Spearheaded by the Ministry of Skill Development and Entrepreneurship, the third phase will focus on new-age and COVID-related skills. PMKVY 3.0 aims to train eight lakh candidates.
- In January 2021, the Department of Telecom, Government of India, signed an MoU with the Ministry of Communications, Government of Japan, to strengthen cooperation in the areas of 5G technologies, telecom security and submarine optical fibre cable system.
- On November 4, 2020, the Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved to sign a memorandum of understanding (MoU) between the Ministry of Communication and Information Technology and the Department of Digital, Culture, Media and Sports (DCMS) of United Kingdom Government to cooperate in the field of telecommunications/information and communication technologies (ICTs).
- In October 2020, the government selected Hughes Communications India to connect 5,000 village panchayats in border and naxal-affected states and island territories with satellite broadband under BharatNet project by March 2021.
- In September 2020, the government announced that it may infuse Rs. 200 billion (US$ 2.72 billion) in public sector banks through recapitalisation of bonds
- In the next five years, the Ministry of Electronics and Information Technology is working to increase the contribution of the digital economy to 20% of GDP. The government is working to build cloud-based infrastructure for collaborative networks that can be used for the creation of innovative solutions by AI entrepreneurs and startups.
- On Independence Day 2020, Prime Minister Mr. Narendra Modi announced the National Digital Health Mission (NDHM) to provide a unique health ID to every Indian and revolutionise the healthcare industry by making it easily accessible to everyone in the country. The policy draft is under ‘public consultation’ until September 21, 2020.
- In September 2020, the Government of Tamil Nadu announced a new electronics & hardware manufacturing policy aligned with the old policy to increase the state’s electronics output to US$ 100 billion by 2025. Under the policy, it aims to meet the requirement for incremental human resource by upskilling and training >100,000 people by 2024.
- Government of India has launched the National Broadband Mission with an aim to provide Broadband access to all villages by 2022.
- By 2023, healthcare industry is expected to reach US$ 132 billion. India’s digital economy is estimated to reach US$ 1 trillion by 2025. By end of 2023, India’s IT and business services sector is expected to reach US$ 14.3 billion with 8% growth.
- The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run-on account of availability of GST input credit, which will result in the reduction in prices of services.
- India has 62.5% of its population in the age group of 15-59 yearswhich is ever increasing and will be at the peak around 2036 when it will reach approximately 65%.
- These population parameters indicate an availability of demographic dividend in India, which started in 2005-06 and will last till 2055-56.
- According to Economic Survey 2018-19,India’s Demographic Dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, population is expected to hit 59%.
- India has one of the youngest populationsin an aging world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
- Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population — children aged 14 or below as well as people above 65 years of age. This bulge in the working-age populationis going to last till 2055, or 37 years from its beginning.
- This transition happens largely because of a decrease in the total fertility rate(TFR, which is the number of births per woman) after the increase in life expectancy gets stabilised.
- A study on demographic dividend in India by United Nations Population Fund (UNFPA) throws up two interesting facts.
- Thewindow of demographic dividend opportunity in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world.
- This demographic dividend window is available at different times in different statesbecause of differential behaviour of the population parameters.
Advantages Associated with Demographic Dividend
Better economic growth brought about by increased economic activities due to higher working age population and lower dependent population. It will be channelised in following ways:
- Increased Labour Force that enhances the productivity of the economy.
- Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
- Rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth.
- Increase in savings rate, as the working age also happens to be the prime period for saving.
- A massive shift towards a middle-class society, that is, the rise of aspirational class.
- Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
- Japan was among the first major economies to experience rapid growth because of changing population structure.
- The country’s demographic-dividend phase lasted from 1964 to 2004.
- Rapid industrialization and urbanisation because of higher number of employment seeking population that would force higher economic activities.
- Rise in workforce: With more than 65% of working age population, India will rise as an economic superpower, supplying more than half of Asia’s potential workforce over the coming decades.
- Effective policy making: Fine-tuning the planning and implementation of schemes and programmes by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.
