EDITORIAL ANALYSIS : Powering up to get to the $30-trillion economy point

Source: The Hindu

• Prelims: Indian Economy(GDP, BOP, GVA, IMF, liberalization, female labor force participation rate (FLFPR), World Bank, RBI, Economic reforms etc

• Mains GS Paper III: Indian economy and issues related to planning, mobilization of resources, Effect of liberalization on the economy etc

ARTICLE HIGHLIGHTS

• India has 7%-plus GDP growth rate and is the fastest-growing economy in the world This century is named ‘India’s century’.

• This century is named ‘India’s century’.

• India’s vision: $30-trillion economy by 2047.

INSIGHTS ON THE ISSUE

Context

Vision India@2047:

• Vision India@2047 is a project initiated by the NITI Aayog, to create a blueprint for India’s development in the next 25 years.

• The project aims to make India a global leader in innovation and technology, a model of human development and social welfare, and a champion of environmental sustainability.

• Objective: Achieving a USD 30 trillion economy with a per-capita income of USD 18,000-20,000 and strong public finances and a robust financial sector.

International Monetary Fund (IMF) projections:

• India is currently the fifth largest economy in the world in U.S. dollar terms

• It projects that India will be the third-largest economy by 2027.

• India has registered the highest growth rate amongst G20 countries, surpassing China’s for two successive years.

• IMF’s historical data shows that India took six decades (1947 to 2007) to cross the one trillion-dollar GDP mark in 2007 ($1.2 trillion). It took India just seven years to become a $2 trillion economy in 2014. It added another $1.2(one point two)trillion by 2021.

• It took India just seven years to become a $2 trillion economy in 2014.

• It added another $1.2(one point two)trillion by 2021.

• If India hits the IMF’s projected figure of $5.2(five point two)trillion by 2027: It would be adding $2 trillion in just six years.

Background of India’s economic development:

• From Independence till 1991: India’s poverty rate stayed at approximately 50% despite socialist policies emphasizing poverty reduction.

• Between 1991 and 2011: The poverty rate fell to approximately 20%. India’s growth pulled 35 crore people out of abject poverty during this period.

• India’s growth pulled 35 crore people out of abject poverty during this period.

• Between 1990 and 2013, exports as a percentage of India’s GDP grew from 7% in 1990 to 25% in 2013.

Issues in India’s economic growth:

• The data does not show much change in the gini coefficient.

• India’s high-growth years of 2000-10 were led by an IT services boom that spawned an affluent middle-class. However, 46% of our labor force remains in agriculture It is characterized by low productivity and under-employment, contributing just 18% of our GDP.

• However, 46% of our labor force remains in agriculture

• It is characterized by low productivity and under-employment, contributing just 18% of our GDP.

• India’s female labor force participation rate (FLFPR) — just 37%. It was 26% in 2019, and post-COVID-19, several women have gone back to work as agricultural labor. FLFPR in China, Vietnam, and Japan, all between 60%-70%.

• It was 26% in 2019, and post-COVID-19, several women have gone back to work as agricultural labor.

• FLFPR in China, Vietnam, and Japan, all between 60%-70%.

• India’s working-age population – sized 950 million, only half of whom are employed

Economic growth of South Korea, Taiwan, Japan, and Vietnam(called the ‘Asian Tigers)

• Low-skilled, employment-intensive manufacturing with a strong focus on exports

• They regularly achieved double-digit growth between 1960-90.

• Economic policy, focused on rapid export-oriented industrialisation

• It was premised that growing exports require focusing on your advantages while being receptive to imports in other areas.

Import tariffs and their impact:

• They will disadvantage Indian manufacturers, say a mobile phone maker who has to import components from China.

• Tariffs will artificially inflate the prices of the many parts needed for their finished phones, ultimately raising the prices of downstream Indian exports.

Middle income trap:

• The middle-income trap refers to a situation where a country, after reaching a middle-income status, struggles to transition to high-income status.

• This happens when economic growth slows down after an initial period of rapid progress, and the country remains stuck at a middle-income level without advancing further to high-income levels.

• Of 101 middle-income economies in 1960, only 23 had attained high-income status by 2018

• India is a lower-middle-income economy that must graduate to middle-income status by the early part of the next decade.

• Reasons countries get in the middle-income trap: Economies losing their edge in lower-end sectors Economies not being competitive enough with more prosperous countries in high-tech sectors.

• Economies losing their edge in lower-end sectors

• Economies not being competitive enough with more prosperous countries in high-tech sectors.

India’s problem of middle income trap:

• India has been unable to leverage surplus labor to grow in low-end sectors.

• The IT boom gave us an alternative pathway to growth, but the headroom there is limited.

How should India avoid the middle income trap?

• India’s social sector and civil society should view campaigns that paint factories (hubs of low-tech manufacturing) as sweatshops, decrying their work conditions and low wages.

• A market-led economy that lets private enterprise thrive, without the government, or perceptions of factory jobs, getting in the way Minimum Government, Maximum Governance.

• Minimum Government, Maximum Governance.

• Reforms to enhance ‘ease of doing business’ must not stall.

Way Forward

• As India tries to capitalize on the China+1 moment to attract global manufacturers and their supply chains, and further augment its exports India must resist the temptation of putting up huge tariff walls for imports.

• India must resist the temptation of putting up huge tariff walls for imports.

• The government must double down on its impressive achievements in revamping India’s infrastructure by building industrial clusters that are on a par with those in China and Vietnam

• Supply with plug-and-play infrastructure and ancillary ecosystems, for education, health care and entertainment, which would attract both employers and workers.

• A cluster-led model of industrial development, whereby stringent regulations are relaxed in designated areas It helps to create a favorable environment for manufacturing.

• It helps to create a favorable environment for manufacturing.

• The government must leverage the strengths of the private sector and its own penchant for reforms to focus on low-skilled manufacturing That can employ multitudes of people in sectors such as electronics assembly and apparel. This opportunity needs to be made more lucrative for scores of Indians.

• That can employ multitudes of people in sectors such as electronics assembly and apparel.

• This opportunity needs to be made more lucrative for scores of Indians.

QUESTION FOR PRACTICE

• Do you agree that the Indian economy has recently experienced recovery ? Give reasons in support of your answer.(UPSC 2021)

(200 WORDS, 10 MARKS)