Way forward for India’s Economic Growth path

Source: This post “Way forward for India’s Economic Growth path”, is created based on the article Powering up to get to the $30-trillion economy point, published in The Hindu on 7^th August 2024.

UPSC Syllabus Topic: GS Paper 3 – Indian Economy – Growth and Development

Context: Article focusses on India’s present growth trajectory and the challenges it faces in sustaining its present economic momentum.

India’s impressive 7%-plus GDP growth rate and status as the world’s fastest-growing large economy inspire optimism. But several countries have failed on this stage before, where India stands today and could not become a developed country. Out of 101 middle-income economies in 1960, only 23 had attained high-income status by 2018.

Therefore, there is a need for a strategy backed by rapid economic growth built on liberal economic policies that harness the private sector.

Significance of Economic Growth for Poverty Alleviation

Poverty: Economic growth is the most effective tool for poverty alleviation and improving living standards. For Example, till 1991, poverty level in India stayed at approx. 50%, However, after liberalisation, poverty fell to approximately 20%.

Inequality although has not reduced but the Indians, who are at the bottom of the income pyramid are well-off compared to before.

What are the challenges for India’s Economic Growth path?

Agricultural Sector: Nearly 46% of India’s labor force remains in agriculture, contributing only 18% of the GDP. This sector is marked by low productivity and underemployment, which hampers overall economic efficiency.

Female Labor Force Participation Rate (FLFPR): India’s FLFPR stands at 37%. It is significantly lower compared to countries like China, Vietnam, and Japan, where it ranges between 60%-70%. Improving this rate is crucial for maximizing the potential of India’s working-age population.

What are the strategies for India’s Economic Growth path?

Export-Oriented Industrialization: India needs to focus on low-skilled, employment-intensive manufacturing with an emphasis on exports. This approach was followed by ‘Asian Tigers’ (South Korea, Taiwan, Japan, and Vietnam) in 1960-90. This involves increasing exports by capitalizing on competitive advantages and maintaining openness to imports.

Reducing tariff: India must avoid protectionist policies like high import tariffs that can lead to Growth of inefficient industries. It leads economies towards losing their advantage in low skilled areas, while staying uncompetitive against advanced economies in high tech sectors.

Market-Led Economy: The government should ensure minimum interference with private sector while providing maximum governance, continuing reforms to enhance the ease of doing business.

Cluster-Led Industrial Development: Building industrial clusters with world-class infrastructure and ancillary ecosystems for education, healthcare, and entertainment can attract employers and workers. Relaxing stringent regulations in designated areas can help create a favourable environment for manufacturing.

Leverage Private Sector Strengths: The government should harness the strengths of the private sector to focus on low-skilled manufacturing sectors, such as electronics assembly and apparel. Which can employ large numbers of people.