12 September 2024 : Indian Express Editorial Analysis

1. The start-up nation       

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS3– Indian Economy

Context:

The article discusses the factors driving India’s economic growth over the past decade.

Key Growth Drivers of the Indian Economy in the Last Decade

• India’s economy has witnessed rapid growth over the last decade, driven by three transformative events.
• First, the government’s introduction and expansion of the Unified Payments Interface (UPI) revolutionized digital payments, offering seamless access to financial services for millions of citizens.
• Second, the telecom revolution led by industry players made affordable data services accessible to the masses, bringing the internet within reach of a significant portion of the population.
• Third, the COVID-19 pandemic spurred unprecedented growth in the e-commerce and startup sectors, accelerating digitization across industries.
• These factors have collectively laid the foundation for sustained economic growth, but to build on this momentum, India must focus on creating long-term strategies to solidify its economic future.

India’s Position as a Global Economic Power

• India’s economic growth has attracted attention from multilateral institutions, which have labeled the country as a “bright spot” in the global economy.
• In 2024, India’s nominal GDP is estimated to reach $3.9 trillion. Achieving this milestone reflects the nation’s accelerated economic trajectory—taking just five years to add its third trillion dollars in GDP, following 60 years to achieve the first trillion. In 2022, India overtook the UK to become the world’s fifth-largest economy. This rapid growth positions India as a rising economic power, with significant contributions from its thriving startup ecosystem, which boasts over 140,000 registered startups.

The Role of Technology and Startups in Economic Growth

• India has become the world’s third-largest startup ecosystem, contributing substantially to economic development. Government policies promoting capital expenditure and increased internet accessibility, coupled with affordable data rates, have fueled the startup boom.
• This ecosystem is bolstered by contributions from top-tier higher education institutions (HEIs) such as the IITs and IIMs, as well as emerging HEIs in Tier II and III cities.
• These institutions are producing a steady stream of skilled entrepreneurs who are leveraging technological advancements to create innovative solutions across industries.
• Every new internet user—whether a farmer, student, or rural citizen—presents fresh opportunities for startups to scale, leading to exponential growth in sectors like agriculture, education, and financial inclusion.

The Demographic Dividend and the Future of Employment

• India’s demographic advantage, with its large and youthful population, holds significant implications for economic growth. In 2023, India surpassed China as the world’s most populous nation, with a sizable portion of its population being under 35 years of age.
• This demographic will remain young until at least 2070, fueling the demand for higher education and employment opportunities. However, traditional job markets may not expand fast enough to accommodate the growing number of graduates.
• Emerging technologies, such as artificial intelligence, machine learning, and robotics, are likely to reduce the demand for routine jobs, emphasizing the need for highly skilled workers. This shift underscores the potential of entrepreneurship as a key driver for creating new employment opportunities.

Innovation and Entrepreneurship as Employment Drivers

• India’s startup ecosystem has already created over 1.5 million direct jobs, with a 46.6% year-on-year increase in 2023 alone. These startups are not only providing direct employment but also stimulating the creation of indirect and gig jobs, which are crucial for the economy’s overall employment landscape.
• Drawing comparisons to developed nations like the U.S. and the UK, it becomes evident that India’s startup sector has ample room for growth. Increasing the proportion of students opting for entrepreneurship after higher education could unlock massive job creation potential.
• If just 5% of Indian graduates chose to become entrepreneurs, the country could see the creation of 50,000 successful startups annually, leading to the generation of over 5.5 lakh direct jobs and 55 lakh indirect jobs.

The Importance of Higher Education, Research, and Industry-Academia Linkages

• For India to sustain its growth and compete with leading economies, it must rethink the role of higher education. The success of economies like the U.S. has been partially driven by strong linkages between academia and industry.
• In the U.S., academic technology transfer has contributed over $1 trillion to industry output and created millions of jobs. India, by contrast, has significantly lower R&D spending, particularly in HEIs.
• With R&D investments standing at just 0.7% of GDP, India lags behind global leaders like the U.S., where R&D expenditure is over 3% of GDP. To bridge this gap, India needs to foster a robust academia-industry interface that promotes entrepreneurship and innovation.

Integrating Education, Entrepreneurship, and Employment for Future Growth

• India’s current approach to economic growth is linear, with separate initiatives targeting education, entrepreneurship, and employment.
• However, to achieve the exponential growth required to realize its vision of becoming a developed nation by 2047, the country must transition to a synergistic model that integrates these three pillars.
• By cultivating an ecosystem where HEIs emphasize entrepreneurial ventures alongside traditional job placements, India can unlock the potential for greater job creation and economic prosperity.
• This transition will require a strategic shift in how higher education is viewed, with a focus on fostering innovation, supporting research commercialization, and strengthening industry-academia linkages.

By adopting these measures, India can pave the way for sustained economic growth, creating a dynamic and resilient economy capable of competing with global powers.

What Measures can India Adopt to Accelerate Economic Growth?

