CHAPTER-5 : MEDIUM TERM OUTLOOK: A GROWTH VISION FOR NEW INDIA
Economy Survey 2023-2024: Revision Notes
SETTING THE CONTEXT
India’s Economic Growth
- Indian economy grew from USD 300 billion in 1993 to USD 3.6 trillion in 2024 (12-fold increase).
- Indian rupee depreciated by 3% annually between 1993-2024.
- Per capita GDP increased from USD 301.5 in 1993 to USD 2,484.8 in 2023.
- Low indebtedness despite rapid growth indicates efficient capital utilization.
India’s Aspirations
- India is an ancient civilization with a large landmass and population.
- Aims to become a global economic and political power by 2047.
- China’s rapid growth is a benchmark for India.
Global Challenges
- World is transitioning to a multipolar order from a bipolar one.
- Increased likelihood of geopolitical conflicts.
Societal Challenges
- Rise of the “Far Right” in advanced nations reflects a clash between globalist elites and national interests.
- Societal fractures due to economic stagnation, geopolitical conflicts, and cultural clashes.
- Predictions of a turbulent three decades until mid-century.
Economic Globalization and Government Role
- Economic globalization is peaking and facing obstacles.
- Increased focus on national champions and government intervention.
- Rising inequality, poverty, and debt post-COVID-19.
Climate Change Crisis
- Developed nations push for emission reduction but lack effectiveness.
- Developing nations face challenges in transitioning to clean fuels.
- Uncertainties about the efficacy and economic impact of climate change measures.
India’s Challenges
- India faces more complex challenges than China during its rise.
- Requires acknowledging and adapting to the changed global landscape.
India’s Priorities
- Sustained economic growth while considering environment and climate.
- Addressing water stress, air pollution, and stagnant life expectancy.
- Educating and skilling youth to overcome deficits.
- Maintaining border security and strengthening cybersecurity.
- Increasing fiscal resources without compromising growth.
State Capacity and Policy Challenges
- State capacity in terms of numbers and capability is crucial.
- Economic policies need to address interconnected issues holistically.
- Balancing renewable energy goals with land use and resource dependence.
Resource Mobilization
- Limited potential for export-led growth due to global factors.
- Need to generate domestic resources for investment and growth.
- Geopolitical constraints on external deficits and financing.
Medium-Term Growth Outlook
- Key tenets for medium-term growth:
- Geoeconomic fragmentation and resource nationalism.
- Global trust deficit leading to self-reliance focus.
- Integration of climate change into development planning.
- Technology as a strategic differentiator.
- Limited policy space due to multiple crises.
- Building on past reforms and focusing on implementation.
KEY AREAS OF POLICY FOCUS IN THE SHORT TO MEDIUM TERM
Policy Focus for Continued Growth
- India aims to become the world’s third-largest economy.
- Focus on key policy areas to sustain growth.
Generating Productive Employment
- India’s workforce is nearly 565 million.
- Agriculture employs 45%, manufacturing 11.4%, services 28.9%, and construction 13%.
- Services sector is a major job creator, but construction jobs are often informal and low-paid.
- Manufacturing employment subdued in the past decade but rebounding since 2021-22.
- India’s working-age population will continue to grow until 2044.
- Economy needs to create 7.85 million non-farm jobs annually.
- Focus on faster growth of productive jobs outside agriculture, especially in organized manufacturing and services.
Skill Gap Challenge
- 65% of India’s population is under 35.
- 25% of youth are employable (improvement from 34% a decade ago).
- Only 2.2% received formal vocational training, 8.6% non-formal (NSSO 2011-12).
- Skill development challenges:
- Public perception of skilling as a last resort.
- Lack of coordination among government ministries.
- Multiple assessment and certification systems.
- Shortage of trainers.
- Mismatch between demand and supply.
- Limited mobility between skill and higher education.
- Low apprenticeship coverage.
- Outdated skill curricula.
- Low female labor force participation.
- Low productivity in unorganized sector.
- Lack of entrepreneurship in formal education.
- Inadequate mentorship and finance for startups.
- Lack of innovation-driven entrepreneurship.
- No assured wage premium for skilled workers.
Agriculture Sector
- Challenges: Sustained growth, food price inflation, price discovery, efficiency, disguised unemployment, land fragmentation, crop diversification.
- Solutions: Upgraded technology, modern skills, improved marketing, price stabilization, innovation, reduced wastage, stronger agriculture-industry links.
- Government Focus: Chapter 9 discusses policies to address these issues.
MSME Sector
- Importance: Key role in major economies (Germany, Switzerland, Canada, China).
- Indian Government Focus: Enabling MSMEs to be central to economic growth.
- Challenges: Excessive regulations, compliance burdens, access to finance (Rs 20-25 lakh crore credit gap).
- Government Initiatives: Pradhan Mantri Mudra Yojana, Credit Guarantee Fund Trust for Micro and Small Enterprises.
- Other Issues: Threshold-based incentives, complex documentation, long processing times.
- Detailed Discussion: Chapter 10 provides in-depth analysis.
