In the final analysis, the growth rate depends on the investment rate and the productivity of capital or its inverse incremental capital-output ratio.
Relevance : GS Paper III (Indian Economy)
[1300 words reduced to 200]
Globally, the growth rate in 2018 was high but strong signs of a trade war emerged.
Situation of Indian Economy in 2018-19:
- Rupee underwent a severe shock .
- Agrarian distress accentuated.
- India’s growth rate forecast at 7.4%.
Major concerns with Indian Economy:
- INVESTMENT RATIO : The growth rate depends on the investment rate.
- Solution:Raise investment ratio and keep capital-output ratio at 4.
- BANKING SYSTEM:
- Non-performing assets (NPAs) are at a high level.
- 11 public sector banks are under PCA.
- NBFC system is under stress.
- Solution:
- Recapitalisation of public sector banks.
- More capital to banks outside the PCA framework
- EMPLOYMENT GROWTH
- inadequate growth of employment.
- no correspondence between growth and employment.
- Solution:
- new investment needed for increase in employment.
- EXTERNAL SECTOR
- What happens in the rest of the world affects India’s growth.
- Value of the rupee plummeted and capital outflows occurred.
- Solution:
- Strong growth in exports to manage CAD.
- Contain some of our large imports.
- A watch on India’s CAD is needed.
- AGRARIAN DISTRESS
- There has been fall in prices of agricultural products.
- Solution:
- Government should buy off the surplus.
- Arrangements to procure and store are required.
- Increasing productivity.
- Increased output and better prices.
- Consolidation of small landholdings.
- Marketing of agriculture produce