Expanding Manufacturing Sector: India needs to boost the manufacturing sector, creating more job opportunities to absorb the workforce transitioning from agriculture. This can be facilitated by providing targeted training programs and incentives for industries to hire and skill agricultural workers, ensuring a smooth transition and boosting overall productivity. Additionally, promoting food processing industries to expand income opportunities for farmers. Gig Economy Skilling: Partner with online platforms like Uber and Meesho to develop targeted micro-skilling programs relevant to the gig economy. This equips youth with in-demand skills for immediate job opportunities. Create a national online marketplace for freelance work, connecting skilled individuals with businesses across India. This empowers entrepreneurs and facilitates flexible work arrangements. Export Processing Zones (EPZs) 2.0: Establish new-age EPZs with a focus on sustainability and technology. Offering tax breaks and streamlined regulations to attract green technology and high-value manufacturing companies. Providing financial incentives and training programs to equip small and medium enterprises (SMEs) for e-commerce exports. Smart Taxation and Revamped PPP: Leverage technology for “smart taxation” to fill the loopholes in existing taxation systems and widening the tax base. Partnering with fintech companies for innovative tax collection solutions. Develop a new generation of PPPs with a focus on risk-sharing and performance-based incentives. This attracts private capital for infrastructure projects while ensuring value for money. Industry-Academia Collaboration: Fostering stronger collaboration between universities and industries to develop curriculum aligned with industry needs. Introducing a system of micro-credentials and stackable certifications that recognize specific skills. This allows individuals to continuously upskill and adapt to changing job demands. India can take inspiration from Ireland’s market-driven industry-academic partnerships, which have effectively prepared the country’s workforce for the emerging technologies. Formalization Incentives:  Offering tax breaks and easier access to credit for informal businesses that transition to the formal sector. This incentivizes formalization and increases tax revenue. Utilizing digital technologies to expand financial inclusion, providing access to bank accounts, micro-loans, and financial literacy programs for informal workers. Green Infrastructure Bonds:  Issue green infrastructure bonds to attract private capital for sustainable infrastructure projects like renewable energy and public transportation. Utilizing big data analytics and artificial intelligence to identify critical infrastructure gaps and optimize resource allocation for project development. .

PYQ: “Industrial growth rate has lagged behind in the overall growth of Gross Domestic Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate?  (250 words/15m) (UPSC CSE (M) GS-3 2017)

Practice Question:  Discuss the key factors driving India’s economic growth in recent years and suggest measures to foster a sustainable growth trajectory through innovation, higher education, and job creation. (250 words/15 m)

2. When rich states get richer 

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS3– Indian Economy

Context:

The article discusses the growing economic disparity between richer southern and western states like Andhra Pradesh and poorer northern states like Bihar.

Economic Disparities Between Indian States

• In 2023-24, the average income of a person in Andhra Pradesh was approximately four times that of someone in Bihar.
• Assuming both states continue their growth trends, this income gap would widen further by the end of the decade.
• Even in an unlikely scenario where Bihar grows at Andhra’s pace, the income disparity would remain substantial, highlighting the deep-rooted economic divergence between richer southern and poorer northern states.
• This raises concerns about the possibility of economic convergence and what would drive growth in states like Bihar.

Divergence in Growth Trajectories

• Southern and western states have historically benefited from both market forces and government policies that reinforced their manufacturing and services ecosystems.
• These regions account for a significant share of India’s factories, formal sector employment, and exports, particularly in sectors like IT and manufacturing.
• The agglomeration effects of these economic advantages, combined with a skilled workforce and better infrastructure, have allowed these states to emerge as economic powerhouses.
• In contrast, poorer northern, central, and eastern regions, where much of India’s population resides, have lagged behind in growth, deepening the economic divide.

Challenges in Economic Convergence

• The economic advantages of the southern and western regions, such as a strong industrial base and superior infrastructure, make it difficult for lower-income states to catch up.
• For instance, despite lower wages in states like Uttar Pradesh and Bihar, companies are not incentivized to relocate due to the advantages that richer regions enjoy.
• Manufacturing incentives, such as the production-linked incentive (PLI) scheme, have further solidified the economic dominance of southern and western states.
• This leads to a reinforcing cycle of growth in these regions, making it harder for poorer states to bridge the gap.

Migration and Socioeconomic Impacts

• As economic disparities widen, migration from poorer to richer regions is likely to intensify, putting pressure on the infrastructure of cities in wealthier states.
• This will exacerbate demands for local job reservations, as seen in the past, and could lead to social and political unrest. Migration will also create a strain on public services and infrastructure, especially in the already congested cities of the north and south.
• Furthermore, poorer states may experience heightened demands for job creation, but their inability to generate low-skilled jobs on a large scale could lead to increased populism and fiscally imprudent policies.

The Role of Government in Structural Transformation

• Addressing the structural impediments to growth in underdeveloped regions is a significant challenge. Governments must focus on long-term solutions, such as improving infrastructure, fostering industrial growth, and enhancing education and skill development in poorer states.
• The transfer of fiscal resources from richer to poorer states will likely continue, but without structural reforms, this alone may not be enough to close the income gap.
• Effective interventions over the next decade or more, especially in states with higher population growth and fewer job opportunities, will be critical to achieving economic convergence.

Long-Term Consequences and the Need for Policy Interventions

• If the current growth trajectories continue, the gap between rich and poor states will not only persist but also worsen.
• This will have long-term consequences for both the economic and social fabric of India, with increased migration, regional tensions, and fiscal strain.
• Governments must prioritize structural reforms and invest in creating the conditions necessary for economic growth in poorer states.
• This includes improving governance, infrastructure, and human capital to promote balanced regional development and prevent further economic divergence.

Practice Question:  Discuss the reasons behind regional economic divergence and suggest measures that can be taken to promote equitable growth across all states in India. (250 words/15 m)