Meaning of being fifth

Source– The post is based on the article “Meaning of being fifth” published in The Times of India on 7th September 2022.

Syllabus: GS3-Indian economy – Growth and development

News-Article explains the growth pattern of Indian economy and other economic indicators over a three year period from 2019 to 2022.

India has overtaken the United Kingdom to become fifth largest economy. The economy has followed V-shaped recovery after COVID-19.

The growth in the Indian economy is the highest at 3.83% in three year period.

What is the impact of fiscal boost following COVID-19?

Countries across the world expanded fiscal spending enormously following Covid. It led to high increase in inflation, but prevented a major decline in GDP growth.

India is an outlier among these countries as three year growth is highest even when inflation over the last one year is almost the same. Other countries’ growth was driven exclusively by fiscal spending and India’s growth was driven both by fiscal spending as well as supply side measures.

What is the situation of various components of GDP? 

Three engines of growth- These are represented by consumption, investment, and export. Over last year indicators have grown respectively at 26%, 20%, and 15%. Over a three-year period, they have grown respectively at 9%, 20%, and 3.6%. Collectively all these three have grown by 22%.

Fiscal policy must continue to be supportive of growth as all economies are still emerging from COVID shock.

Higher capital expenditure is the need of the day as it has multiplier effects and it does not lead to higher inflation.

The rise in imports at 37% over last  year can be explained by the fact that oil contributes about a quarter of India’s imports, which doubled over the last year. Increase in oil import bill contributes about two third of 37% increase in imports over the last year.

Fears about rising current account deficit are overestimated. India has faced a macroeconomic  crisis only when faced with a Current Account Deficit to GDP ratio greater than 2.5% combined with double digit inflation and very high fiscal deficit. With moderate inflation, comfortable tax revenue, there is no danger of impending macro-instability due to high CAD.

What needs to be done to boost the economy?

We needs to implement completely the reforms announced as part of Atamnirbhar Bharat, labour law reforms and privatization to boost the economic efficiency.