India’s Economy During the Last Decade
During the last decade, India’s economy has suffered a significant setback. It has suffered from weak labour market recovery, a slowing of domestic consumption, and economic reforms that have stalled. It has also experienced the impact of the coronavirus on the economy.
Growth rates
During the last five years, India’s economic growth rates have been impressive. In the first quarter of the current fiscal year, India’s GDP grew 13.5%, the highest pace in a single quarter in the last five years.
Growth rates of India’s economy are expected to slow in the coming years. In June, the World Bank cut its economic growth forecast for the fiscal year ending in March to 7.5%, down from 7.8% in April. However, growth rates of India’s economy have been lower than those of Bangladesh, which have risen to 8.2% in the current fiscal year.
India’s GDP has grown in real terms at an average rate of 5.5% over the past decade. The IMF cut its growth forecast for India to 9.5 percent for the fiscal year to March 31, 2022, down from its earlier forecast of 12.5 percent.
Despite the recent growth slowdown, economists forecast that India’s growth rates will continue to be robust. In fact, a recent poll of economists from Reuters showed them expecting growth rates of 4.5 percent for the October-December quarter.
The Economic Survey 2020-21, released in January this year, predicted that growth would be driven by the easing of regulations, supply-side reforms and the recovery of pent-up demand. Growth would also be supported by the pick-up in credit due to low interest rates.
Poverty rates
Among emerging market economies, India has the highest private investment rate. In 2009, subsidy spending accounted for 2.1 percent of GDP. The government has not conducted household consumption surveys on time. However, the World Bank estimates that 5.6 crore Indians are impoverished by 2020.
The IMF has released a study on India’s economic trends in 2022. The paper triggered a heated debate among experts.
The report uses data from the Centre for Monitoring Indian Economy. It estimates that 53 million Indians will be unemployed by December 2021. The paper also mentions that nearly 35% of Indian children under the age of five suffer from stunting, a classic indicator of malnourishment.
The paper also mentions that the government has a small cash amount for farmers. It has implemented the Pradhan Mantri Garib Kalyan Ann Yojana to provide free food grains to the poor. The aforementioned scheme has enrolled around 111.5 million beneficiaries. The average PM-Kisan payment is 6,000 rupees ($79) a year.
The IMF staff analysis suggests that demographic variables partially explain India’s high private saving rate. The country’s per capita income increased at a rate of 6.9 percent annually. The increase in per capita income is the same as the growth of GDP.
Changes in government policies
Throughout the past decade, India has continued to pursue a range of policies intended to promote economic growth. However, it has not paid enough attention to some of the more pressing issues affecting the country.
A new report from the McKinsey Global Institute identifies five reforms that India needs to pursue in order to accelerate its economic growth. These policies include increasing domestic savings, improving labor-market flexibility, and increasing the incomes of workers. Moreover, India should look for ways to deregulate the supply and distribution of agricultural commodities.
India should increase domestic savings to about 19 percent of GDP. The government can help by reducing the cost of credit intermediation in the banking system. It should also provide market-linked interest rates on government small savings schemes.
India should also invest in productive assets, such as infrastructure. However, this does not necessarily crowd out private investments. The government can also establish a special assets bank that would be backed by private-sector funding. This can provide greater liquidity for private investors, and reduce the cost of financing.
Moreover, the country should look at other options to improve labor-market flexibility. Manufacturing companies should be able to shape their workforces to meet evolving needs.
Almost a year after the outbreak of the novel coronavirus, the impact on the Indian economy is still on the rise. With over 155,000 deaths and more than one-tenth of the world’s confirmed cases, India is among the worst affected countries in the world.
The impact on the Indian economy is likely to take a while to recover. The government has struggled to put in place an economic recovery plan. It has launched a relief package of 1700 billion rupees to help the poor.
The government plans to provide cash transfers to the poor. It also intends to pay the healthcare bill generated by the pandemic. The government is also introducing a food scheme and a minimum income support scheme.
