10 July 2024 : The Hindu Editorial Analysis

1. A Budget that drives growth with stability

(Source – The Hindu, International Edition – Page No. – 8)

Topic: GS3 – Indian Economy

Context

The 2024-25 Budget aims to sustain India’s GDP growth at 7%-7.5%, focusing on domestic drivers amidst global economic slowdown. It prioritises reducing the fiscal deficit to 3% of GDP, enhancing investment to 35%, and addressing challenges in exports and employment through strategic fiscal management and infrastructure development.

Introduction:

• The final Budget for 2024-25, scheduled for presentation on July 23, marks the maiden fiscal outline of the new government.
• This budget assumes critical significance as it delineates the government’s medium-term growth aspirations, employment strategies, and policy priorities amidst a global economic deceleration.
• India’s primary reliance on domestic growth drivers amid global economic downturns is emphasised.

Growth Objectives:

• Short-term objectives entail achieving a minimum 7% GDP growth rate, while medium-term goals focus on sustaining a real GDP growth rate within the range of 7%-7.5%.
• This objective is underpinned by the necessity to reduce the fiscal deficit relative to GDP from current levels to the Fiscal Responsibility and Budget Management (FRBM) compliant 3% over the next three to four years.

Investment and Savings Dynamics:

• To sustain a growth rate exceeding 7%, a real investment rate of 35% of GDP is deemed essential.
• Gross Fixed Capital Formation (GFCF), a critical indicator, stood at 33.5% of GDP in 2023-24, indicating the need for incremental growth.
• Concurrently, the savings-to-GDP ratio, standing at 32.8% in real terms for 2022-23, requires marginal increases to support sustained investment levels.

Challenges in Export and Investment Demand:

• Net exports’ contribution to GDP growth has been negative or minimal recently due to subdued export prospects, exacerbated by contrasting performance between service and goods exports.
• The interim reliance on government investment demand assumes significance until private investment augments.

Budgetary Options and Revenue Projections:

• Anticipated improvements in the Centre’s revenue position are predicated on enhanced tax and non-tax revenues, surpassing earlier interim budgetary estimates.
• Gross Tax Revenues (GTR), expected at ₹38.8 lakh crore for 2024-25, derive buoyancy from a nominal GDP growth projection of 11%, comprising 7% real growth and 3.8% inflation.
• Non-tax revenues, notably augmented by ₹2.11 lakh crore from the Reserve Bank of India (RBI), bolster the revenue framework.

Fiscal Management and Expenditure Allocations:

• Fiscal prudence dictates adherence to the 5.1% fiscal deficit-to-GDP ratio, directing total expenditure towards ₹49 lakh crore, inclusive of non-debt capital receipts.
• Strategic allocation between revenue and capital expenditures is critical, with revenue expenditure expected to grow by 8% over 2023-24 to accommodate increased subsidies, health expenditures, and rural employment initiatives.

Infrastructure and Employment Strategies:

• Capital expenditure growth, projected at 19.2% in 2024-25, underscores infrastructure expansion aligned with medium-term growth objectives.
• Policy measures may include tax rationalisation initiatives and potential expansions of ongoing Production Linked Incentive (PLI) schemes to bolster employment generation.

Commitment to FRBM Targets:

• Commitment to FRBM targets remains pivotal, with a gradual reduction of fiscal deficit-to-GDP ratio towards 3% over the next few years anticipated to bolster economic stability.
• This strategy envisages a virtuous cycle of declining debt-to-GDP ratios and interest payments relative to revenue receipts.

Conclusion:

• The 2024-25 Budget signifies a blend of growth imperatives and fiscal prudence, pivotal in navigating global economic challenges while advancing domestic developmental goals.
• The government’s commitment to stability, encompassing price and fiscal stability, underscores its strategic approach in leveraging fiscal policy for sustainable economic expansion.

PYQ: One of the intended objectives of Union Budget 2017-18 is to ‘transform, energise and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective.(250 words/15m) (UPSC CSE (M) GS-3 2017)

Practice Question:  Discuss the objectives and strategies outlined in the 2024-25 Budget to sustain India’s economic growth amidst global challenges. (150 Words /10 marks)

2. The shape of manufacturing 3.0 for Modi 3.0

(Source – The Hindu, International Edition – Page No. – 8)

Topic: GS3 – Indian Economy – Changes in industrial policy and their effects on industrial growth.

Context

Prime Minister Narendra Modi’s coalition government emphasises boosting India’s manufacturing sector to address urbanisation, employment shifts from agriculture, trade deficits, and national security concerns amid geopolitical dynamics, including China’s assertiveness.

Introduction

• Prime Minister Narendra Modi’s third term involves leading a coalition government and emphasises economic reforms, particularly in manufacturing, to manage urbanisation and employment shifts from agriculture.

Government’s Manufacturing Goals

• Since 2014, the central government has aimed to increase manufacturing as a percentage of GDP from 15% to 25% by 2025.
• Despite reforms like GST, India’s manufacturing contribution declined to 13% of GDP by 2022, contrasting unfavourably with other countries like China, Vietnam, and Bangladesh.

Importance of Boosting Manufacturing

• Employment Generation: Shift from low-productivity agriculture necessitates creating employment in manufacturing, catering to half of India’s workforce.
• Trade Deficit: India faces a significant goods trade deficit, with substantial imports of manufactured goods like electronics, alongside a surplus in services trade.

