Source: The post India’s economic growth has been created on the article “Calibrating a strategy for India’s future growth” published in “The Hindu” on 11th December 2023.
UPSC Syllabus Topic: GS paper 3- Indian Economy- growth, development and employment.
News: The article discusses India’s economic growth. It mentions different growth predictions from the RBI, IMF, and World Bank. It talks about challenges like global conflicts, supply chain issues, and the need for India to focus on domestic growth and savings. It also covers employment trends, climate commitments, and fiscal responsibility.
What are India’s Growth Projections?
The Reserve Bank of India predicts a 7% growth rate for 2023-24.
The International Monetary Fund and World Bank estimate it at 6.3% for 2023-24.
Working age population growth in India will decrease from 1.2% in 2023-24 to 0% by 2048-49.
According to United Nations population projections, the peak of India’s working age population is projected at 68.9% in 2030, with a low dependency ratio of 31.2%.
What are the factors affecting India’s Growth?
Positive Factors Affecting India’s Growth
Robust Early Growth: In 2023-24, India experienced strong growth rates of 7.8% and 7.6% in the first two quarters.
High Investment Rate with Potential for Increase: The nominal investment rate was 29.2% of GDP in 2022-23. Adjusting for the deflator of capital goods, the real investment rate stands at about 33%. To reach a 7% growth target, this rate needs to increase to 35% of GDP.
Improving Employment: according to a preorder labor force survey, the worker population ratio increased to 51.8% in 2022-23 from 44.1% in 2017-18.
Note: worker population ratio- showing the number of employed persons in the population above 15 years of age
Negative Factors Affecting India’s Growth
Global Tensions and Supply Chain Disruptions: Conflicts like the Russia-Ukraine and Israel-Hamas wars have led to sanctions, supply chain disruptions, and settlement issues due to restrictions on systems like SWIFT.
Decline in Household Savings: The decrease in household savings to 5.1% of GDP in 2022-23, from 7.8% pre-COVID, limits the availability of domestic funds for investment, which is crucial for economic growth.
Fiscal Responsibility Challenges: Struggling to meet fiscal deficit targets of 6% of GDP affects India’s economic stability and investor confidence. This could potentially lead to higher borrowing costs and reduced public investment.
Climate Change Initiatives Impacting Growth: India has commitments to reduce carbon emissions, like achieving net zero emissions by 2070 and reducing total carbon emissions by one billion tons between 2021 to 2030. It needs a shift to climate-friendly technologies. These changes may slow growth rates initially.
What should be done?
Adjust Export Strategies: With exports peaking at 25% of GDP in 2013-14 and dropping to 22.8% in 2022-23, India must evolve from its previous export-led growth strategy to a more diversified approach.
Boost Employment through Skill Development: With a working-age population peak projected at 68.9% in 2030, prioritizing training and skill development is essential for harnessing this demographic advantage.
Emphasizing Service Sector and Climate-Friendly Technologies: To offset the potential reduction in growth from climate-promoting technologies, focusing on the service sector. Which is more climate-friendly.
Maintain Fiscal Discipline: Aiming to reduce combined fiscal deficit and debt to GDP ratios to 6% and 60%, respectively, will help in economic stability.
Prepare for Medium-Term Challenges: Addressing issues like the decline in household savings and adapting to technological advancements.
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