Sansad TV Perspective: India’s Economic Growth

In the series Sansad TV Perspective, we bring you an analysis of the discussion featured on the insightful programme ‘Perspective’ on Sansad TV, on various important topics affecting India and also the world. This analysis will help you immensely for the IAS exam, especially the mains exam, where a well-rounded understanding of topics is a prerequisite for writing answers that fetch good marks.

In this article, we feature the discussion on the topic: ‘India’s Economic Growth’

Guests:

1.   Bidisha Ganguly, Chief Economist, Confederation of Indian Industry
2.   Subhomoy Bhattacharjee, Consulting Editor, Business Standard
3.   Sandeep Aggarwal, Chairman, Industry Affairs Committee, PHDCCI

Anchor: Vishal Dahiya

Highlights of the discussion:

• What does the uptick in economic growth in the first quarter indicate and what lies ahead for the Indian economy
• How has the Indian Economy overcome the initial pandemic shock
• Gross Fixed Capital Formation and government expenditure
• Sector-wise focus of Government and Private investments

Introduction:

• India’s economy grew 13.5 per cent in the April-June quarter of this fiscal. This was led by higher household consumption, especially of contact-intensive services, and buoyant investment activity. 

Image Source: rediffmail

• The corresponding April to June quarter of 2021 had recorded a GDP growth of 20.1% and an 18.1% uptick in GVA amid the second wave of the COVID-19 Pandemic. 
• GVA from agriculture, forestry and fishing rose 4.5% in the April to June quarter of this year, while manufacturing and mining grew at 4.8% and 6.5%, respectively.
• While the share of Government Final Consumption Expenditure in GDP moderated to 11.2% between April and June, from 12.6% last year, GDP growth was boosted by private final consumption expenditure which surged to 59.9% of GDP from 54% in Q1 of 2021-22. 
• The share of Gross Fixed Capital Formation (GFCF) which reflects capital investments in the economy improved to 34.7% of GDP in Q1 this year from 32. 8% in the corresponding period last year. 
• The Reserve Bank of India had estimated 16.2 percent growth for the first quarter and 7.2 percent for the current fiscal year. 

Image Source: Business Standard

Key reasons behind the growth in the economy:

• The stats show that the Indian Economy has overcome the adverse impact of Covid19 while several other major economies are still suffering.
• The evolved and re-energised consumer community reflects optimism towards increasing expenditure, especially of contact-intensive services, and buoyant investment activity.  
• Recovery of the average household at a micro level can be attributed as one of the key reasons behind recovery of the overall economy.
• There is also an uptick in Gross Fixed Capital Formation. Revival of investment expenditure by the private corporate sector is very critical for the economy to have a complete recovery.
• Capacity utilization levels in the economy have been going up steadily which incentivises the corporates to expand and invest in the economy.
• Growth in exports, mainly to the US market, which is the biggest market in the world and other markets such as the European Union and UAE markets.
• Indian exports are projected to grow around 25-30% with the implementation of new agreements such as the Comprehensive Economic Partnership Agreement between India and the UAE and other trade deals.

Scope for growth in Manufacturing sector:

• The government’s final consumption expenditure has come down from 12.8% to 11.2 % but the government has continued to support the investment activity with capital expenditure reaching Rs 1.75 lakh crore during the first quarter of 2022-23, which is 23.4 percent of the budget estimate and 57 per cent higher as compared to the corresponding period of the last year.
• Because of underinvestment by the private sector in capacity expansion, manufacturers are turning to imports for intermediate products. India needs to focus on improving its manufacturing capacity and output to take advantage of this growth over other countries, especially China.
• Taking advantage of various policies such as production linked incentive scheme, the private sector is ramping up capacity which has resulted in increased exports.
• India should focus on improving its export competitiveness with commodity diversification, exploration of new markets and reforms in the infrastructure and logistics sector.

Way Forward:

• The Production Linked Incentive scheme should be expanded to other sectors and subsectors.
• Imports growth faster than exports growth simply indicates that domestic demand is growing at a faster rate than external demand, therefore there will be incoming investments into the economy which is going to surge our GDP.
• Slowing down of the global economy will have an impact on Indian exports, so the government should focus on boosting financing from banks and other financial institutions.
• Developing the service sector can yield far-reaching benefits for the economy. Due to its labour-intensive nature, a large and growing service sector can generate millions of jobs for India’s huge workforce and thus promote more inclusive growth. 
• India should work with other countries to reduce domestic regulations and market access barriers to fully tap this growth-accelerating service sector.
• India needs to keep up its incremental pace in exports for the next few years to have healthy and stable foreign exchange reserves.

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