3 June 2024 : Indian Express Editorial Analysis

1. What GDP numbers say

Topic: GS3 – Indian Economy – Inclusive Growth

Context:

India’s GDP data for 2023-24 was highly anticipated, especially following the sovereign rating outlook upgrade by S&P and just before the union election results. The reported growth of 8.2% in 2023-24 significantly surpasses the 7% growth of 2022-23 and is higher than the second advance estimate of 7.6% released by MOSPI in February. This impressive GDP growth suggests a strong economic performance, but further analysis is needed to understand the nuances and sustainability of this growth.

Fourth Quarter Surge and Revision Effects:

• The fourth quarter of 2023-24 showed robust growth at 7.8%. Upward revisions in previous quarter numbers significantly contributed to the overall GDP growth for the year.
• A notable point is the divergence between GDP and Gross Value Added (GVA) growth, with a 1 percentage point gap in 2023-24 compared to 0.3 percentage points in 2022-23.
• This divergence is mainly due to sharp growth in net taxes, driven by higher tax collections and lower subsidies, which boosted the GDP growth.

Sectoral Analysis: Agriculture, Manufacturing, and Services:

• Analyzing sectoral contributions, agriculture’s value-added growth was muted due to a poor monsoon.
• Manufacturing showed a healthy recovery with a 9.9% growth in 2023-24, rebounding from a contraction in the previous year.
• The services sector also performed well with a 7.6% growth, although there was some moderation in the fourth quarter, particularly in trade, hotel, transportation, and communication segments.
• The construction sector remained robust, growing at 9.9% in 2023-24.

Expenditure-Side Breakdown: Consumption and Investment:

• From an expenditure perspective, the overall GDP growth lacks broad-based support.
• Private consumption grew by a mere 3.8% in 2023-24, the slowest rate in two decades (excluding the pandemic year).
• However, investment grew healthily at 9%, driven mainly by government spending. The central government’s capital expenditure increased by 28%, and state capital expenditure grew by around 33% in April-February.
• While there are signs of private sector recovery, a broad-based recovery in private capex is still awaited.
• Exports were muted due to weak global growth, with services exports performing well but merchandise exports struggling.

Future Outlook and Key Drivers for Sustained Growth:

• Looking ahead, India’s GDP growth is expected to moderate to around 7% this year.
• Sustaining growth momentum will hinge on improving private consumption, especially among lower-income groups affected by high inflation and low wage growth.
• Rural demand, weakened by last year’s poor monsoon, is expected to revive with normal monsoons this year.
• Signs of improvement in rural demand are already visible in two-wheeler sales and FMCG sales volume growth in rural areas.
• However, consistent rainfall distribution and moderation in food inflation will be crucial for sustained rural consumption recovery.
• Employment improvements, particularly in the unorganized sector and beyond the IT sector, are also vital for consumption revival.

Importance of Private Capex and Global Influences:

• A pick-up in the private capex cycle is crucial for sustained growth momentum.
• With manufacturing capacity utilization at 75% and healthy bank and corporate balance sheets, conditions are favorable for capex revival.
• Private sector investment intent is rising, as shown by CMIE data on investment projects.
• However, policy certainty and confidence in economic stability are critical for meaningful private investment growth.
• Globally, improving growth outlooks could boost India’s exports, though geopolitical tensions and global commodity price fluctuations pose risks.

Conclusion:

• While India’s economy has achieved impressive growth, caution and timely actions are necessary to ensure sustainability. The new government will face the challenge of maintaining high economic growth while pursuing fiscal consolidation.
• Prioritizing broad-based consumption revival and continuing focus on capex-led recovery are essential.
• Creating job opportunities in urban and rural areas will help sustain consumption growth and stimulate private capex.
• Ensuring the benefits of growth reach lower-income categories will be key to achieving sustained 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:  Discuss the factors that contributed to India’s impressive GDP growth of 8.2% in 2023-24, and analyze the challenges that need to be addressed to ensure the sustainability of this growth. (250 words/15 m)

(Source: Indian Express; Section: The Editorial Page; Page: 10)

 

2. A new kind of green

Topic: GS2 – Governance – Government policies – Interventions for development in various sectors GS3 – Indian Economy – Issues relating to mobilization of resources

Context:

As India undergoes a significant energy transition, it is crucial for policymakers to avoid preparing for the last war and instead create a strategic framework for future energy policy. The next government must recognize the complexities of this transition and craft an integrated, forward-looking approach.

