{"id":124588,"date":"2021-08-09T20:17:21","date_gmt":"2021-08-09T14:47:21","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=124588"},"modified":"2021-08-09T21:20:12","modified_gmt":"2021-08-09T15:50:12","slug":"our-broken-growth-model-is-in-acute-need-of-some-repair-work","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/our-broken-growth-model-is-in-acute-need-of-some-repair-work\/","title":{"rendered":"Our broken growth model is in acute need of some repair work"},"content":{"rendered":"<p><strong>Source<\/strong>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/epaper.livemint.com\/Home\/ShareArticle?OrgId=987eaed9ef&amp;imageview=0\">Live Mint<\/a><\/span><\/p>\n<p><strong>Relevance<\/strong>: Battling the slowdown in Indian economy<\/p>\n<p><strong>Synopsis: <\/strong>Solving India\u2019s chicken-and-egg problem of income and investment will take government action.<\/p>\n<h5><strong>Background<\/strong><\/h5>\n<ul>\n<li>India was expected to grow in double digits in 2021-22.<\/li>\n<li>However, most double-digit economic growth forecasts for the current financial year have been cut to single digits.<\/li>\n<li>For instance, the International Monetary Fund recently cut its growth forecast for India from 12.5% to 9.5%.<\/li>\n<li>India\u2019s economic growth model of recent years is one of the main reasons hampering India\u2019s rapid Economic growth.<\/li>\n<\/ul>\n<h5><strong>Factors behind economic growth<\/strong><\/h5>\n<p>The two things that drove economic growth during 2001-2011 are<\/p>\n<ol>\n<li><strong>Investment<\/strong>: High investment to gross domestic product (GDP) ratio<\/li>\n<li><strong>Increase in Exports\u00a0<\/strong><\/li>\n<\/ol>\n<h5><strong>Trends &amp; Problems\u00a0<\/strong><\/h5>\n<p>Despite high investment and increase in exports, Indian economy came under the following problems<\/p>\n<ul>\n<li><strong>Inflation<\/strong> hit double digits. Projects did not take off on time, leading to huge bank loan defaults.<\/li>\n<li>Also, some business promoters simply <strong>siphoned off money<\/strong> borrowed from banks. This <strong>led to huge bad loans<\/strong> for banks that peaked at \u20b910.36 trillion, as of 31 March 2018.<\/li>\n<li>More importantly, this <strong>pushed banks away from funding industrial projects.<\/strong><\/li>\n<li>Also, many <strong>corporates were not in a position to borrow,<\/strong> having already gone on a borrowing binge.<\/li>\n<li>In the process, India\u2019s <strong>investment to GDP ratio fell. <\/strong>In 2020-21, it was at an almost two-decade low of 27.1%.<\/li>\n<li>Meanwhile, <strong>Indian exports fell<\/strong> to 18.7% of GDP in 2020-21. This fall has primarily been driven by a massive fall in outward shipments of goods.<\/li>\n<li>Nevertheless, private consumption, came to the rescue. <strong>India continued to grow in double digits<\/strong> post 2011-12 and up until 2016-17.<\/li>\n<li>The trend led to consumption\u2019s share in our economy increasing from around 56% in 2011-12 to 60% in 2019-20.<\/li>\n<li>After 2016-17, consumption <strong>growth declined.<\/strong><\/li>\n<\/ul>\n<h5><strong>Why private consumption declined?<\/strong><\/h5>\n<ul>\n<li>Private consumption was funded through savings as well as increased borrowings. However, due to <strong>increasing NPA\u2019s <\/strong>and <strong>low per capita gross national disposable income,<\/strong> private consumption started declining.<\/li>\n<\/ul>\n<p>In this scenario, if income growth has to pick up, investment needs to go up in order to create jobs and spur economic activity.<\/p>\n<h5><strong>Why growth still not picking up?<\/strong><\/h5>\n<p>As stated above, investment needs to go up, but businesses are <strong>not in a position to borrow.<\/strong><\/p>\n<ul>\n<li>Even if they are, the <strong>capacity utilization in many sectors continues to be low,<\/strong> which means that producers have no need to expand unless consumer demand rises to justify it.<\/li>\n<\/ul>\n<p><strong>Way forward<\/strong><\/p>\n<ul>\n<li>If India needs to come out of this situation, both <strong>central and state governments need to spend more<\/strong>.<\/li>\n<li>This could involve <strong>putting more money directly in the hands of citizens<\/strong> in the form of tax cuts to spending more money on capital-intensive infrastructure projects.<\/li>\n<li><strong>Cutting excise duty<\/strong> on petrol and diesel are other options.<\/li>\n<\/ul>\n<p>However, the concern towards increasing public spending is that this will involve governments having to borrow more. And, the liabilities of the central and state governments have already touched around 91.7% of GDP, as of March 2021.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong><span class=\"TextRun SCXW216046870 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW216046870 BCX0\">Terms to know<\/span><\/span><\/strong><\/span><span class=\"TextRun SCXW216046870 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW216046870 BCX0\">:<\/span><\/span><\/p>\n<ul>\n<li><span style=\"color: #0000ff;\"><strong><a class=\"Hyperlink SCXW216046870 BCX0\" style=\"color: #0000ff;\" href=\"https:\/\/forumias.com\/blog\/international-monetary-fund-2\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"TextRun Underlined SCXW216046870 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW216046870 BCX0\" data-ccp-charstyle=\"Hyperlink\">International Monetary Fund<\/span><\/span><\/a><\/strong><\/span><\/li>\n<li><span style=\"color: #0000ff;\"><strong><a class=\"Hyperlink SCXW216046870 BCX0\" style=\"color: #0000ff;\" href=\"https:\/\/forumias.com\/blog\/eco-101-basics-of-indias-national-income-gdp-gnp-nnp-gva-etc-explained\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"TextRun Underlined SCXW216046870 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW216046870 BCX0\" data-ccp-charstyle=\"Hyperlink\">Basic Economy\u00a0Terms<\/span><\/span><\/a><span class=\"EOP SCXW216046870 BCX0\" data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/strong><\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Source: Live Mint Relevance: Battling the slowdown in Indian economy Synopsis: Solving India\u2019s chicken-and-egg problem of income and investment will take government action. Background India was expected to grow in double digits in 2021-22. However, most double-digit economic growth forecasts for the current financial year have been cut to single digits. For instance, the International&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/our-broken-growth-model-is-in-acute-need-of-some-repair-work\/\">Continue reading <span class=\"screen-reader-text\">Our broken growth model is in acute need of some repair work<\/span><\/a><\/p>\n","protected":false},"author":10316,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[3574,216,8184],"class_list":["post-124588","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-economic-growth","tag-gs-paper-3","tag-indian-economy","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700797068,"cached_date":1704952814},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/124588","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10316"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=124588"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/124588\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=124588"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=124588"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=124588"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}