Challenges Associated with Demographic Dividend
- Asymmetric demography:The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population.
- Lack of skills:Most of the new jobs that will be created in the future will be highly skilled and lack of skill in Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.
- Low human development parameters:India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming.Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled.
- Informal nature of economy in Indiais another hurdle in reaping the benefits of demographic transition in India.
- Jobless growth-There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, the fourth industrial revolution and technological progress. As per the NSSO Periodic Labour Force Survey 2017-18, India’s labour force participation rate for the age-group 15-59 years is around 53%, that is, around half of the working age population is jobless.
Suggestions for Improving Human Resources and Building Human Capital
- Building human capital: Investing in people through healthcare, quality education, jobs and skills helps build human capital, which is key to supporting economic growth, ending extreme poverty, and creating a more inclusive society.
- Skill development to increase employability of young population. India’s labour force needs to be empowered with the right skills for the modern economy. Government has established the National Skill Development Corporation (NSDC) with the overall target of skilling/ up skilling 500 million people in India by 2022..
- Education: Enhancing educational levels by properly investing in primary, secondary and higher education. India, which has almost 41% of population below the age of 20 years, can reap the demographic dividend only if with a better education system. Also, academic-industry collaboration is necessary to synchronise modern industry demands and learning levels in academics.
- Establishment of Higher Education Finance Agency (HEFA)is a welcome step in this direction.
- Health: Improvement in healthcare infrastructure would ensure higher number of productive days for young labourforce, thus increasing the productivity of the economy.
- Success of schemes like Ayushman Bharatand National Health Protection scheme (NHPS) is necessary. Also nutrition level in women and children needs special care with effective implementation of Integrated Child Development (ICDS) programme.
- Job Creation: The nation needs to create ten million jobs per year to absorb the addition of young people into the workforce. Promoting businesses’ interests and entrepreneurship would help in job creation to provide employment to the large labourforce.
- India’s improved ranking in the World Bank’s Ease of Doing Business Index is a good sign.
- Schemes like Start-up India and Make in India , if implemented properly, would bring the desired result in the near future.
- Urbanisation: The large young and working population in the years to come will migrate to urban areas within their own and other States, leading to rapid and large-scale increase in urban population. How these migrating people can have access to basic amenities, health and social services in urban areas need to be the focus of urban policy planning.
- Schemes such as Smart City Mission and AMRUT needs to be effectively and carefully implemented.
- India is on the right side of demographic transition that provides golden opportunity for its rapid socio-economic development, if policymakers align the developmental policies with this demographic shift.
- To reap the demographic dividend, proper investment in human capital is needed by focussing on education, skill development and healthcare facilities.
- This demographic transition also brings complex challenges with it. If the increased workforce is not sufficiently skilled, educated and provided gainful employment, we would be facing demographic disaster instead.
- By learning from global approaches from countries such as Japan and Korea and designing solutions considering the domestic complexities, we would be able to reap the benefits of demographic dividend.
- India is gifted with various types of natural Resources such as fertile soil, forests, minerals and water. These resources are unevenly distributed. The Indian continent covers a multitude of biotic and abiotic resource.
- As India has rapid population growth therefore there is overconsumption of resources, such as uncontrolled logging or overfishing and many valuable natural resources are rapidly being exhausted.
- India has huge watered fertile lands. In the sedimentary soil of the Northern Great Plains of the Sutlej-Ganga plains and Brahmaputra Valley wheat, rice, maize, sugarcane, jute, cotton, rapeseed, mustard, sesame, linseed, are grown in plentiful. India’s land area includes regions with high rainfall to dry deserts, Coast line to Alpine regions.
- India also has a variety of natural vegetation since the country has a varied relief and climate. These forests are narrowed to the plateaus and hilly mountainous areas. India has a great variety of wildlife.
