09 September 2024 – The Indian Express

Issues associated with the economic development of India

• A nuanced analysis of the Indian economy is necessary in light of the country’s sustained economic growth of above 7% for three years running. Up until 2018–19, the economy saw substantial real GDP growth; however, the following five years, until 2023–24, saw a significant slowdown due to disruptions caused by the pandemic. This should be the starting point for the incoming government’s policy agenda.

What is the various sectors of the Indian economy doing right now?

• Strong growth: Over the last ten years, India’s economy has shown strong and durable development, propelling it from the world’s tenth to the fifth largest and making it the fastest-growing G20 economy.
• The GDP growth of India is expected by the International Monetary Fund (IMF) to be 6.8% in 2024–2025 and 6.5% in 2025–2026.
• Current Account Deficit: According to the Economic Survey 2024, robust service exports and lower oil import costs are to blame for India’s current account deficit sharply declining to 1% of GDP in the first half of FY24.
• Foreign Investment: Strong inflows of foreign institutional investors (FIIs) have increased the country’s foreign exchange reserves to about $643 billion. In 2023–24, FII inflows totaled $41 billion, while net outflows were $5.5 billion in the year before.
• Infrastructure growth: With 74 airports built in the last nine years, the country’s infrastructure growth has also been impressive.
• Capital expenditures (Capex) by the government have increased dramatically. The ratio of Capex to GDP increased to 3.3% in FY24 and is expected to rise to 3.4% in the next fiscal year.
• Manufacturing Sector: The manufacturing sector’s capacity utilisation is approaching 74%, which is close to the long-term average. In the following quarters, there are indications that the cycle of private capital investment may accelerate.
• Inflation: The services sector’s disinflation has caused the Consumer Price Index (CPI) to fall below the Reserve Bank of India’s upper target band of 6%. Core inflation, on the other hand, has stayed below 4% in April 2024.
• Reduced rate of urban unemployment: The economy grew by an estimated 7.3% in 2023–2024, following growth rates of 9.1% in FY22 and 7.2% in FY23. At the same time, the rate of urban unemployment fell to 6.6%.
• According to a Nielsen analysis, there is a good trend in rural demand as seen by the Fast Moving Consumer Goods (FMCG) volume growth in rural areas, which increased from 2.2% to 6.2% in the second half of 2023.

What Different Difficulties Has the Indian Economy Faced Over the Last Five Years?

• Decline in Economic Growth
• India’s economy declined significantly in 2020 as a result of the COVID-19 epidemic, resulting in a negative growth rate.
• But in 2021, the economy had a significant upturn, with growth reaching a pace of about 9%. Since then, the growth rate has levelled off at about 7%.
• Underemployment and Unemployment:
• The COVID-19 epidemic made matters worse by causing numerous enterprises to close or scale back operations, which resulted in employment losses.
• The Centre for Monitoring Indian Economy (CMIE) reports that between April and July 2020, there were around 1.8 crore fewer salaried employment.
• In August 2020, the unemployment rate was 7.4%, while in August 2019, it was 5.4%.
• The Periodic Labour Force Survey (PLFS) report for 2021–2022 from the National Statistical Office (NSO) states that the unemployment rate for that year was 4.1%.

Obstacles in the Agricultural and Related Industries:

• The agriculture industry in India has not progressed at the same rate as the country’s GDP in recent times.
• According to the Economic Survey 2022–23, over the previous six years, India’s agricultural and related industries have grown at an average annual rate of 4.6%; nonetheless, this is less than the required growth rate required to significantly raise farmer incomes.
• The agricultural sector’s share of India’s GDP decreased over time, falling from 35% in 1990–1991 to 15% in FY23.

Reducing Income Inequality and Household Consumption:

• Extremely high levels of income disparity worsen the demand for consumption, particularly among the lowest income groups. This lowers the demand for investments and contributes even more to slow growth.
• India’s 2019–20 Gini coefficient, which measures income inequality, was 0.38, suggesting notable differences in income.

