India’s economic growth and inequality- A $5 trillion economy, but for whom?

Source: The post on India’s economic growth and inequality has been created based on the article “A $5 trillion economy, but for whom?” published in “The Hindu” on 24th November 2023.

UPSC Syllabus Topic: GS Paper3- Indian Economy- Issues relating to planning, growth, development and employment; Inclusive growth and issues arising from it.

News: The article discusses India’s economic growth and inequality. It compares India’s situation to Japan’s economic history, highlighting issues like wealth distribution and social challenges. It questions if India’s growth will benefit all citizens or just a few.

What is India’s current economic plan?

Aim for a $5 Trillion Economy: India’s goal is to become the world’s third-largest economy by 2028 with a GDP target of $5 trillion.

Emphasis on Advanced Sectors: The Indian government has identified key sectors for growth, including the digital economy, fintech, energy transition, and addressing climate change.

Reforms and Incentives: The government has implemented reforms like GST, the Insolvency and Bankruptcy Code, and reduced corporate taxes. It also promotes initiatives like Make in India, Start-Up India, and Production Linked Incentives.

Focus on Inclusive Growth: The government’s plan is anchored around the concept of “inclusive growth,” ensuring the economic development benefits a wide range of citizens.

What are India’s economic challenges?

Significant Wealth Inequality: In India, the richest 1% own about 41% of the country’s wealth, while the poorest 50% have only a 3% share.

High Tax Burden on Poor Population: Around 64% of the total Goods and Services Tax (GST) is paid by the bottom half of the population, while the top 10% contribute only 3%.

Limited Benefits from Economic Growth: Despite India’s push for a $5 trillion economy, most benefits seem skewed towards the affluent. This is reflected in India’s low inequality index score of 21.9, indicating a large disparity in wealth distribution and economic gains.

Challenges in Capital, Productivity, and Labor: India’s economic growth faces hurdles due to uneven capital distribution, questionable educational and skill levels, and nascent digital literacy.

Gap in Per Capita Income: India’s per capita income, a key indicator of well-being, is low. In 2022, India ranked 149th among 194 countries, with a per capita income of $2,400, far below that of countries like Japan ($34,000) and China ($13,000).

Continued Need for Food Security: The extension of the Pradhan Mantri Garib Kalyan Ann Yojna until 2028 underscores the persistent challenge of food security in India.

What can India learn from Japan’s experience?

Importance of Economic Diplomacy: When Japan dropped to the world’s third largest economy, it adopted ego-free economic diplomacy. By embracing China as a key trading partner, Japan demonstrated the benefits of positive international relations for economic progression.

Balancing Industrial Growth with Social Stability: Japan’s transition to a high-value industrial economy played a role in the emergence of hikikomori phenomenon, where individuals isolate themselves from society. This phenomenon is characterized by people staying indoors for long periods, often in their homes. This situation underscores the importance of adopting a balanced approach to industrialization, one that takes into account its effects on personal and social relationships.

Inclusive Economic Strategies: Japan’s experience emphasizes the importance of growth strategies that include all societal segments. Despite facing social issues and rank demotion, Japan’s high per capita income, at $34,000, compared to China suggests a relatively broad distribution of economic benefits. This highlights the need for policies that ensure economic gains reach beyond just the wealthy or technologically advanced sectors.

Question for practice:

Examine India’s economic goals and challenges in light of Japan’s economic history and its approach to wealth distribution and social stability.