- There are many national parks and hundreds of wild life sanctuaries. Around 24.5 percent of the total geographical area include Forests(IFSR 2019), Because India’s whether conditions are changing frequently and differences in altitude, different types of Forest are present in India including Tropical, Swamps, Mangrove and Alpine.
- Variety of forest vegetation is large. Forests are the main source of Fire woods, Paper, Spices, Drugs, Herbs, Gums and more. Forests has great contribution to nation’s GDP.
- India has more marine and inland water resources. Reports signify that India has an 8129 km long coastline. Inland fishery is performed in Rivers, Reservoirs and Lakes. Reports of EIA estimate indicated that in Indian rivers more than 400 species of fish are found and many species are economically important.
- India holds 4,728,790,000 barrelsof proven oil reserves as of 2016, ranking 24th in the world and accounting for about 0.3% of the world’s total oil reserves of 1,650,585,140,000 barrels. India has proven reserves equivalent to 2.9 times its annual consumption.
- The oil and gas industry in India dates back to 1889 when the first oil deposits in the country were discovered near the town of Digboi in the state of Assam. The natural gas industry in India began in the 1960s with the discovery of gas fields in Assam and Maharashtra (Bombay high). As on 31 March 2018, India had estimated crude oil reserves of 594.49 million tonnes (MT) and natural gas reserves of 1339.57 billion cubic meters (BCM).
- India imports 82% of its oil needs and aims to bring that down to 67% by 2022 by replacing it with local exploration, renewable energy and indigenous ethanol fuel.India was the second top net crude oil (including crude oil products) importer of 205.3 Mt in 2019.
- By March 2021, India’s domestic crude oil production output fell by 5.2% and natural gas production by 8.1% in the FY21 as producers extracted 30,491.Thousand Metric Tonnes (TMT) of crude oil and 28670.6 Million Metric Standard Cubic Metres (MMSCM) of natural gas.
- An enormous mass of India’s natural gas production comes from the western offshore regions, particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also main producers of natural gas
- Mineral Resource in India are also in large amount such as iron, coal, mineral oil, manganese, bauxite, chromite, copper, tungsten, gypsum, limestone, mica. When evaluating the Livestock Resource, it is found that Hills, mountains and less fertile lands are put under pasture.
- Scientific methods are followed in rearing cattle. India maintains rich domestic animal diversity. India has large number of animals like goat, sheep, poultry, cattle, and buffalo. Indian livestock has imperative role in improving the socio-economic status of the rural masses.
- In the area of Horticulture, India has various agro-climatic conditions which facilitates cultivation of a large number of horticulture crops such as vegetables, fruits, flower, medicinal and aromatic plant, mushroom, etc. and plantation corps like tea, coffee and rubber.
- Non-renewable resources are also plentiful in different parts of India: Coal is the mainly used energy in India and occupies the leading position.
- In India, coal is obtained mostly from Andra Pradesh, Chhattisgarh, Orissa, Madhya Pradesh, West Bengal, Tamil Nadu, and Meghalaya, Jammu and Kashmir.
- Natural gas in India is available in Tripura State, Krishna Godavari field and gas associates in petroleum products. Petroleum product has become a vital source of energy in India.
- In India, Petroleum products can be obtained from Digbol, Assam, around the Gulf of Khambat in Gujarat, off shore in Arabian Sea, spread out from Mumbai up to 100miles.
- India has fourth rank in producing iron ore in the world. On an average, India produces about 7 per cent of the world production. It has about 2.6 per cent iron ore reserves of the world.
- Low per capita income
- Usually, developing economies have a low per-capita income. The per capita income in India in 2014 was $1,560. In the same year, the per-capita Gross National Income(GNI) of USA was 35 times that of India and that of China was 5 times higher than India.
- Further, apart from the low per-capita income, India also has a problem of unequal distribution of income. This makes the problem of poverty a critical one and a big obstacle in the economic progress of the country. Therefore, low per-capita income is one of the primary economic issues in India,
- Huge dependence of population on agriculture
- Another aspect that reflects the backwardness of the Indian economyis the distribution of occupations in the country. The Indian agriculture sector has managed to live up to the demands of the fast-increasing population of the country.
