Growth With Indian Characteristics

Relevance: GS3 - Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Inclusive growth and issues arising from it.

(Source: Indian Express, 08/07/2023)

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Why in the news?

• The authors, Ashok Gulati and Purvi Thangaraj have discussed the growth of the Indian economy and strategies to improve people’s welfare and quality of life.
• The government will have to raise the per capita incomes of the citizens through rationalization of subsidies and moving away from populist approaches.

Growth Trends in India

• India has grown from the tenth-largest economy in the world in 2014 to the fifth-largest economy in the world in 2023.
  • The IMF has estimated that India will become the third-largest economy by 2027.
• Among the G20 countries, India has registered the highest for two consecutive years.

Timeline

• According to the IMF’s historical data, India crossed the one trillion dollar GDP in sixty years(1947 to 2007) and seven years to become a $2 trillion economy (2014).
  • By 2021, India added another $1.2 trillion to its GDP.
• If India achieves the figures predicted by the IMF i.e. $5.2 trillion by 2027, it would mean it has added an unprecedented $2 trillion to its GDP in merely six years.

How can the welfare of a country’s people be assessed?

• The GDP of the country and its per capita GDP in Purchasing Power Parity (PPP) terms can be used to evaluate the real purchasing power of the economy and the welfare of its people.
  • On this metric, India has the third highest GDP ($13 trillion) behind China ($33 trillion) and the U.S.A. ($26.9 trillion).
• Per capita GDP in PPP terms helps assess the quality of life and people’s welfare in a country.

Concerns

• PPP conversion: However, PPP conversion ratios vary across countries.
• This is due to the differences in the quality and value of goods and services in different countries of the world.
• India’s PPP conversion ratio (dollar to PPP) is 3.5 while China’s is only 1.7.
• This means that the same quantity of money can purchase nearly twice the number of the same products in India as in China.
• Eg: If one dollar is sufficient to purchase one burger in the U.S.A., the dollar can buy 3.5 burgers in India and 1.7 burgers in China.
• Per capita income: India’s per capita income is the lowest among the G20 countries in both dollar ($2,601) and PPP terms ($9,073).
• China’s per capita GDP rose to $23,382 (PPP) by 2016 behind the U.S.A. with a per capita GDP of $80,035.
• This indicates that although India is among the world’s largest economies in absolute terms, it is much behind other G-20 countries in PPP and per capita income terms.

What does India have to do to raise the per capita income?

• Job transition: Encourage people to shift to high-productivity jobs from low-productivity jobs.
  • 45.5% of the Indian population is engaged in the agriculture sector where incomes are generally quite low.
  • Agri-productivity has to be raised and farmers given access to the best agri-markets, which will help achieve the goal of doubling farmers’ incomes.
• Investment: Double investment in agricultural research and development, irrigation facilities, and rural infrastructure development.
  • The funds required to implement these strategies could be obtained from the rationalization of subsidies, particularly food and fertilizer subsidies at the central level and power subsidies at the state level.
  • Political will and smart policymaking are necessary to align farm practices with environmental sustainability targets.
• Liberalization: Liberalization of agri-markets could lead to reduced rural poverty.
  • It will boost credit availability and subsequently R&D, and mechanization in agriculture.
  • The production of agri commodities will increase along with global participation.
• Skill development: Education and skill development should be encouraged among rural people.
  • This will spur the development of new cities and other construction activities such as homes, hotels, hospitals, and schools as nearly 75% of New India is yet to be built.
  • In order to build the new India, skilled people will have to migrate from rural areas but this will have to be accompanied by high-productivity jobs in manufacturing and services.

Conclusion

• India will have to adopt a sustainable growth strategy with Indian characteristics in order to emulate or better China’s growth.
• This could help abolish poverty from 14.96% in 2019-21 and 24.85% in 2015-16 (Niti Aayog data).
• This would allow India to set an example for the rest of the countries of the Global South, despite lagging behind the other G20 countries.

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FAQs

MCQs

Question: The Multi-dimensional Poverty Index developed by Oxford Poverty and Human Development Initiative with UNDP support covers which of the following? (UPSC CSE 2012)

1. Deprivation of education, health, assets and services at household level
2. Purchasing power parity at the national level
3. Extent of budget deficit and GDP growth rate at national level

Which of the above statements is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Question. In the context of the Indian economy, consider the following statements:

1. The growth rate of GDP has steadily increased in the last five years.
2. The growth rate in per capita income has steadily increased in the last five years.

Which of the above statements is/are correct? (UPSC CSE 2011)

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2