India shows strong growth but faces inclusion and reform challenges

Source: The post India shows strong growth but faces inclusion and reform challenges has been created, based on the article “With poverty levels now at historic lows, a need to revisit food and fertiliser subsidies” published in “Indian Express” on 23rd June 2025

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

Context: As Prime Minister Narendra Modi completes 11 years in office, this article assesses India’s economic progress, compares it with the UPA era (2004–2014), and outlines future challenges around inclusivity, welfare efficiency, and policy reforms.

For detailed information on Inclusive Growth read this article here

Economic Growth in Global and PPP Terms

1. Significant GDP Expansion: India’s nominal GDP rose from $2.04 trillion in 2014 to $4.19 trillion in 2025. During the UPA tenure, it increased from $709 billion in 2004 to $2.04 trillion. India is now set to become the world’s fourth-largest economy.
2. Rise in PPP-Based GDP: GDP in Purchasing Power Parity (PPP) terms improved from $6.45 trillion in 2014 to $17.65 trillion in 2025, placing India third globally, after China and the US.
3. Per Capita PPP Income Growth: India’s per capita income (PPP) rose from $4,935.5 in 2014 to $12,131.8 in 2025. The global rank improved from 166th to 149th. Yet, India remains the lowest among G20 nations on this metric.
4. Regional and Global Comparison: India still trails Sri Lanka ($14,970) and Bhutan ($17,735), and is well below China ($28,978) and the US ($89,105). However, it ranks above Pakistan ($6,950.5) and Bangladesh ($10,261.1) in 2025.

Inclusivity and Income Distribution

1. Gini Coefficient Stability: The Gini coefficient indicates modest income inequality changes: 0.34 (2004), 0.35 (2014), and 0.33 (2021). This shows persistent, though moderate, inequality.
2. Importance of Equitable Growth: High-level growth needs to be accompanied by broader welfare. Macro gains can mask disparities, especially in large economies.
3. Agriculture’s Role in Inclusion: With 46.1% of the workforce in agriculture (2023–24), its performance is critical. Agriculture GDP grew at 4% annually (FY15–FY25) despite two drought years, exceeding the UPA’s 3.5% growth.
4. Farmer Support Measures: Key initiatives include PM-KISAN income support, urea price freeze, and subsidised food and housing, especially targeting rural areas.

Welfare Schemes and Poverty Reduction

1. Direct Benefit Programs: The Modi government has provided nearly free food grains, housing aid, and farmer support, benefiting millions.
2. Steep Drop in Extreme Poverty: Poverty at the $3/day PPP level fell from 27.1% in 2011 to 5.3% in 2022 — an 80% drop, the sharpest since 1977.
3. Decline in Broader Poverty Line: At the $4.20/day level, poverty declined from 57.7% to 23.9% between 2011 and 2022 — a 60% reduction, showcasing major welfare gains.
4. Need for Policy Recalibration: With poverty levels now historically low, the sustainability and targeting of subsidies need review for better outcomes.

Reforming Food and Fertiliser Subsidies

1. Rationalising Food Subsidy: Over 800 million people receive free food, costing Rs 2.03 lakh crore in FY26. Digital food coupons of Rs 700/family/month for the poorest 15% are suggested. For others, Rs 500/family/month could apply to buy nutritious items, ensuring better targeting and reduced leakage.
2. Reforming Fertiliser Subsidy: Fertiliser subsidy is set at Rs 1.56 lakh crore. Shifting to fertiliser coupons and price deregulation could support bio-fertiliser use, reduce chemical overuse, and cut environmental harm.
3. Efficiency and Sustainability Gains: Reforms can save public funds, improve soil and water health, and reduce import dependence. This would also diversify production and improve resource use.
4. Political Will and Communication: Effective reform needs data triangulation, trust-building with farmers, and political communication. PM Modi’s strong messaging ability is seen as vital to implement these changes.

Question for practice:

Discuss how India’s economic growth under Prime Minister Modi compares with the UPA era and the challenges it faces in ensuring inclusive and sustainable development.