Green Transition
- India’s Commitment: Reduce GHG emissions by 33-35% by 2030, increase non-fossil fuel electricity to 40%, enhance forest cover by 2.5-3 billion tonnes of CO2.
- Challenges: E-mobility policy, grid stability, storage technology, land and capital allocation, nuclear energy role, dependence on China, coal phase-out impact, EV impact on fuel sales and tax revenue, protectionism from developed countries.
- Financial Requirements: USD 1.4 trillion investment needed by 2070, USD 28 billion annually.
- Funding Gap: Domestic sources account for 87% of green finance in FY19 and 83% in FY20, international sources increasing but insufficient.
- Challenges in Mobilizing Capital: Sovereign risks, capital-intensive projects, lengthy gestation periods, evolving regulations, high cost of capital, lack of ‘greenium’ for Indian sovereign green bonds.
- Detailed Discussion: Chapter 6 on Climate Change and Energy.
India-China Economic Relations
- Complex Intertwined Relationship: Chinese domination of global supply chains is a concern.
- India’s Growth: Fastest-growing G20 country but still a fraction of China’s economy.
- China’s Monopoly: Near-monopoly on critical and rare earth minerals impacting India’s renewable energy program.
- Challenges for India: Plugging into global supply chain without relying on China, balancing imports and capital from China.
- Policy Choices: Reshoring and friendshoring amid changing global dynamics.
Chinese Manufacturing Juggernaut
- Threat to EMDEs: Overcapacity in Chinese manufacturing leading to import restrictions in EMDEs.
- China’s Trade Surplus: Ballooning since 2019 due to weak domestic demand and expanding capacity.
- Price Collapse: Global price drops due to Chinese oversupply, impacting producers in India, Vietnam, Brazil.
- Economic Coercion: China’s dominance creating risks of economic coercion through restricted access to crucial inputs.
- Monopolistic Practices: Limiting space for new entrants in manufacturing.
- Policy Interventions: China’s deliberate policies favoring domestic firms.
- EMDEs’ Response: Import restrictions, but limited effectiveness due to cheap Chinese goods and repackaging.
- China’s Retaliation: Blocking India’s access to solar equipment.
- Policy Dilemma for EMDEs: Balancing import competition, boosting domestic manufacturing, and collaborating with China.
- Example of Brazil and Turkey: Raising tariffs on Chinese EVs while attracting Chinese FDI.
- India’s Choice: Plugging into China’s supply chain through imports or investments.
Deepening Corporate Bond Market
- Importance: Crucial for long-term funding, reducing reliance on bank financing.
- Challenges: Small size compared to other Asian markets, dominated by highly-rated issuers, limited investor base.
Tackling Inequality
- Growing Concern: Widening inequality globally and in India (top 1% holds 6-7% of total income).
- Government Focus: Creating jobs, integrating informal sector, expanding female labor force.
- Role of Tax Policies: Impact on capital and labor incomes, especially with AI deployment.
Improving Health
- Unhealthy Diets: Major contributor to disease burden (56.4% according to ICMR).
- Rising Obesity: Tripled in adults, steepest increase in children globally.
- NFHS-5 Findings: Increasing obesity rates in states like Tamil Nadu, Uttar Pradesh, Kerala, West Bengal, Karnataka, Andhra Pradesh, Telangana, Maharashtra, Madhya Pradesh, Jharkhand, Bihar, and Delhi.
- Urban-Rural Disparity: Higher obesity rates in urban areas.
- Preventive Measures: Necessary for a healthy population.
- Impact of COVID-19: Possible influence on sedentary lifestyles and increased obesity rates in NFHS-5.
GROWTH STRATEGY FOR AMRIT KAAL: STRONG, SUSTAINABLE AND INCLUSIVE
Bottom-Up Reforms for Sustained Growth
- India aims for sustained moderate to high growth, fulfilling people’s aspirations.
- Bottom-up reforms are crucial for achieving this.
- Six-pronged growth strategy outlined.
Boosting Private Sector Investment
- Accelerate private investment in machinery & equipment and intellectual property.
- Create enabling environment for capacity and know-how upgradation.
- Address resource bottlenecks and regulatory impediments.
- Private investment recovering post-COVID but scope for further boost.
- Government initiatives: Aatmanirbhar packages, PLI, NIP, NMP, IILB, IPRS, NSWS.
- Focus on implementation to achieve 35% investment-to-GDP ratio.
Growth and Expansion of India’s Mittelstand
- MSMEs contribute 30% of GDP, 45% of manufacturing, and employ 110 million people.
- Government initiatives: ECLGS, MSME Self-Reliant India Fund, new MSME classification, RAMP, Udyam Assist Platform.
- Addressing financing challenges is crucial but not the only issue.
Deregulation for Mittelstand Expansion
- Revival or creation of institutional mechanisms for dialogue with states.
- Sub-national level action needed for physical and digital connectivity, infrastructure, bullet trains, semiconductor chip manufacturing.
- Training for MSME entrepreneurs in management, finance, and technology.
Export Strategy for Mittelstand Growth
- Export strategy crucial for increasing manufacturing share of GDP.