Strategic Importance for India and U.S.

• National Security: Strengthening India’s manufacturing supports its regional security role amidst rising geopolitical tensions, particularly concerning China.
• Supply Chain Resilience: Building manufacturing capabilities in India enhances supply chain reliability for U.S. interests, reducing offshore dependencies.

Challenges and Considerations

• State-Level Governance: Most factors influencing manufacturing—electric power, water, labour regulations—are controlled by State governments, requiring enhanced policy attention from the central government.
• Business Environment: Initiatives like BRAP for state competitiveness have been inconsistent, lacking updated assessments post-COVID-19 and reliant on self-reported data.
• Sector Focus: Advocacy for job-intensive sectors like textiles and furniture is proposed over capital-intensive sectors to stimulate broader employment growth.

U.S. Role and Engagement

• Supportive Engagement: U.S. involvement in enhancing Indian state governance and economic policies could improve investment attractiveness and supply chain integration.
• Regional Engagement: Suggestions for U.S. officials to extend engagements beyond major cities like Delhi-Mumbai-Bengaluru to include key manufacturing states, fostering deeper economic ties.

Conclusion

• Policy Realignment: The central government’s renewed focus on manufacturing post-election underscores persistent needs for job creation, trade balance, and security enhancement.
• Path Forward: While India’s market size and growth potential remain attractive, achieving “Make in India” success hinges on comprehensive reforms at both central and state levels to accelerate manufacturing growth

PYQ: Can the strategy of regional-resource based manufacturing help in promoting employment in India? (150 words/10m) (UPSC CSE (M) GS-1 2019)

Practice Question:  Discuss the significance of India’s manufacturing sector in addressing economic, employment, and security challenges. Also evaluate the role of governmental reforms and international partnerships in enhancing its global competitiveness. (250 Words /15 marks)

3. The innate limitations in executing iCET

(Source – The Hindu, International Edition – Page No. – 9)

Topic: GS2 – International Relations – Bilateral Relations

Context

The iCET initiative aims to enhance India-U.S. defence collaboration via technology transfer, focusing on manufacturing GE F-414 engines and assembling MQ-9 UAVs. Challenges include limited technology sharing and bureaucratic complexities, despite strategic alignment with U.S. policy goals.

Overview of the iCET Initiative

• The iCET (Initiative on Critical and Emerging Technologies) between India and the U.S. aims to bolster bilateral collaboration in advanced technologies, particularly in defence.
• Talks between National Security Adviser Ajit Doval and U.S. counterpart Jake Sullivan have shown initial promise but face ongoing challenges.

Structural Challenges in Technology Transfer

• Autonomy of U.S. Defense Companies: U.S. defence firms are reluctant to share critical technology due to stringent intellectual property rights (IPR) protections and commercial motivations.
• Impact of Export Control Laws: Stringent U.S. export control laws further hinder technology transfer, managed by a robust defence industrial complex.

Current Initiatives under iCET

• Manufacturing of GE F-414INS6 Engines: Hindustan Aeronautics Limited (HAL) is set to locally produce these engines with 80% technology transfer from General Electric, excluding crucial metallurgy know-how.
• Assembly of MQ-9 Armed UAVs: General Atomics Aeronautical Systems is transferring 10-15% technology for local assembly, including plans for a maintenance, repair, and overhaul (MRO) facility.
• Negotiations for Stryker Infantry Combat Vehicle: Discussions are underway for direct acquisition, licence-building, and co-development with General Dynamics Land Systems for the Indian Army.

Challenges and Limitations

• Incomplete Technology Transfer: Despite negotiations, critical aspects of technology, such as metallurgy for turbine discs, remain withheld.
• Commercial Motivations: U.S. defence vendors prioritise shareholder interests and IPR protection, limiting the extent of technology transfer.
• Previous attempts failed due to similar technology transfer issues, leading to the establishment of iCET in 2023 with broader objectives.

Role of ‘Indian Jugaad’ in Mitigating Challenges

• Innovative Adaptation: Indian military’s use of ‘jugaad’ or innovative solutions has historically enhanced foreign platforms’ performance in diverse and challenging terrains.
• Constraints Under FMS and Golden Sentry: Strict protocols under Foreign Military Sales (FMS) and end-use monitoring limit India’s flexibility to employ ‘jugaad’ on acquired U.S. assets.

Strategic Implications and Recommendations

• Policy Alignment: The iCET aligns with U.S. policy recommendations urging India to reduce dependency on Russian arms and consider U.S. sources for future military acquisitions.
• Risk of Procedural Overload: Challenges exist in ensuring operational focus amid bureaucratic processes, cautioning against excessive administrative dialogue over tangible action.

Conclusion

• The iCET initiative represents a significant step towards enhancing India-U.S. defence cooperation through technology sharing and local manufacturing.
• Despite initial successes in negotiations for key technologies like the GE F-414 engines and MQ-9 UAVs, challenges remain in achieving comprehensive technology transfer and overcoming procedural constraints.
• The strategic alignment with U.S. policy goals underscores the initiative’s importance amidst geopolitical dynamics, emphasising the need for pragmatic solutions to operationalize agreements effectively.

Practice Question:  Discuss the challenges and strategic implications of the iCET initiative in enhancing India-U.S. defence collaboration. (150 Words /10 marks)