- According to the World Bank, in 2014, nearly 47 percent of the working population in India was engaged in agriculture. Unfortunately, it contributed merely 17 percent to the national income implying a low productivity per person in the sector. The expansion of industries failed to attract enough manpower either.
- Heavy population pressure
- Another factor which contributes to the economic issues in India is population. Today, India is the second most-populated country in the world, the first being China.
- We have a high-level of birth rates and a falling level of death rates. In order to maintain a growing population, the administration needs to take care of the basic requirements of food, clothing, shelter, medicine, schooling, etc. Hence, there is an increased economic burden on the country.
- The existence of chronic unemployment and under-employment
- The huge unemployed working population is another aspect which contributes to the economic issues in India. There is an abundance of labor in our country which makes it difficult to provide gainful employment to the entire population.
- Also, the deficiency of capital has led to the inadequate growth of the secondary and tertiary occupations. This has further contributed to chronic unemployment and under-employment in India.
- With nearly half of the working population engaged in agriculture, the marginal product of an agricultural laborer has become negligible. The problem of the increasing number of educated-unemployed has added to the woes of the country too.
- Slow improvement in Rate of Capital Formation
- India always had a deficiency of capital. However, in recent years, India has experienced a slow but steady improvement in capital formation. We experienced a population growth of 1.6 percent during 2000-05 and needed to invest around 6.4 percent to offset the additional burden due to the increased population.
- Therefore, India requires a gross capital formation of around 14 percent to offset depreciation and maintain the same level of living. The only way to improve the standard of living is to increase the rate of gross capital formation.
- Inequality in wealth distribution
- According to Oxfam’s ‘An economy for the 99 percent’ report, 2017, the gap between the rich and the poor in the world is huge. In the world, eight men own the same wealth as the 3.6 billion people who form the poorest half of humanity.
- In India, merely 1 percent of the population has 58 percent of the total Indian wealth. Also, 57 billionaires have the same amount of wealth as the bottom 70 percent of India. Inequal distribution of wealth is certainly one of the major economic issues in India.
- Poor Quality of Human Capital
- In the broader sense of the term, capital formation includes the use of any resource that enhances the capacity of production.
- Therefore, the knowledge and training of the population is a form of capital. Hence, the expenditure on education, skill-training, research, and improvement in health are a part of human capital.
- To give you a perspective, the United Nations Development Program (UNDP), ranks countries based on the Human Development Index (HDI). This is based on the life expectancy, education, and per-capita income. In this index, India ranked 130 out of 188 countries in 2014.
- Low level of technology
- New technologies are being developed every day. However, they are expensive and require people with a considerable amount of skill to apply them in production.
- Any new technology requires capital and trained and skilled personnel. Therefore, the deficiency of human capital and the absence of skilled labor are major hurdles in spreading technology in the economy.
- Another aspect that adds to the economic issues in India is that poor farmers cannot even buy essential things like improved seeds, fertilizers, and machines like tractors, investors, etc. Further, most enterprises in India are micro or small. Hence, they cannot afford modern and more productive technologies.
- Lack of access to basic amenities
- In 2011, according to the Censusof India, nearly 7 percent of India’s population lives in rural and slum areas. Also, only 46.6 percent of households in India have access to drinking water within their premises. Also, only 46.9 percent of households have toilet facilities within the household premises.
- This leads to the low efficiency of Indian workers. Also, dedicated and skilled healthcare personnel are required for the efficient and effective delivery of health services. However, ensuring that such professionals are available in a country like India is a huge challenge.
- Demographic characteristics
- According to the 2011 Census, India had a population density of 382 per square kilometer as against the world population density of 41 per square kilometer.
- Further, 29.5 percent was in the age group of 0-14 years, 62.5 percent in the working age group of 15-59 years, and around 8 percent in the age group of 60 years and above. This proves that the dependency burden of our population is very high.