Dual-Pronged Energy Policy:

• India’s current energy policy consists of two main prongs.
• The first prong focuses on fossil fuels, aiming to manage and mitigate increasing import dependency on petroleum through diversification of imports, strategic reserves, domestic exploration, demand conservation, efficiency, and environmental protection.
• The second prong emphasizes accelerating the transition to clean renewable fuels, with long-term commitments to net zero carbon emissions by 2070 and medium-term goals of reducing carbon intensity and generating 500 GW of electricity from non-fossil fuels by 2030.

Fragmented Implementation Structure:

• The implementation of these two prongs is managed by functional, vertically structured ministries.
• The Ministry of Petroleum handles fossil fuels, while the Ministry of Coal also plays a significant role due to coal’s dominance in India’s energy consumption.
• The transition to renewable energy is overseen by multiple ministries, including Renewables and Power, Heavy Industry, Mines and Minerals, IT and Information, and Environment.
• This fragmented structure, with each ministry operating in isolation, hinders the creation of a cohesive and integrated energy policy.

Need for Integrated Decision Making:

• The compartmentalized decision-making structure is suboptimal, particularly for achieving India’s ambitious decarbonization and sustainability targets.
• An integrated view of the energy value chain is essential due to the international forces influencing the green transition.
• The geopolitical landscape, marked by great power competition between the US and its allies against China and Russia, affects supply chain resilience, domestic investment, and national security.

Geopolitical Ramifications:

• China’s near-monopoly on materials essential for green energy and its dominance in low-cost green technology poses national security concerns for India.
• The Indian government has responded with duties on Chinese imports and the Production Linked Incentive (PLI) scheme to boost domestic manufacturing.
• However, a strategic framework similar to the US Chips and Science Act is needed to mitigate these vulnerabilities and ensure a secure green transition.

What is the US’ CHIPS and Science Act, 2022

• The Act authorises $52.7 billion over five years and aims to catalyse investments in domestic semiconductor manufacturing capacity to boost US competitiveness, innovation, and national security.
• It also seeks to jump-start R&D and commerciali­sation of leading-edge technologies, such as quantum computing, AI, clean energy, and nanotechnology.
• The law aims to create new regional high-tech hubs and a bigger, more inclusive science, technology, engineering, and math (STEM) workforce.

Proposal for a Converged Energy Strategy:

• The next government should consider developing a comprehensive strategic document titled “Energy Strategy: Towards Convergence, Security, and Sustainability.”
• This document should address key issues to unify the current two-track energy policy into a seamless whole.

Key Issues to Address:

• Integration of Hydrocarbon PSEs and Energy Companies: Preventing duplicity of effort and resources as public sector enterprises (PSEs) in hydrocarbons expand into renewable energy.

• Future Resource Requirements: Creating a clear strategy to meet the volatile market demands for critical minerals like copper, lithium, nickel, and cobalt, as forewarned by the International Energy Agency (IEA).
•  Competitiveness of Clean Energy: Addressing the impact of national security-driven economic policies, such as anti-dumping duties on Chinese EVs, on the pace of the green transition and investor confidence.
• Encouraging Private Investment: Overcoming private sector risk aversion by identifying sectors for special incentives and increasing public investment to “crowd in” private capital. The strategy should detail these options and provide a clear roadmap.

Conclusion:

• The next government’s challenge will be to reduce the reliance on fossil fuels within a polarized international geopolitical context and amidst rapid technological innovation.
• By adopting an integrated and strategic approach to energy policy, India can navigate these complexities and achieve its sustainability and decarbonization goals.

PYQ: Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain (UPSC CSE (M) GS-3 2022)

Practice Question:  Discuss the importance of integrating energy policies in India to ensure a successful transition to renewable energy. Highlight the challenges posed by the current fragmented implementation structure and suggest measures to overcome these challenges. (250 words/15 m)