Today's Editorial

Today's Editorial - 19 December 2023

It is India’s Time

Infrastructure is the backbone of economic growth. It improves access to basic services such as clean water and electricity, creates jobs, and boosts business”. – Alok Sharma

Relevance: GS III (Economy)

  • Mains: India’s GDP growth and Global challenges;

Why in the News?

There is much excitement about India's fast-growing economy, not least triggered by the central bank recently upgrading GDP growth for 2023-24 to a dizzying 7%. 

  • There are some odds considering the present global growth. 

Nexus of recent Growth Upgrade:

India's growth prospects for the next several years are much improved compared with the past. 

  • Rural India:
    • Due to the El-Nino year, the outlook for rural demand was weak which is associated with poor rains and food production. 
    • However, many rural workers instead turned to the many construction jobs on offer as the government accelerated capex, while robust housing demand kept property development up, supporting rural employment and ensuring a floor below which wages did not fall. 
    • The bank credit, house prices, and construction cycles tend to be correlated, and the banking sector's clean balance sheets support further loan growth, pointing towards a continuation of this upcycle, even if a shade softer than before. 
  • What's permanently changed? 
    • A small but fast-growing part of the economy which we call "new India", making up about 15% of GDP, is central to speeding up growth. It comprises two high.
    • Exports:
      • Of these, services exports are particularly impressive. India is no longer a giant call centre of the 1990s, nor a software services provider of the early 2000s. It now sells a broad range of professional services like accounting, legal, and R&D. 
      • India has even become a hub for Global Capability Centers, which are essentially service delivery centers for multinationals. 
      • Encouragingly, these service exports have reached an important threshold, from where growth tends to be rapid, as the experience of other service ex-porting nations shows.
    • Digital Public Infrastructure:
      • The second key sector is India's impressive digital public infrastructure which tech start-ups have plugged into, enabling them to grow rapidly in recent years. 
      • They are now spreading across a host of sectors like fin-tech, e-commerce, ed-tech, and logistics. 
      • They have had wide-ranging benefits, from attracting substantial foreign capital to promoting a pro-entrepreneurship culture.

What's driving India's standout performance? (Challenges)

  • Rising demands: The present speed of growth isn't enough to create all of the 70 million new jobs needed over the next decade. (It would only generate just a third of them)
    • This topic is especially in focus given that India, as per the United Nations, has recently become the most populous country in the world. 
  • An issue with Sluggish low-tech manufacturing and agriculture sectors: Too many manufacturing firms remain too small for too long, so they never enjoy economies of scale or create many jobs.
    • While agriculture employs 46% of the labor force, it produces only 16% of economic output. So to get growth humming louder, both sectors need to change.

The way from ‘Old India’ to ‘New India’:

  • Need more Ambitious Service Sector: It is possible that "old India" which makes up 85 % of the economy can be energized into a "New India". This shift can take place if tech start-ups, now focused largely on services, become more ambitious and foray into the digitalization of manufacturing and agri-tech.
  • Resource Mobilization: Start-ups can use digital infrastructure to help clusters of small manufacturing firms enjoy the advantages of larger manufacturers. This is possible by providing them with access to cheaper inputs, larger end markets, new credit platforms, and digital quality checks. 
  • Technology and Innovations: This can help solve problems in the agricultural sector. Some of these changes, like easier access to credit, are already happening, but need to scale up.
    • By opening up opportunities like better access to new markets, digitalization can increase GDP growth by more than it raises labor productivity, leading to net job creation. 
  • Need for Sustainable Framework: More economic reforms are needed for large and sustainable gains. For example, agricultural e-commerce firms need a more market-friendly legal framework to reach scale. Ease of business must improve across many sectors rather than just a few. 
  • Need to review Domestic Capital Expenditure: 
    • The global economy support will be favorable for India’s growing 6.5-7.5% per year due to two reasons:
      • The world seems to be deglobalizing in goods trade, but still-globalizing is in services trade. This is good for India, which has a larger share of services in its GDP than the fast-growing Asian economies of the last few decades.
      • Some 60% of India's capital stock planned for 2040 is yet to be built, and the country might potentially leapfrog into new green technology. A green label could provide a fillip to India's exports and manufacturing. Here, too, some obstacles need to be addressed. 
    • Power sector: The finances of power distribution companies need to be improved, and a coordinated institutional framework to overcome complexities around federalism, fiscal constraints, and bureaucracy, is needed.

Conclusion: If the reform cycle continues to pedal forward, India could grow 7.5 % over the next decade. More importantly, this clip of growth could solve two-thirds of India's jobs problem. There's a time for everyone. If it plays its cards well, now's the time for India.


Mains PYQs

Q. Is inclusive growth possible in a market economy? State the significance of financial inclusion in achieving economic growth in India. (2022)

Q. Despite the consistent experience of high growth, India still goes with the lowest indicators of human development. Examine the issues that make balanced and inclusive development elusive. (2019)

Q. The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this view? Give arguments in favor of your answer.(2015)

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