ESSENTIAL STEPS TO IMPROVE THE INDIAN ECONOMY
❖The GDP of an economy is the total monetary (rupee) value of all goods and services produced in an economy within a year. The $5-trillion economy is the size of a national economy as measured by the annual Gross Domestic Product (GDP).
❖At present India is a $2.7 trillion economy. The annual per capita income is about 11,900 rupees per month. As of now we rank 7th according to nominal GDP.
❖In Q1 2020 we experienced a fall of 23.9% and a fall of 7.5% in Q2. Finally we are at a positive growth of 0.4% and out of recession. Recently IMF upgraded its gross domestic product projection for India to 12.5% in FY22.( highest rate for any country estimated).
❖To become a 5 trillion economy a growth rate of about 9 percent per annum (taking 4% inflation into consideration) is to be sustained for 5 to 6 years.
❖We need to try to increase the per capita income of the people without which we would still be described as a middle income country.
The target is in terms of dollar, so there are two major variables which can impact India’s growth towards achieving this target:
1. Inflation rate
2. Rupee-dollar exchange rate
IMPORTANT STEPS TO BE TAKEN:
❖Increase Ease of Business and Ease of Living to promote private investments
❖Urbanization of under developed areas
❖Globalization for growth
❖Increased participation of women in workforce
❖Agriculture Reforms are vital to boost production of different crop varieties as per season to avoid shortage in adverse times.
STEPS TO IMPROVE:
❖Mobilizing domestic savings(from 30.8% to 39%) and raising fixed investment rates(from 32.5% to 41.2%). Household savings are a net supplier of funds to both the corporate and the government sector. Investments are taken to be the equivalent of savings because income not consumed must be saved, which is then used for investment.
❖Foreign capital flow must increase to further boost investment.
❖Total Foreign Direct Investments inflows into India during the second quarter of financial year 2020–21 is 28,102 million dollars. The FDI equity inflows during the financial year 2020–21 is 15 percent more than the corresponding period of 2019–20. (Leading investing country is Singapore followed by Mauritius).
❖Set up better environments for business to flourish. Labor unions are necessary but need strict regulation.(eg: clash in Apple factory over payment delays and forced overtime).
❖Increase exports over imports. For example Danone’s failure in India was due to the prevalent preference for domestic dairy products and self reliance in this sector by the Indian population. Therefore stepping up dairy production for export purposes will provide better revenue returns.
❖Set up investment avenues to give NRI’s access to Indian equities.(FPI)
❖Target growth is achievable by continuous cycle of savings, investment and exports supported by favorable demographic cycle.
❖Set up more training centers with skilled faculty and ITI’s to boost job specific skills rather than increasing the number of graduate colleges in the country.
❖Strengthen supply chain- set up domestic production units and market need with credit line by new investment banks instead of piled up retail banks.
❖Comply with environmental laws before plant set up.(eg: shutdown of Thoothukudi copper smelter plant in 2018 turned India from a copper exporter to importer and Pakistan stepped in to fill the gap.)
❖Equip agriculture sector with technology to beat rainfall shortage, floods and pest damage so that they can contribute more than current 16% to GDP though 50% of Indian workforce is into agriculture.
❖Paris climate deal has good motives but developed countries need to provide carbon space to developing countries. India pledged to bring down emissions by 33–35% in 2030 and produce 40% electricity through non fossil resources.
The incremental capital output ratio must decrease with advancement in technology. (It’s the relationship between the level of investment made in the economy and the consequent increase in GDP.)
❖Privatization and PPP models helps in meeting the consumer needs and the governments to pay their debts. It increases long-term jobs and promotes competitive efficiency and open market economy.
❖Reduce Brain drain- India loses $2 billion a year because of the emigration of computer experts to the U.S. Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually. The steady outflow of our nation’s talent at the cost of the tax payers money, has caused concern to the government.
❖Due to high salary and facilities Indian youth is moving abroad. Knowledge gap increases and the poor countries are becoming poorer and rich countries are asserting their hegemony.
❖Jobs for deserved and not reserved. Reservation for backward classes and communities must be given after a financial background check. Use the right skills at the right place to prevent under employment.
❖Increase funding for labs, research, better working conditions.
❖Work Culture − absence of strong principles leads to politics within an organization thereby largening the communication gaps and poor grievance redressal leading to stress and anxiety in the employees.
❖Taxation − Review by economists shows that the taxation policy in India leaves much lesser scope for savings and the allied issues remain in the dissatisfaction of taxes not being utilized to solve various issues in the country. Taxes thus hamper the mindset of a person in two ways by pinching their pockets and with issues like corruption.
❖Placements in the country − More Indian companies in pharmaceuticals, electronics, etc. should employ the recent graduate with lucrative packages, allowances, and decent working conditions. This helps in encouraging the youngsters to work in India itself and earn the benefit of their merit.
SOURCES:
❖Hindustan Times newspaper
❖NDTV online news
What does India exactly need to become a $5 trillion economy? (rapidleaks.com)