- Under-utilisation of natural resources
- India is rich in natural resources like land, water, minerals, and power resources. However, due to problems like inaccessible regions, primitive technologies, and a shortage of capital, these resources are largely under-utilized. This contributes to the economic issues in India.
- Lack of infrastructure
- The lack of infrastructural facilities is a serious problem affecting the Indian economy. These include transportation, communication, electricity generation, and distribution, banking and credit facilities, health and educational institutions, etc. Therefore, the potential of different regions of the country remains under-utilized.
The main challenges for fiscal health are as follows:
- Populism in Pre-Election year:For instance, a Central Government sponsored loan waiver.
- Rising Oil Prices: $10 Increase in Crude Oil Barrel Price can lead to 0.2-0.3% increase in FD
- MSP Hikes for Kharif Crops:Government’s decision to hike Minimum Support Price (MSP) for kharif crops can impact GDP by 0.1-0.2% besides adding to inflationary pressures
- Less than expected GST Revenues:While the ideal GST monthly revenues to meet the targets of the government is around 1.1 lakh crores, the average collection in FY19 was only around 0.97 lakh crores.
- Resignation of RBI Governor: Many economists agree that the resignation was mainly due to the difference of opinion between the RBI and the Union Government on various key issues like the Resolution of Non-Performing Assets, Banking Frauds, RBI Surplus Transfer, undermining of the independence of RBI.
- Winds against Multilateralism:Economic Survey 20172018 points out that exports and imports together amount to 42% of India’s Gross Domestic Product (GDP) showing Indian economy’s interdependence on the rest of the world economies. In this light, the much talked about tariff war initiated by the US threatens to impact our exports significantly.
- Non-Performing Assets (NPA):The Standing Committee on Finance in its recent report had questioned the Reserve Bank of India (RBI) for failing to take pre-emptive action in checking bad loans in the banking system prior to the Asset Quality Review (AQR) undertaken in December 2015.
- Agrarian Crisis:Agriculture which employs nearly 52% of those who are employed in India continues to be in deep crisis as reflected in the Farmer’s Long March from Nashik to Mumbai and in their agitations in New Delhi in November.
- Higher Bond Yield and Greater Risk:The yield of India’s benchmark long-term government bond at 7.6%-7.8% remains higher than peers in developing economies and is on an increasing trend showing challenging days ahead.
- Twin Balance Sheet Problem :While few Indian companies like Airtel and Tata have turned into global giants, companies like Jaypee Infra and Lanco Power are facing existential crisis due to the Twin Balance Sheet problem (stressed balance sheets of banks and over leveraged corporates).
- Effective implementation of Organization for Economic Cooperation and Development’s (OECD) Guidelines to control Base Erosion and Profit Shifting (BEPS).
- Changes to the Double Taxation Avoidance Agreements of India with other countries to reduce Tax Avoidance.
Tax Cuts and Tax Rebates
Tax cuts and tax rebates are designed to put more money back into the pockets of consumers. Ideally, these consumers spend a portion of that money at various businesses, which increases the businesses’ revenues, cash flows, and profits. Having more cash means companies have the resources to procure capital, improve technology, grow, and expand. All of these actions increase productivity, which grows the economy. Tax cuts and rebates, proponents argue, allow consumers to stimulate the economy themselves by imbuing it with more money.
For instance, The government announced a reduction in corporation tax rates in September last year. It slashed corporate tax rates for domestic manufacturers from 30% to 22%, while for new manufacturing companies; the rate was reduced from 25% to 15% provided they do not claim any exemptions, this policy is designed to increase economic growth for the next ten years.
Stimulating the Economy With Deregulation
Deregulation is the relaxing of rules and regulations imposed on an industry or business. It became a centre piece of economics in the India in 1991,when the Union government deregulated several industries, most notably financial institutions, industries and foreign investments, that promoted spurt of economic development, it must be done regularly.
For example, through disinvestments of loss making PSUs.
