Indian Economy: 1950s Strategy & Recent Growth

• The 'Indian Economy – A Review' is not the Economic Survey of India.
• The survey will be prepared by the Department of Economic Affairs and released before the full budget after the general elections.
• The review assesses the Indian economy's condition and trajectory over the past decade and provides a concise overview of its future prospects.
• The highlights summarize key points and data from various sectors, following the document's structure.
• There is a discussion on important policy actions taken in the last decade.

Indian Economy: Past, Present and Future

• Decisive policy actions over the last decade have strengthened India's infrastructure and financial sectors, supporting inclusive development and job creation.
• Fiscal stability and inflation control improvements mark a shift away from precariousness.
• India could likely maintain a growth rate at or above 7% for FY24 and potentially FY25, a significant achievement post-pandemic.

The Indian Growth Story (1950 to 2014)

• 1950s: India's global income share declined from 22.6% in 1700 to 3.8% in 1952 and focused on economic self-sufficiency through industrialization via state-owned enterprises.
  • The average decadal growth rate was 3.9% from 1952-1960.
• 1960s: hindered Economic growth due to the Sino-Indian war of 1962, the India-Pakistan wars of 1965-66, severe droughts in 1965, high taxation, and significant economic control.
  • The decadal growth rate was 4.1%.
• 1970s: The economy slowed down by rupee devaluation (57%), political upheaval, and the oil shock.
  • The decadal average growth rate lowered to 2.9%.
• 1980s: Reform measures to increase domestic competitiveness, like deregulation and import duty reductions.
  • Modest liberalization with substantial government spending led to GDP growth improving to 5.7%.
• 1990s: The external crisis (Soviet Bloc disintegration & Iraq-Kuwait war), unsustainable government spending, and internal sociopolitical environment triggered a balance of payment crisis (1990-1991).
  • Reforms involving deregulation and trade liberalization were initiated.
  • The growth momentum slowed due to the East Asian financial crisis and internal issues.
  • The real GDP growth averaged at 5.8% per annum.
• Early 2000s: Sustained domestic economic activity, better corporate performance, and a more favorable investment climate.
  • The decadal average growth rate was 6.3% per annum.
  • The global financial crisis (2008) exposed growth spurt fragility.
  • Bad debts in banks began to accumulate and ballooned to a peak of 11.2% in 2018.
• 2009-2014: Maintaining high growth by high fiscal deficits and loose monetary policy was attempted and nominal GDP growth was high due to high inflation.
  • Double-digit inflation rates were experienced annually from 2009-2014.
  • The country faced high twin deficits: a 4.9% fiscal deficit FY13 and a 4.8% current account deficit in FY13.
  • The Indian rupee depreciated annually by 5.9% (2009-14).

Lessons From The Growth Experience Till 2014

• The Indian economy moved from a closed to an open economy.
  • The BoP crisis triggered Liberalization, privatization, and globalization of the Indian economy.
• Indian Economy transitioned from dominance of public to the co-existence of public and private investment.
  • India's private sector became the major engine of growth and employment generation during the 1990s and 2000s.
• Technology began to be identified as a key growth driver since the 1980s.

Challenges Persisted in 2014

• Slowdown in Growth: For two years straight–2012-13 and 2013-14–India's GDP growth at factor cost remained below 5% at constant prices.
• Inflation: WPI inflation in food articles averaged 12.2% annually in the five years ending 2013-14.
• Structural Constraints: Included difficulties in making quick decisions, ill-targeted subsidies, a low manufacturing base, a large informal sector, and low agricultural productivity.

2014-2024: Decade Of Transformative Growth

• Robust and resilient growth: In the past decade, India's economy rose from 10th to 5th largest globally.
  • Reforms in the last decade have caused India to emerge as the fastest-growing economy among G20 economies.
• The economy showed its ability to bounce back and convert challenges into opportunities.
  • India's economic growth stalled in FY21 due to the global pandemic where Real GDP contracted 5.8%.
  • The government's agile response supported India's economic recovery and helped the economy grow 7.3% on top of the 9.1% (FY22) and 7.2% (FY23).
  • The urban unemployment rate declined to 6.6%.
    • Resilient service exports and lower oil import costs lowered India's current account deficit to 1% of GDP in the first half of FY24.
  • The number of airports in India reached 74 in the first 67 years after independence and doubled in the last 9.
  • The number of universities increased to 1,113 in 2023 from 723 in 2014 while total enrolment in higher education increased to 4.1 crore students in 2023 from 3.4 crore in 2014.
  • The Gross Enrolment Ratio (GER) for girls is 27.9 in 2020 vis-à-vis 12.7 per cent in FY10.

