The economic journey ahead

(MainsGS3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.)

Context:

• By 2047, India will complete 100 years after Independence and a big question before India is will India achieve the status of a developed economy, which means achieving a minimum per capita income equivalent to $13,000.

Early intervention:

• In the early period, India’s strategy of development comprised four elements i.e. raising the savings and investment rate; dominance of state intervention; import substitution, and domestic manufacture of capital goods.
• Policymakers in India in the 1950s and 1960s had no clear model available for accelerating growth thus State intervention on an extensive scale seemed to be appropriate, even though there were some critics even at that time.
• However, by the end of 1970s, it was becoming clear that the model India had chosen was not delivering and that it needed modification but India’s policymakers refused to recognise this. It was around that time China made a big change.
• It was the crisis of 1990-91 that compelled the policymakers to turn to an ‘idea whose time had come’.
• The break with the past came in three important directions: first, in dismantling the complex regime of licences and permits; second, in redefining the role of state; and third, in giving up the inward looking trade policy.

Raise the growth rate:

• Post COVID-19 and the Russia-Ukraine war, there is a need to lay down a road map for India’s future development.
• The first and foremost task is to raise the growth rate as the calculations show that if India achieves a 7% rate of growth continuously over the next two decades and more, it will make a substantial change to the level of the economy.
• This in turn requires that India needs to raise the Gross Fixed Capital Formation rate from the current level of 28% of GDP to 33% of GDP.
• If, at the same time, India maintains the incremental capital output ratio at 4, which is a reflection of the efficiency with which we use capital, India can comfortably achieve a 7% rate of growth.

 Multidimensional strategy:

• India’s development strategy must be multidimensional so that it can absorb the new technologies that have emerged and diversify its strong export and manufacturing sector.
• As output and income increase, India must also strengthen the system of social safety nets because growth without equity is not sustainable.
• India today is the fifth largest economy which is an impressive achievement, however, in relation to per capita income, it is a different story.

Conclusion:

• The Organisation for Economic Co-operation and Development reports a secular decline in growth in developed countries and environmental considerations may also act as a damper on growth thus India has no choice but to grow fast, given the present level of per capita income.