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Power packed Indian Economy

India has registered a stellar economic performance since Modi came to centre; however, expectedly a few wrinkles remain to be ironed out. — KK Srivastava


India is likely to become a $5 trillion economy by 2027, and a massive $7 trillion power house by 2030. Overtime it has converted into a stable and strong economy, having moved away from being a fragile one.  The government’s commitment to reforms, economic management and overhaul and expansion of the welfare net have unlocked energies which are expected to lead to high performance – higher than even what international agencies estimate – of the Indian economy. Indeed these energies can help India achieve a sustained 7% GDP growth and help realize its objective of becoming a developed economy by 2047, the hundredth year of our independence. In its latest estimate even IMF has revised India’s growth estimate for 2024 and 2025 upward to 6.7% and 6.5% respectively (for calendar years). Even compared with other nations and world as a whole India is likely to grow at the fastest rate among all major economies of the world. Thus both in short and long term it would be an impressive achievement, testifying to the resilience and potential of the Indian economy. It augurs well for the future. There is a strong momentum of economic activity in India lately, according to the RBI Governor. And mind you all these growth rates are for a scenario sans overheating and rising inflation. Though, India’s director to the IMF K. Subramanian disagrees with IMF projections and projects a potential growth rate of 7.1% for the Indian economy. All in all a very healthy picture of present and future both! The economy has done really well during the 10 years of Modi’s prime minister ship. Some say the best is still to come now that Modi has already delivered on article 370 and Ram Mandir; now the government will focus more on economic development. 

Younger generation feels that India will attain the status of being a developed nation in their lifetime. They aspire to a better life, the life already having become much better than their previous generations. In fact it is strongly believed that each generation will do better than the previous one under Modi regime. 

There are 4 key drivers that will help India’s growth. One, fresh investment from the private and the government sector. Two, infrastructure development. Three, more efficient alternative supply chains. And, finally, four a world class emerging digital infrastructure. To all these we can add need for improved productivity of both physical and human capital.

According to the latest document by CEA the 10 years of Modi era at the centre have been marked by important reforms, some incremental, some game changing; these have led to the economy reach, within attainable grasp, the annual growth figure of 7%. Only, the geopolitical factors should not spoil the show. To be sure, even though GDP growth rates have been higher in some of the pre-Modi period, the current performance is qualitatively better as it comes in the backdrop of a slowdown in global growth. The basic economic philosophy of the Indian government has been supply side interventions to boast material and human infrastructure, an expansion of the welfare net to cushion the adversities of livelihood and living standards of the poor, and a commitment towards inflation control that extends beyond the realm of monetary policy interventions. 

But all these words of praise should not imply that there are no problems with the Indian economy. Private consumption is not robust, contrary to what the document of the finance ministry says. The recovery of the economy is uneven, with many believing that it is a K-shaped recovery. Unemployment figures are high; there are job challenges. And while reforms are in place, they certainly need acceleration. India’s growth momentum is stellar; it needs certain boosters and correctives, nonetheless. 

India’s Journey to Trillion

GDP $ trillion       Year of achievement    Years taken to add 1 trillion
1                                           2007                               60
2                                           2014                               07
3                                           2021                               07
4                                           2024                               03
5                                           2027                               03
6                                           2029                               02
7                                           2030                               01

The review itself identifies building a skilled workforce as a challenge in going forward. This is one of the low points of India’s economic performance. The Government’s own data shows a marked worsen ring of quality of employment. Since the pre pandemic phase (2018-19) workers have been shifting back to agriculture, the least productive sector of the economy; it now supports the largest share of the workforce.

Second, the drift of workers back to agriculture (with nearly 46% workforce) has depressed rural wages. This in turn has dragged the consumption down. Private consumption makes up about 61% of GDP. At 4.4%, the projected private consumption is expected to grow at a slower pace than the overall economic growth.

Third, notwithstanding their infirmities two critical reforms that were rolled out last decade were GST and bankruptcy code. But India critically needs important and substantive reforms for improving productivity of the two critical factors of production, land and labour. Without such reforms India can not afford to be competitive in industrial sector. Additionally, reforms in future should be such as they move the workforce out of agriculture and into manufacturing.

Four, now that the twin balances sheet problem inherited from the UPA days has turned into an ‘advantage’, as per the review, this must translate into a wider private investment revival. But that would hinge on a broad based consumption rebound rather than the K-shaped recovery (the government of course denies existence of any such thing). Four years of 7% plus growth, post pandemic, is indeed commendable, yet certain improvement are cold for. 

Year on year Growth (IMF)

Region                            2024                           2025
World                                3.1                              3.2
India                                  6.7                              6.5
China                                4.6                              4.1
United States                    2.1                              1.7
Japan                                0.9                              0.8
UK                                     0.6                              1.6

However, India needs to grow faster to create jobs at the scale its youth need. Besides, the rising growth tide should lift most – if not all – boats. The 810 million dependent on handouts should be decreasing – not increasing in numbers; the growth should not be high but equitable as well. To give credit to the government there have been meaningful reforms in learning outcomes, health, easier compliances for smaller firms. And yet flaws in reforms such as GST need to be fixed. The government also needs to deploy blunt policy tools like import licences and price controls on deregulated products, that send convoluted signals about India’s open market with predictable polices pitch, with care and discretion. 

As the commercial says, “Ye Dil Mange More.”           


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