Addressing Key Challenges to Boost India’s Growth

Source: The post Addressing Key Challenges to Boost India’s Growth has been created, based on the article “Fix India’s bond market to lift economic growth” published in “Live mint” on 9th January 2025

UPSC Syllabus Topic: GS Paper3- Economy-Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.

Context: The article discusses India’s slowing economic growth, highlighting struggles in private investment, low manufacturing capacity, and challenges in infrastructure. It emphasizes the need for proactive policies, increased public investment, a new public-private partnership model, and a stronger bond market for economic expansion.

For detailed information on Growth Challenges for Viksit Bharat read this article here

What Issues are Hindering Economic Growth?

1. Slowing Growth Rate: India’s growth rate for 2024-25 is estimated at 6.4%, as per the National Statistics Office, which is lower than earlier projections and the central bank’s revised estimates.
2. Low Private Investment: Manufacturing capacity utilization has been stuck at 75% for about a decade, leading to a lack of incentive for private sector investments in factories.
3. Household Debt: Household indebtedness has risen, indicating financial strain on families and reducing their ability to spend, which impacts economic growth.
4. Public Spending Delays: Up to November 2024, the government spent only 46.2% of its budgeted capital outlay, despite collecting 59% of budgeted revenues, slowing public investment.
5. Infrastructure Challenges: Infrastructure development relies heavily on the government as private sector participation has declined, disrupting the balance needed for optimal results.
6. Weak Bond Market: India’s bond market is underdeveloped, with uneven regulation by the RBI for government securities and SEBI for corporate bonds. Long debt recovery processes and weak contract enforcement further stifle growth.

What should be done?

1. Revitalize PPP Models: Establishing clear public-private partnership frameworks can attract private investment, especially in infrastructure.
2. Improve the Bond Market: By reforming the bond market to better integrate government and corporate bonds, and reducing regulatory discrepancies, investment in long-gestation projects could be supported more effectively.
3. Address Debt Market Issues: Fixing issues like long debt recovery times and weak contract enforcement is crucial. Making the bond market more accessible can reduce the costs and increase the efficiency of funding infrastructure projects.

Question for practice:

Examine how proactive policies, public investment, and a revitalized public-private partnership model could address the challenges hindering India’s economic growth