India’s economic growth, the way forwardViews: 1995
India now stands at 6th position in terms of GDP (Gross Domestic Product). It is poised to become 8 trillion-dollar economy, third largest by 2030. India is already third largest, only behind USA and China in terms of PPP (purchasing power parity). National Statistical Office, estimated GDP growth rate of 9.2% in real terms in 2021-22. According to estimates of IMF, India will be fastest growing economy at least for coming couple of years with a growth rate of 8-8.5 %. Various indicators, including data from Economic Survey 2021-22, shows that the economy has surpassed pre-pandemic level of 2019-20 and is showing strong signs of tremendous recovery.
In globalized world, India cannot grow in isolation while rest of the nations is undergoing one or other kind of issues. COVID-19 has impacted supply chains, global trade etc like never before.This grim situationhas negative impact on India’s exports which are essential component of nation’s growth story. Intense competition from other emerging economies and few least developed countries also needs to be addressed to increase our exports. Moreover, formation of various Regional Trade Blocks such as RCEP (Regional Comprehensive Economic Partnership), CPTPP (Comprehensive and Progressive agreement for Trans-Pacific Partnership) are also throwing challenges to increase India’s exports. On the other hand, supply chain disruptions are adding to the burden. For example, deficiency of semi- conductordevices has negatively impacted Automobile sector.
Infrastructure development has to precede growth. For example, roads need to be built to increase connectivity for seem less travel of goods and people. This will enhance the efficiency of logistics sector. Facilities for electricity, water, internet connection etc has to be kept ready for industrial growth. On the other hand, in India, these needs are taken care after months of requesting officials for the lack of funding or bureaucratic apathy. Government has put in a lot of efforts to address many of these issues as mentioned below.
Insolvency and Bankruptcy Code (IBC), Simplification of Labor Codes are done to improve “Ease of doing business”, which further improve investments in to the country accounting for financial needs. National Monetization Pipeline, Infrastructure Development fundsare announced for the development of infrastructure.Corporate Tax Incentives, Performance Linked Incentivescheme is to increase the efficacy of manufacturing there by increasing exports. In budget 2022-23, government has considerably increased capital expenditure as it has higher multiplier effect on economic growth. To increase liquidity, RBI has been keeping interest rates considerably low. RBI has reduced repo rate by more than 200 basis points and kept so for more than a year despite inflationary fears, to keep robust economic growth growing. However, much more need to be done.
The intention of executive to become third largest economy by 2030 will become reality only if the above suggestions and measures were implemented with heart and soul. India has also committed to achieve “net zero emissions target by 2070”. Instead of viewing it as obstacle, Indian economy should be more on sustainable growth – through investments in solar, wind, nuclear energy etc. Along with IBC, faster judicial proceedings will further increase investments into India, aiding growth.
The biggest criticism the Indian economy faced after the LPG (Liberalization, Privatization, Globalization) reforms of 1991 is jobless growth. This has increased the inequality drastically with the top 1% of the population holding more than 50% of the wealth, according to “Oxfam International”. Hence there is an urgent need to shift towards labor-intensive sectors such as textile, leather, food processing as suggested by previous Economic Surveys. Traditional industries such as toy making can be encouraged. There must be more focus on human resource development through skill development etc. Schemes such as “Pradhan Mantri Kaushal Vikas Yojana” are a great impetus to such efforts.
Government must increase funding to Research and Development – as history shows only such countries have become superpowers – for example-USA and China. This will bridge the gap between employer requirements and employee capabilities. This step on the one hand will address the issue of unemployment, on the other hand, will stop the brain drain. MSMEs (Micro Small and Medium Enterprises) contribute more than 48% to Indian exports and 29% to Indian GDP. MSMEs were the most affected due to the COVID-19 pandemic. Hence there must be extra careful to make government incentives accessible to all MSMEs.Credit Guarantee Fund for MSMEs is a step in the right direction.
Similarly, start-ups are going to be the future of any economy. India witnessed the emergence of Unicorn start-ups during the pandemic, which are hubs of knowledge. India is also the third-largest start-up ecosystem in the world. There might be an emergence of future Facebook/Apple/Google from these startups. Hence special assistance must be given to them in terms of extended tax holidays, easing compliance requirements, etc. India can take advantage of its demographic dividend through start-ups. Once all these steps are followed in letter and spirit India can be as rich as USA and China by the time, we celebrate 100 years of independence in 2047.