Using Infrastructure to Spur Economic Growth
- Infrastructure spending occurs when a local, state, or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, bridges, ports, and sewer systems. Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic, and they don’t have to take circuitous routes to traverse waterways.
- Additionally, infrastructure spending creates jobs as workers must be hired to complete the green-lighted projects. It is also capable of spawning new economic growth. For example, the construction of a new highway might lead to other investments such as gas stations and retail stores opening to cater to motorists.
Using the above analysis of various dimensions of Indian economy, we can come to the conclusion that while India has great economic prospects there are also many challenges which need to be overcome to harness the true potential of the economy. We have already seen the steps government had taken and few micro-level solutions to address these challenges. Now, we shall look at few broader measures which can make our country a “Major Economic Powerhouse”.
- Raise investment rates to 36% of GDP
- Increase tax-GDP ratio to 22% of GDP
- Work with states to improve ease of business and rationalize land & labour regulations
- Employment and Labour Reforms:
- The necessary condition for employment generation is economic growth.
- Fully codify central labour laws and enhance Female Labour Force Participation to 30%
- The employability of labour needs to be enhanced by improving health, education and skilling outcomes and a massive expansion of the apprenticeship scheme.
- Technology & Innovation:
- Establish an empowered body to holistically steer the management of science
- Create a non-lapsable District Innovation Fund
- Develop self-sufficient clusters of manufacturing competence, with plug & play parks for MSMEs
- Impetus to Labour Intensive Export firms
- Launch a major initiative to push industry to adopt Industry 4.0
- Introduce a “single window” in states providing a single point of contact between investor & government
- Doubling Farmers Income:
- Modernize technology, increase productivity & agroprocessing and diversify crops
- Abolish APMC -Adopt Model APLM Act, Model Contract Farming Act & Model Land Leasing Act
- Create modern rural infrastructure & an integrated value chain system
- Link production to processing, set up village-level procurement centres
- Bring oil, natural gas, electricity & coal under GST to enable input tax credit
- Promote smart grid & smart meters
- Ports, Shipping & Inland Waterways:
- Double the share of freight transported by coastal shipping & inland waterways
- Complete Sagarmala project. Open up India’s dredging market
- Develop an IT enabled platform for integrating different modes of transport
- Rationalize tariffs & determine prices in an efficient manner across different modes
- Create an overarching body that maintains a repository of all transport data.
Rationalising GST :
- Rationalization of GST Slabs and Rates as suggested by Kelkar Committee
- Inclusion of Petroleum Products within the GST Regime
- Addressing the issue of Inverted Duty Structure under the GST for few imported products
- Inclusion of all the Real Estate Transactions within the GST Regime
- Faster processing of GST Refunds for Exporter.
Resolving NPA Problem:
- Mudra Loans: Raghuram Rajan suggests closer scrutiny of the loan applications while granting Mudra Loans.
- Prompt Corrective Action (PCA) guidelines need to be reframed in a balanced manner to address the dual objectives of growth and NPA resolution.
- Economic Survey 2016-2017 suggests the setting up of a centralized Public Sector Asset Rehabilitation Agency (PARA) that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce NPAs
- The 4th R, which is Reform (of the 4R Strategy for NPAs resolution suggested by Dr. Aravind Subramanian) must be given prime importance if we have to prevent the NPAs Ballooning in the future.
- India needs to carry out the crucial internal reforms that will allow it to be a productive international player and to take on the leadership roles that so many people across the world hope that it will.
- Reorganization of the health system with much greater emphasis on primary medical centres or PMCs
- Any improvement in the life of the majority would require a re-alignment of the growth process so that it is less damaging.
- This would very likely require that we have slower growth but the process can be configured to channel more of it towards poorer groups.
- India could and should aspire to double-digit growth. Without sustained growth at that all levels it has little hope of employing the roughly one million young people who join its workforce every month.
- And unless it takes advantage of its current, favourable demographics it is never likely to emerge as an uppermiddle-income economy with a prosperous and thriving middle class.