About India’s economic growth: A sustainable growth rate

Source: The post is based on the article “A sustainable growth rate” published in the Indian Express on 20th May 2023.

Syllabus: GS – 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Relevance: About India’s economic growth.

News: In the past four decades and more, the structure of India’s economy has changed drastically.

What are the structural changes India witnessed in the past four decades?

Compared to 1980-81, using current prices, a) The share of “agriculture and allied activities” has dropped from 38% of GDP to 21%, b) The share of services has grown from 37% to 53%, c) Industry
(including construction and utilities) has remained more or less unchanged at 26%.

What does the structural change mean for overall economic growth?

Increase in life expectancy and associated benefits: Life expectancy was 54 years in 1980. But it is currently estimated at 70 years. This means the average Indian no longer dies in his/her working age.

This has improved productivity and increased the rapid spread of education, including post-school education, where enrolment levels have grown sharply.

Rate of investment: There is an increased rate of investment in fixed capital (up from 19.7% of GDP in 1980-81 to 28.6% before the pandemic).

Further, there is a high spread of digitisation.

Healthy economic growth: Indian economy’s potential for annual growth should have become at least 7%. In the two decades prior to the pandemic, India through many ups and downs averaged annual growth not far short of 7%.

How did the pandemic impact India’s economic growth?

With the global economic slowdown post-pandemic, the International Monetary Fund (IMF) thinks India’s potential for growth has suffered and reduced the growth forecast. This is because with Covid India has a) more people falling back on low-productivity agriculture, b) a lower ratio of worker population to total population, c) damage to small and medium enterprises, d) a shortage of consumption and (consequently) investment demand, e) higher level of public debt, and f) government policy errors (like staying out of regional trade agreements).

What India needs to do to boost India’s economic growth?

India should make heavy investments in transport infrastructure. India should also raise the country’s capacity for generating growth and employment. This will revive the Indian economy.