The Deficit of Infrastructure and Private Investment:

• The World Bank estimates that India has an infrastructure deficit of about $1.5 trillion.
• The share of GDP attributed to private investment declined further, reaching a low of 19.6% in 2020–21.
• India is predicted to have an infrastructure deficit of more than $1.4 trillion, with the transportation, energy, and healthcare sectors being the main areas of concern.
• The level of private investment is still low; in FY 2020–21, private corporations’ Gross Fixed Capital Formation (GFCF) decreased by -14.5%.
• Acquisitions of fixed assets less resident producers’ disposals are what make up GFCF.
• Any tangible or intangible resources from production processes that are utilised consistently and frequently for a minimum of a year in other production processes are considered fixed assets.
• Export Obstacles in the Face of Geopolitical Unrest:
• Global trade patterns can be disrupted by geopolitical tensions, such as border disputes and trade conflicts like the Russia-Ukraine war.
• Exports from industries such as textiles have declined, and while worldwide commerce in footwear has increased by 5%, India’s exports have decreased.
• Furthermore, challenges stand in the way of India’s ambition to become a major player in the global pharmaceutical sector. Growth in the country has lagged behind demand, at 9 percent, while the worldwide market has grown by 12 percent in the last four years.

What Are the Various Measures Implemented to Promote the Development of the Various Sectors in the Indian Economy?

2020’s New Economic Policy:

• NEP 2020 includes a significant stimulus programme worth Rs 20 lakh crore, or 10% of GDP, which is intended to support several economic sectors.
• In addition, a number of reforms in the areas of agriculture, labour, education, health, defence, mining, power, and taxation are included in the strategy. Its goal is to promote self-sufficiency in India’s economy following the Covid-19 crisis.

Disinvestment strategy:

• Public sector enterprises (PSEs), which are businesses owned or run by the government, are also being privatised in India.
• Enhancing PSEs’ productivity, profitability, and competitiveness as well as relieving the financial load and freeing up funds for development are the objectives of privatisation.
• Disinvestment (selling shares to private investors), strategic sale (giving private buyers management control), and closure (closing down unproductive units) are some of the ways that privatisation might take shape.
• India has raised more than Rs 3 lakh crore from the privatisation of more than 60 PSEs since 1991.

All-inclusive Labour Codes:

• In order to simplify and group central labour regulations into four primary areas—wages, labour relations, social security, and occupational safety and health—four codes have been implemented.
• These laws are designed to give employers more flexibility in managing their workforces, make company registration and compliance processes easier, increase the number of informal workers who are covered by social security, and increase the power of trade unions and collective bargaining.
• The purpose of the Production-Linked Incentive (PLI) is to increase the capacity of domestic industry.
• The PM Gati Shakti – National Master Plan is designed to support infrastructure projects related to multimodal connectivity.
• Enhancing connectivity in North East India is the goal of the Bharatmala Project initiative.
• Start-up India: Founded in order to stimulate India’s startup culture
• The goal of Made in India 2.0 is to establish India as a major hub for global manufacturing and design.

Which potential sectors of the Indian economy require special attention?

Generating Job Openings:

• The creation of jobs, which is mostly the responsibility of the private sector, needs a supportive atmosphere.
• Although the government can temporarily fill vacancies, growth driven by consumption is necessary for long-term employment creation.
• As a result, initiatives to increase consumption will also help create jobs indirectly.

Bringing Back Private Investment:

• The private sector’s involvement is essential, even if the government has been proactive in capital investment, especially in the building of infrastructure.
• Growth has been fueled by investments in industries like roads and railroads, but private businesses, which are motivated by profit, require favourable conditions.
• The Production-Linked Incentive (PLI) programme needs to be expanded, especially to encourage small and medium-sized businesses (SMEs), as it has demonstrated limited success.
• Incentives such as investment allowances could be introduced to encourage private investment.

Reforming Agriculture:

• It is essential to address the issues facing the agriculture industry, especially in light of controversial farm policies.
• Farmers can benefit from government involvement in agriculture through state cooperatives and the clarification of agricultural trade rules.
• Standardising distribution and procurement practices is also necessary to reduce market disruptions.
• Reexamining prohibitions on agricultural commodity futures trading can improve overall productivity and market efficiency.

Increasing Consumption in the Home:

• Despite its volatility, household consumption has recovered since the pandemic.
• Nonetheless, there is still a low demand for consumer products, in part because of rising inflation and excess capacity.
• Fiscal actions like reevaluating tax rates and streamlining GST slabs are crucial to boost consumption.
• It’s also critical to address falling household savings with redesigned tax arrangements.

Including International Supply Chains:

• India needs to take a strategic approach to its involvement in international supply chains, especially when it comes to exporting goods.
• To increase exports, this means negotiating additional free trade agreements with significant trading partners.
• Even if the IT industry has performed exceptionally well in services exports, balanced economic growth requires a focus on merchandise exports.