Hindu Editorial Analysis : 28-July-2023

In 2022, India achieved a significant milestone by becoming the 5th largest economy in the world. Looking ahead, it is poised to climb even higher and claim the position of the third-largest economy by 2027, according to projections from the International Monetary Fund (IMF). This essay delves into the factors driving India’s economic growth and explores the challenges it faces in its pursuit of global economic prominence.

India’s Growth Trajectory

India has witnessed impressive economic growth, with its GDP expanding by a remarkable 83% between 2014 and 2023. Although this growth rate falls slightly short of China’s 84%, it outperforms the United States, which saw a 54% increase during the same period. Notably, all other top 10 economies, excluding India, China, and the US, have either stagnated or experienced a contraction in GDP.

Key Drivers of India’s Economic Growth

Several factors have contributed to India’s rapid economic growth and its ascent up the global economic ladder:

  1. Digital Competitiveness: India possesses a strong advantage in the digital realm. With 900 million working-age individuals having affordable internet access and 650 million smartphones connected through the India Digital Stack, deeper inclusion has occurred, sparking new demands for financial services, consumer goods, healthcare, and education. This digital revolution has also reduced the number of unbanked individuals to under 20%, making India’s per capita data consumption one of the highest globally at 17 GB and propelling e-commerce to a significant 7%.
  2. Technology Skills: India boasts a vast pool of technology skills, leading to a thriving technology services sector. The country’s technology services exports exceeded $150 billion in the fiscal year 2022, and it houses 1,500 global capability centers established by Fortune 500 companies. The technology sector employs 5 million people, constituting 40% of the global technology workforce and significantly contributing to India’s ability to finance its oil imports through IT exports.
  3. Transformative Public Infrastructure Investment: India has prioritized investments in public infrastructure, such as metro airports, making it the third-largest air traffic market globally with a pre-Covid CAGR of 17%. Furthermore, strategic investments in ports, railways, and highways have developed a world-class transportation network, facilitating the integration of an efficient ecosystem for manufacturing, logistics, and exports.
  4. Development of a Dominant Manufacturing Base: The Indian government aims to increase the manufacturing sector’s share of GDP from the current 15%. To achieve this, various programs like the phased manufacturing program and the production linked incentive scheme have been introduced, coupled with efforts to reduce and simplify tax regimes. Moreover, the diversification of global supply chains away from China has created an opportunity for India’s demographic dividend to fill the gap.
  5. Initiatives to Reduce External Energy Dependence: India is working towards energy independence by 2047, aiming to cut its annual $100 billion energy imports by investing in renewable energy and green hydrogen. With a target of 500 GW of renewable capacity by 2030, requiring $300 billion in investments, India has made substantial progress, achieving 83% electrification in railways and aiming for complete electrification by 2024.
  6. India’s Dominance as a Food Basket to the World: India’s agricultural prowess positions it as the largest producer of milk, pulses, and spices and the second-largest in fruits, vegetables, tea, farmed fish, cotton, sugarcane, wheat, and rice. This agricultural strength supports 17.8% of the global population.
  7. Resilient Banking System: India’s financial institutions have displayed resilience with a notable decrease in non-performing assets (NPAs) from 11% in FY18 to 5% currently, with a capital adequacy of 17% to support credit growth.
  8. Political Stability and Innovative Public Policy: India’s stable political climate has contributed to consistent and predictable policies over the last decade, promoting efficiency and agility in conducting business.
Challenges Ahead

Despite India’s remarkable growth and promising potential, it still faces several challenges in its quest for economic excellence:

  1. Slowed Growth Momentum: Between 2014 and 2023, India’s growth rate has decelerated considerably compared to the 2004-2014 period when GDP grew by a total of 183%. This indicates a need for sustained efforts to revitalize growth.
  2. Greater Gaps with Leading Economies: Moving from the 10th to the 5th largest economy was relatively easier due to smaller GDP differences. However, bridging the gap with the first two economies, China and the US, is a formidable challenge as their GDPs far exceed India’s.
  3. Low Per Capita GDP: While India’s aggregate GDP figures are impressive, its per capita GDP is still significantly lower than that of the countries it has surpassed. With a per capita GDP of $2,600 annually, it pales in comparison to the UK’s $47,000, Brazil’s $10,000, and Italy’s $37,000.
  4. Other Challenges: Rising inequality and the potential consequences of prioritizing economic growth without addressing social and environmental concerns remain potential obstacles.
Why In News

In an impressive economic surge, India attained the coveted status of the world’s 5th largest economy in 2022. With its relentless growth trajectory, the nation is poised to ascend further and is projected to claim the position of the third-largest economy in the near future.

MCQs about India’s Journey to the Third-Largest Global Economy

  1. What position did India achieve in the global economy in 2022?
    A. 1st largest economy
    B. 2nd largest economy
    C. 3rd largest economy
    D. 5th largest economy
    Correct Answer: D. 5th largest economy
    Explanation: In 2022, India became the 5th largest economy in the world.
  2. Which factor contributed to India’s rapid economic growth?
    A. Political instability
    B. Slow technology adoption
    C. Digital competitiveness
    D. High unemployment rate
    Correct Answer: C. Digital competitiveness
    Explanation: India’s strong advantage in the digital realm, with a large working-age population having affordable internet access and smartphones, has led to deeper inclusion and increased demand for various services and goods.
  3. What is one of the challenges India faces in its pursuit of becoming the third-largest economy?
    A. High per capita GDP
    B. Limited technological skills
    C. Slowed growth momentum
    D. Dominant manufacturing base
    Correct Answer: C. Slowed growth momentum
    Explanation: The India’s growth rate has slowed down considerably between 2014 and 2023, signaling the need for sustained efforts to revitalize growth.

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