17 April 2024 : Daily Answer Writing

Q1) Domestic demand has been the north star of India’s economic growth; however, the target of achieving a five trillion USD economy requires holistic growth across various parameters. Comment.

(250 Words/15 Marks)

The potential growth of a country is a combination of various economic factors such as domestic demand, investments, government spending, exports etc.

The domestic demand has been the north star of India’s economic growth as:

1. A robust domestic demand in the country keeps it relatively immune from the global headwinds and shocks.

E.g., Indian economy could traverse the 2008 economic crisis due to a sustained domestic demand.

2. Domestic consumption leads to more spending by customers which leads to circulation of money, energizing the economy.

E.g., more domestic demand will lead to creation of more jobs.

3. Increase in the domestic demand contributes towards expansion of domestic economy and leads to an increase in the Gross Fixed Capital Formation (to meet the increased demand). Thus, strong domestic consumption translates into strong economic growth.
4. Young demography, large middle class, a well-connected market (in hinterlands, hills etc), increasing urbanization make domestic demand an important determinant of national growth.
5. In a socially and culturally diverse country like India, domestic demand remains strong across the year on account of several festivals, cultural exhibitions etc.

E.g., spurt in domestic demand during Dhanteras, Deepawali, Holi, Eid etc.

 

Though domestic demand is an important aspect of potential growth, the target of achieving a five trillion USD economy requires holistic growth as can be seen from:

1. Government investment: Government investment is a major driver of the potential growth of the country’s economy.

E.g., Ujjwala scheme, Swatch Bharat Mission, DBT; infrastructure development; defence acquisitions etc.

2. Exports: Export capacity of the country is an important determinant of its potential growth.

For example, India achieved $ 400 billion worth of merchandise exports displaying the growth potential of the country.

3. Investments: Investments in the economy are an important cog in the larger wheel of potential growth.

E.g., high investments have spill over impact on all sectors of the economy.

4. Technological advancement: In contemporary times, the growth potential of the country is determined by technological advancements.

E.g., automation of manufacturing process; use of robots, drones etc., in agriculture etc.

5. Macro-economic indicators: Macro-economic factors like inflation, employment status etc., also influence the growth trajectory of the country.

E.g., Stagflation can adversely impact the growth potential of the nation.

6. Self-sufficiency: Complimentary to the participation in global trade, atmanirbharta is a primal aspect of the growth potential.

E.g., Atmanirbhar Abhiyan, PLIs etc., focussing on building domestic capacities; developing human resource base (NEP, vocational training, PMKVY) as the engine of growth.

Though domestic demand is important, it is important to strive for a well-rounded growth. An export led and inclusive growth trajectory can aid India in realising the goal of becoming a 5 trillion-dollar economy.