INDIA AS THE THIRD LARGE ECONOMY
1. Context
Inaugurating the newly built International Exhibition-cum-Convention Centre (IECC), named Bharat Mandapam, in New Delhi recently, Prime Minister Narendra Modi said that when he took charge in 2014, India was the tenth-largest economy in the world. During his second term as PM, he said, India had become the fifth-largest economy. “I want to assure that during the third tenure of our government, India will be among the top three economies of the world,” he said.
2. Basic characteristics of the Indian economy
Market size
- India’s real gross domestic product (GDP) at current prices stood at Rs. 135.13 lakh crore (US$ 1.82 trillion) in FY21, as per the provisional estimates of annual national income for 2020-21.
- India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List.
- By 2025, India is expected to have 100 unicorns by 2025 and will create 1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.
- India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030’s, for productivity and economic growth according to McKinsey Global Institute.
- Net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.
- According to data from the RBI, as of the week ended on June 04, 2021, the foreign exchange reserves in India increased by US$ 6.842 billion to reach US$ 605 billion.
Recent Developments
- With an improvement in the economic scenario, there have been investments across various sectors of the economy. Private Equity – Venture Capital (PE-VC) sector recorded investments worth US$ 20 billion in the first five months of 2021, registering a 2x growth in value compared with the same period in 2020. Some of the important recent developments in the Indian economy are as follows:
- Merchandise exports stood at US$ 62.89 billion between April 2021 and May 2021, while imports touched US$ 84.27 billion. The estimated value of service exports and imports Cumulative FDI equity inflows in India stood at US$ 763.58 billion between April 2000 and March 2021. Foreign Direct Investment (FDI) inflows in India stood at US$ 6.24 billion in April 2021, registering an increase of 38% YoY.
- India's Index of Industrial Production(IIP) for April 2021 stood at 126.6 against 143.4 for March 2021.
- Consumer Food Price Index (CFPI) – Combined inflation was 5.01 in May 2021 against 1.96 in April 2021.
- Consumer Price Index (CPI) – Combined inflation was 6.30 in May 2021 against 4.23 in April 2021.
- In June 2021, foreign portfolio investors (FPIs) turned net buyers by investing Rs. 12,714 crores (US$ 1.71 billion) into the Indian markets. According to depositories data, between June 1, 2021, and June 25, 2021, FPIs invested Rs. 15,282 crore (US$ 2.06 billion) in equities.
- between April 2021 and May 2021 stood at US$ 35.39 billion and US$ 19.86 billion, respectively.
- In May 2021, the Manufacturing Purchasing Managers Index (PMI) in India stood at 50.8.
- Gross GST collections stood at Rs. 141,384 crore (US$ 19.41 billion) in April 2021.
3. India's Rise to Third-Largest Economy by 2027
- India's Rapid Overtaking: IMF forecasts show India poised to become the third-largest economy by 2027, surpassing Germany and Japan.
- Growth Comparison: India's GDP growth of 83% between 2014 and 2023 is second only to China's 84%, outpacing stagnant or contracting economies in the top 10.
- Stagnation in Competing Economies: European countries experienced stagnation due to the Global Financial Crisis (GFC) of 2008-09, while India's impact was comparatively milder.
- Continued Growth: Even with a more modest growth rate of 6% per annum, India is expected to overtake Germany and Japan by 2027.
- Slower Growth Momentum: India's growth momentum between 2014 and 2023 has slowed compared to the 2004-2014 period.
- Significant Gap: The gap between India's third rank and the first two economies (China and the US) remains substantial.
- Per Capita GDP Disparity: India's per capita GDP at $2,600 is the lowest among the top 10 countries and considerably lower than the countries it overtakes.
- Prosperity Metrics: While India's aggregate GDP is rising, per capita prosperity remains a challenge, emphasizing the need for inclusive growth and development.
4. Issues that remain
- Unemployment remains a huge challenge, as the youth still scramble for government jobs. The government disclosed in Parliament recently that 220 million Indians had applied for just seven lakh government jobs in the past seven years.
- Labour force participation rate is low, alarmingly so for women. Job creation is priority number one, even as nearly 70% of industrial jobs are vulnerable to becoming extinct, thanks to automation and robotics.
- High level of hunger: Despite PDS, India’s ranking in the world hunger index is abysmal, signifying the lopsided distribution of economic growth.
- Inequality in income, wealth, and access to quality education and health facilities is widening.
- Was late to adopt a free market economy: India was more inward-looking and influenced, by the Soviet planning model of development. One could argue, with hindsight, that it should have been abandoned much earlier than when we actually did.
- But it did pay dividends in terms of infrastructure and green revolution. It just stayed longer than it needed to.
- Late on capitalizing on export-led growth: India also missed the bus, unlike her East Asian neighbors, on capitalizing on labor-intensive export-led growth. But after the shock of 1991, the economy opened up dramatically.
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For Prelims: Gross domestic product (GDP), Consumer Price Index, Consumer Food Price Index(CFPI), Per Capita Income.
For Mains: Discuss India's remarkable economic journey and its potential to become the third-largest economy by 2027, surpassing Germany and Japan. (250 Words).
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Source: The Indian Express
