Relevance : GS Paper III (Indian Economy)
Theme of the article
Issues that need to be addressed for India is to achieve sustained high growth.
The global growth scenario in 2018:
- Globally, the growth rate in 2018 was high, particularly in the United States.
- But strong signs of a trade war emerged, dimming hopes of faster international trade.
Situation of Indian economy in 2018-19:
- The rupee underwent a severe shock as crude oil prices rose.
- Agrarian distress accentuated.
- India’s growth rate in 2018-19 is forecast at 7.4%.
- The international environment is not conducive for growth of Indian economy.
Major concerns with Indian Economy:
1. Investment Ratio
- The growth rate depends on the investment rate which in turn depends upon a multiple number of factors such as quality of labour, education, skill development, and technology, among others.
- For ensuring a sustained high growth, we need to raise the investment ratio and keep the incremental capital-output ratio at 4.
2. Banking system
- Non-performing assets (NPAs) are at a high level.
- 11 public sector banks are under Prompt Corrective Action (PCA). This restricts the lending abilities of these banks.
- Further, the NBFC system is also under stress.
- Recapitalisation of public sector banks will partly solve the problem.
- More capital to banks outside the PCA framework can be provided to increase their lending capacity immediately.
3. Employment growth
- There has been inadequate growth of employment.
- There has been no correspondence between growth in employment.
- Growth needs to be led by new investment for a significant increase in employment.
4. External Sector:
- India’s external sector is well integrated with the rest of the world.. Therefore, what happens in the rest of the world affects India’s growth very much.
- The value of the rupee suddenly plummeted when crude oil prices rose and there were simultaneously capital outflows.
- Strong growth in exports is a must if we have to keep the current account deficit (CAD) at a manageable level.
- Along with export promotion, we also need to contain some of our large imports.
- A watch on India’s CAD is critically important if we have to achieve growth with stability.
5. Agrarian distress
- Agrarian distress is widespread.
- There has been fall in prices of agricultural products due to increase in output.
- The solution to the fall in prices lies in government intervening in the market and buying off the surplus over normal levels.
- Not only the financial capacity of the government to procure but also adequate physical arrangements to procure and store are required. The procured agricultural products can be sold by the government in later years when output is low.
- Loan waivers are only short-term solutions. What is needed is increasing productivity and enabling farmers to achieve increased output and better prices.
- Consolidation of small landholdings is required so that small farmers can get the benefits of larger size.
- Small farmers will also have to think in terms of higher value-added products like vegetables.
- Marketing of agriculture produce is needed to assure farmers of better income.
Thus, the above five broad issues need to be addressed comprehensively, if we have to achieve sustained high growth.