The impact of the pandemic on the Indian economy is likely to impact several sectors. The agriculture and the tourism sector are two areas that have been severely affected. The tourism sector is expected to provide jobs to 53 million people by 2029.
Tourism generated revenues of US$247.3 billion in 2018. This is the eighth largest GDP contribution in the world. It was estimated that 26.7 million jobs were created by tourism in India in 2018.
While the Indian government is trying to address the impact of the coronavirus on the economy, it will have to increase spending to boost demand. It will also have to boost investment demand in various sectors.
Impact of a weak labour market recovery and slowing domestic consumption
During the recent recession, the labour market experienced a churn. While the unemployment rate remains relatively low, the overall labor force participation is still lagging behind its pre-recession level. However, the speed of recovery has given workers more choice in the labor market.
The “U-6” unemployment measure, which includes Americans working part-time for economic reasons, dropped to a series low of 6.7% in June. But this measure understates the number of people who are not working because of the lack of jobs. In reality, the number of employed workers with a bachelor’s degree fell 8.5 percent in the last month alone.
The fastest growing sectors are linked to industrial production and consumer spending on goods. However, profitability in these sectors is still under stress due to higher production costs and transportation costs.
During the recession, Asian workers had lower unemployment rates than white workers. The fall in the unemployment rate was more pronounced for workers without a college degree, indicating that educational opportunities remain unequal.
A new stimulus package announced by the central government includes schemes to encourage job creation. However, the recovery remains uneven. Some sectors have gotten back to pre-recession levels quicker than others.
Consumer spending has not recovered sustainably, with rising commodity prices curtailing spending. However, the upcoming festive season could boost the consumer sector.
Economic reforms stalled
During the 1980s, the Indian economy appeared to be performing well. But as the economy started to expand, a large portion of the population was still living in poverty. In addition to that, India faced long-term structural vulnerabilities.
These problems made it difficult for India to address chronic poverty. To address this problem, India introduced a number of economic reforms. The main goal of the reforms was to bring India into the global economy. However, the reforms have not brought about a meaningful rise in jobs for the poor.
The economic reforms have helped bring in more foreign investment into India. However, there have been concerns about the effectiveness of these reforms. Moreover, many critics believe that the reforms have led to stock market scams, environmental destruction and collapse of the welfare state.
Some of the most radical reforms came in the industrial sector. In addition, India’s national company law tribunals expanded their functions. In addition, India also passed an Industrial Relations Code. However, there are many more areas of reform that need to be addressed. The government is also working on judicial reforms, electric power reforms, and wide-scale privatization.
Another issue facing India is the low rise in rural productivity. Currently, the unorganized sector accounts for about half of the domestic output. Consequently, it is important that the government opens up the retail sector. This will help boost investor confidence and strengthen the rupee. The government also plans to allow foreign airlines to buy stakes in local carriers.
Future growth prospects
During the last decade, India’s economic growth has averaged around 5.5%. In the coming decade, India’s economy will grow at around 6-8 per cent. This growth rate will be transformative for India.
Availability of human resources is a key component of India’s growth potential. A rise in labor force participation can boost potential growth by 100bp. Also, a strong manufacturing sector can help sustain high economic growth beyond 2022. Moreover, new industries will emerge due to policy incentives.
India’s rapid growth is driven by digitalization, offshoring, and energy transition. But it will also be affected by a slowdown in global growth. In addition, geopolitical complexities can depress consumption growth. Also, jobless growth may undermine investment growth.
Despite these challenges, India’s economy was supported by several fiscal and monetary policies. These measures also mitigated the impact of the COVID-19 pandemic.
India’s GDP grew by 8.3 percent between FY17 and FY20. This was the largest GDP rebound among the G20 nations in FY21. However, the Asian Development Bank has cut its economic growth outlook for India. The bank expects India’s GDP to grow by 6.9% in FY2022-23.
The Indian economy is expected to expand at around 7.3 percent in FY21, rebounding from a contraction of 7.3 percent in FY20. The economy may stabilize at around 7 percent in FY22.
