Relevance: GS Paper III (Indian Economy)
[1300 words reduced to 250]
- The Indian economy is headed for a serious crisis. However, the situation today is still retrievable.
- Present situation of the Indian economy
- the growth rate of GDP has declined
- household savings have dropped to 24% of GDP
- NPAs of the public sector banks (PSBs) have arisen sharply
- allocations of the investments in infrastructure has been cut
- the manufacturing sector has been growing at abysmally low rates of between 2% and 5%
- agriculture sector, which is the largest employer of India’s manpower, is grossly under-performing.
- both exports and imports simultaneously declined over 2014-17.
- a rise in the rupee-dollar rate to 75 and crude oil prices which are causing a massive crunch for our foreign exchange reserves.
- However, India economy can still bounce back, like it did in the past, for example, during the food crisis of 1965, and the foreign exchange crisis of 1990-91.
- Way forward
- Incentives should be given to people such as by abolishing the income tax.
- India requires assured access to the markets and technological innovations of developed nations such as US and Israel.
- incentivise the saving habit to increase the savings rate to 35% of the GDP.
- lowering the cost of capital via reducing the prime lending interest rates of banks and then gradually lowering the exchange rate.
- economy needs to grow at 10%-plus per year for the next 10 years
- We can no more be satisfied with 7-9% growth rate if we want to become an economically developed country by 2040.
