|Topic: GS3 – Indian Economy – Issues relating to growth
This topic is relevant for Mains in the context of analysis of economic indicators, policy measures, and the broader implications for the country’s economic development.
- Despite facing challenges such as a sharp slowdown in agriculture and ongoing geopolitical uncertainties like the Russia-Ukraine conflict and Middle East crises, India is expected to maintain its position as the fastest-growing major economy.
- Various macroeconomic indicators, including a current account deficit within the safe zone, stable currency, and an anticipated decrease in headline inflation over the next quarters, contribute to a robust economic outlook.
- Economic policies, particularly fiscal policy, have played a pivotal role in steering post-pandemic growth recovery.
- The shift from pandemic-focused welfare measures to a public investment-driven growth strategy has accelerated infrastructure development.
- Despite the positive impact on raising productive capacity, there’s a call for moderation in budgetary support to capital spending, emphasizing the need for fiscal rectitude, especially in an election year.
- The Finance Ministry’s review report anticipates the economy to grow close to 7% in the next fiscal year, with suggestions that India could potentially become a $7 trillion economy by the end of the decade.
- Medium-term growth prospects, as reflected in forecasts from multilateral agencies, show expectations of GDP growth moderating to 6.4% in the next fiscal year before accelerating thereafter.
- Achieving fiscal consolidation, targeting a 4.5% fiscal deficit as a percentage of GDP by 2025-26, is deemed feasible if growth remains robust.
- To ensure faster and sustained growth, there’s a crucial emphasis on the private sector taking a lead in investment.
- The government’s efforts to improve capacity utilization, implement the Production Linked Incentive (PLI) scheme, maintain a low corporate tax regime, and support medium and large-sized corporates’ healthy balance sheets are seen as factors that can revive capital expenditure.
- Lowering compliance costs and providing tax regime stability are identified as complementary measures to unleash a broad-based revival of the investment cycle.
- While core inflation has corrected quickly in India, headline inflation remains a concern due to high food inflation, influenced significantly by the underperformance of the agriculture and rural economy.
- Agriculture’s weight in GDP and its impact on food inflation necessitate supply-side measures falling under fiscal policy for effective control.
- India’s vulnerability to climate change is highlighted, with the review document pointing out the need for research, development, and complementary steps to adapt to climate change without compromising growth prospects.
- The “trade-off between energy security and economic growth versus energy transition” is recognized as a key challenge for the economy.
- Over the near and medium term, the review underscores domestic strengths, including healthy corporate balance sheets and the government’s focus on infrastructure build-up and digitalization.
- External markers for the economy are noted to remain resilient. Policymakers are urged to ensure sound macroeconomic fundamentals, fast-track skilling initiatives, pragmatic energy transition management, and a focus on reforms to transform the current growth uptick into a sustained marathon.
|What are the Different Ways of Measuring Economic Growth?
|Two Ways to Calculate Economic Growth:
|PYQ: Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (150 words/10m) (UPSC CSE (M) GS-3 2019)
|Practice Question: Evaluate the effectiveness of fiscal policies in post-pandemic recovery and recommend potential strategies for addressing the identified challenges. Support your answer with relevant data and examples. (150 words/10 m)