Economic Growth

Economic Growth refers to a  rise in the manufacturing capacity of an economy and demand for products and services through time.

It is determined by the growth of a nation’s actual Gross Domestic Product (GDP) or Gross National Product (GNP), which represents the entire amount of goods and services generated inside a nation over a specific time period.

Economic growth is often followed by an increase in employment possibilities and a rise in earnings and is thought to be a key component in raising the standard of living for the people in a nation.

Economic growth: Need

Government revenue:

• Economic growth has the potential to boost tax collections from both individuals and companies.
• By investing in public goods like infrastructure, healthcare, and education, this income can help to further stimulate the economy.
• Also both domestic and international investment would increase and help with boost in a nation’s revenues.

Employment:

• Increased employment prospects are typically a result of economic growth. More jobs are produced when companies grow and new ones appear, lowering unemployment rates and poverty.
• Also wages can be improved which can contribute to social stability by providing people with a sense of security and opportunities for a better future.
• It can also reduce crime rates, political unrest, and social inequality.

Infrastructure development:

• The construction of infrastructure, such as roads, bridges, airports, and public transit systems, can be a result of economic expansion.
• This can boost accessibility to goods and services, lower the cost of transportation, and improve connectivity.
• A more sustainable future may result from investments in green technologies, renewable energy, and resource conservation.

Living Standards:

• Living standards rise as a result of economic expansion when more goods and services are produced and consumed. This raises the quality of living for everyone, also the ones living in poverty in a nation.
• When a nation’s economy expands, more and better-paying jobs become available, enabling its citizens to spend more money and live better lives.

Technology & Innovation:

• Technological developments and innovation are frequently correlated with economic growth.
• Companies that invest in R&D to be competitive may find new technologies that boost efficiency, produce novel goods and services, and improve productivity.

Economic Growth: Challenges

Low income/Poverty:

• The income gap between the rich and the poor could widen as a result of economic growth. While some people could gain from rising earnings and more work prospects, others might not and could fall behind.
• Because of unequal income distribution, poverty is a serious issue and a major roadblock to the nation’s economic development. Consequently, one of the main economic problems is the low per capita income.

Global Health crisis:

• Significant obstacles to economic progress are posed by the worldwide health problem, such as the COVID-19 pandemic. Global supply networks have been disrupted by the pandemic, leading to a lack of products and services.
• Demand has drastically decreased in sectors including travel, hospitality, and entertainment. Border closures and travel restrictions have an influence on export-oriented economies, particularly in developing nations, which results in slower economic growth.
• Individuals’ ability to work and contribute to economic growth may be impacted by long-term health effects.

Population:

• The enormous population is another element that contributes to the economic problems. High birth rates and declining mortality rates are common in nations like India, which is the second most populous nation in the world after China.
• The government must provide for the fundamental needs of a growing population, such as food, education, shelter, healthcare, etc. Consequently, the nation is under a greater economic pressure.

Low Investments and productivity:

• The lack of investments is a barrier to economic growth for emerging nations because a large portion of the people is still unaware of investments.
• And poor management, outdated technology, inadequate training, and a disengaged staff are just a few of the causes of low productivity.
• As a result, enterprises may be less profitable, more expensive, and less competitive, all of which could have an adverse effect on economic growth.

Import oriented countries:

• Economic growth might face a number of obstacles in a nation that is heavily dependent on imports for products and services.
• A trade deficit, decreased domestic production capacity, susceptibility to outside economic shocks, difficulties in growing and diversifying the economy, and a lack of competitiveness can all fall under this category.
• These nations may be overly dependent on a small number of vital industries that require imports, which may restrict their capacity to produce economic growth.

Economic Growth: India’s Achievements

Strong GDP Growth:

• Over the past few decades, India has continuously seen strong GDP growth rates, averaging approximately 7% annually.
• India’s GDP in 2021 was $3,176.30 billion, making it the fifth-largest economy in the world. And there was an 8.68% growth.
• This has aided in lowering poverty, raising living standards, and fostering economic growth.

Reduction of poverty:

• Since the 1970s, when the poverty rate was around 50%, India has made considerable strides in reducing poverty, which is now around 20%.
• It has been fueled by rapid economic expansion, infrastructure upgrades, and programmes specifically designed to fight poverty. In 2021, India had a 7.6% poverty rate.
• According to a study by the Global Multidimensional Poverty Index, India’s population of impoverished people has decreased by 415 million during the past 15 years.

Infrastructure improvements:

• India has made major investments in infrastructure, such as roads, airports, and ports, which have aided in boosting connectivity and facilitating trade and business.
• In 2023 PM Narendra Modi inagurated a highway connecting Mumbai and Delhi. Due to the reduction in transportation time, this will significantly aid in the expansion of the enterprises. And increased corporate expansion will boost productivity.

Increase in Forex Reserves:

• Growth in forex reserves has aided India in improving investor confidence and strengthening its macroeconomic stability.
• India has drawn a lot of foreign capital, especially in sectors like manufacturing, IT, and services. Additionally, it has assisted in protecting the economy against outside shocks like a quick outflow of cash.
• India has more flexibility to finance its import requirements and handle its external debt when it maintains a good position in foreign exchange reserves.