- Make in India Mittelstand (MIIM) collaboration with Germany.
- MIIM supported 151 German companies with over €1.4 billion investment.
- Balancing trade with China, Chinese investment, and India’s security interests.
Strategy for Removing Growth Impediments in Agriculture
- Importance of Agriculture: Central to food security, climate change adaptation, resource sustainability, and employment.
- Reimagining Agriculture: Abandon old development playbook, focus on agriculture’s role in physical, food, and economic security.
Securing Financing for Green Transition
- Exploit Global Green Capital: Tap into sovereign wealth funds, global pensions, private equity, and infrastructure funds.
- Address Investment Barriers: Foster sustainable finance ecosystem, diversify funding sources, use blended finance.
- Role of Sector-Specific Financial Institutions: Mobilize green funds, create innovative financial products.
- Leverage IFSCA: Act as a conduit for attracting international capital, use recommendations from Expert Committee on Climate Finance.
- Engage with Multilateral Development Banks: Explore new and existing instruments to raise finance.
Bridging Education-Employment Gap
- Skill Development Importance: Central to changes in education and labor markets due to automation, climate change, and digitalization.
- India’s Demographic Dividend: Nurturing a skilled workforce.
- National Policy on Skill Development & Entrepreneurship (NPSDE): Bridging gaps, improving industry engagement, quality assurance, technology leverage, apprenticeship opportunities, targeting marginalized groups, promoting entrepreneurship.
- National Education Policy (NEP): Focus on foundational literacy and numeracy, grade-appropriate learning outcomes, reforming education system for employability.
- Industry Involvement: Collaboration with academic institutions for skill development.
Strategy Towards Building State Capacity and Capability
- India’s Progress: Significant strides in infrastructure and direct benefit schemes since 2014.
- Civil Service Role: Central to policy design and implementation.
- Need for Reimagination: Evolving challenges require reinvention, reinvigoration, and re-equipment of state machinery.
- Global Changes: Post-WW II stability ending, requiring combined wisdom of generalists and specialists.
- Lateral Entry: Expanding lateral entry into senior ranks.
- Training and Development: Reimagining foundational and mid-career training.
- Tenure and Accountability: Importance of longer tenure, accountability mechanisms, and annual goal-setting conversations.
- Iterative Process: Refining mechanisms and practices for effectiveness.
Farmer-Friendly Policy Framework
- India’s Agricultural Journey: From food deficit to net exporter, potential for value addition and employment.
- Need for Structural Transformation: Climate change, water scarcity, declining value addition growth rate, and rising agricultural employment require re-evaluation of policies.
- Agriculture’s Multiplier Effect: Contribution to national food and nutritional security, economic prosperity in rural India, and overall GDP.
- Price Fluctuations: Farmers facing challenges due to price volatility and government interventions.
- Insurance and Price Support: Need for effective insurance and price support mechanisms.
- Market Intervention: Government intervention through open market sales, trade controls, and PDS.
- Inflation Targeting: Considering excluding food from inflation targeting.
- Increasing Irrigated Area: Improving irrigation efficiency, promoting water-saving practices.
- Crop Diversification: Shifting focus from water-intensive crops to pulses, oilseeds, and millets.
- Holistic Approach: Balancing economic policies, farm policies, health, water, and climate priorities.
- Private Sector Investment: Creating an environment for private sector participation in agriculture.
Mission Karmayogi’s Holistic Approach to Building State Capacity
- Challenges Identified by ARC: Silos, poor communication, lack of collaboration, inefficient resource allocation, under-resourced training, ineffective performance management, challenging work environment.
- Mission Karmayogi’s Approach: Deconstructing the problem into sub-components, using Workforce-Work-Workplace framework.
- Building Workforce Capacity: Focusing on roles and competencies at different career stages, using competencies as a key tool for performance assessment.
- Improving Work Quality: Role-based HR management, decision-making, mentorship, managerial practices, and physical infrastructure.
- Bridging Capacity Building and HR Management: Connecting workplace roles and workers’ competencies, using competencies for performance assessment and capacity building.
- Technology-Enabled Capacity Building: iGOT Karmayogi platform for accessing tailored capacity building modules, tracking competency requirements, and knowledge sharing.
- Role-Based HR Management: Matching civil servants with roles based on competencies, shifting from rule-based approach to performance-based approach.
- Building Great Workplaces: Fostering culture of motivation, shared purpose, trust, knowledge management, mentorship, and physical infrastructure upgrades.
OUTLOOK IN THE MEDIUM TERM
India’s Growth Story and Future Challenges
- India’s Resilience: Weathering global crises through deft policy management.
- Structural Reforms: Laid foundation for sustained growth, becoming third largest economy.
- Rising Aspirations: Need to harness latent energy within democratic framework.
- Six-Pronged Growth Strategy: Focus on private sector investment, green transition financing, MSME growth, agriculture, education and skill development, and state capacity building.
- Building on Past Reforms: Strengthening banking system, insolvency framework, GST, infrastructure.
- Sabka Prayas: Collective effort for achieving Viksit Bharat by 2047.
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