Drivers of India's Growth in the Last Decade

• Reforms to Resolve Twin Balance Sheet Problem
• Recapitalization and merger of Public Sector Banks (PSB), amendment of the SARFAESI Act 2002, Insolvency and Bankruptcy Code 2016 (IBC) etc.
  • The IBC has improved the business environment by providing an honourable exit to businesses.
  • Until September 2023, 2,808 corporate debtors have been rescued through the Code.
• Simplification of Regulatory Frameworks
  • Real Estate (Regulation and Development) Act 2016 has created a culture of transparent transactions, reducing the circulation of black money.
    • More than 1 lakh real estate projects and 72,012 real estate agents are registered under the provisions of the Act.
• Ease of Living & Ease of Doing Business
  • Unified Goods and Services Tax (GST), reducing corporate and income tax rates, exemption of sovereign wealth funds and pension funds from taxes, and removing the Dividend Distribution tax.
    • Decriminalizing minor economic offences under the Companies Act of 2013 where More than 1400 default cases have been decided without resorting to the court.
    • Around 25,000 unnecessary compliances have been eliminated, and more than 1,400 archaic laws have been repealed.
      • GST has enhanced the tax base, reduced compliances, ensured a free flow of goods across states, and led to the formalization of the economy.
      • The GST system has shown improved buoyancy over the pre-GST regime with consistently rising average monthly gross collections from ₹0.9 lakh crore in FY18 to ₹1.5 lakh crore in FY23. -The number of GST taxpayers increased from 66 lakhs at its introduction to 1.4 crore in 2022.
• Engagement of the Government with the Private Sector: The New Public Sector Enterprise (PSE) Policy for Aatmanirbhar Bharat has been introduced to minimize the presence of the government in the PSEs.
• Make in India programmes: Enhance India's manufacturing capabilities and exports across industries.
  • Production Linked incentives (PLI) are provided to firms to attract domestic and foreign investments and to develop global champions in the manufacturing industry.
    • Strategic sectors, such as defence, mining, and space, have been opened up to enhance business opportunities for the private sector.
• Micro, Small, and Medium Enterprises (MSME) Sector
  • Emergency Credit Line Guarantee Scheme, revision in the definition of MSMEs or introduction of TReDS to address the delayed payments for MSMEs.
    • The number of recognized start-ups has increased to more than 98,000 in 2023 from 452 in 2016.
• Logistics & Infrastructure: Dedicated programs for road connectivity (Bharatmala), port infrastructure (Sagarmala), electrification, railways upgradation, new airports/air routes (UDAN), and National Logistics Policy 2022 etc. have enabled the modernization of infrastructure.
  • The effective Capital Expenditure by the Union government has risen to 4.5% in 2023-24 (BE) from 2.8% of GDP in March 2014.
• Digitalisation Reforms: Digital infrastructure has enabled the creation of digital identities, improved access to finance and markets, reduced transaction and improved tax collection.
• Inclusive Welfare Policies: Given Over 10.11 crore women have been given free gas connections.
  • 11.72 crore toilets and 2.6 crore pucca houses have been built for the poor.
  • 6.27 crore hospital admissions have been done under the Ayushman Bharat Scheme.

Challenges Confronting the Indian Economy

• Fragmentation: Increased geo-economics and the slowdown of hyper-globalization have repercussions on the Indian economy as it is increasingly getting integrated with the global economy.
• Artificial Intelligence (Al): it threatens job security with IMF estimates that 40% of global employment is exposed to Al.
• Skilled Workforce: Ensuring the availability of a talented and appropriately skilled workforce to the industry.

India's Track Record of Overcoming Challenge

• Pradhan Mantri Kaushal Vikas Yojana (PMKVY) aims to enable Indian youth to take up relevant industry skill training with Around 1.3 crore candidates receiving training under PMKVY (Dec, 2023).
• Renewable energy (RE): India promoting RE and shifting away from coal
  • the Combined installed capacity of RE sources (including large hydropower) is 179.57GW (Nov, 2023).
• Technology for Inclusive Growth
  • As per the 'Internet in India' report 2022, internet penetration crossed the 50% mark in 2022, growing more than three-fold since 2014.
  • Direct Benefit Transfer (DBT): Aadhar has facilitated the transfer of over 34 lakh crores to more than 1167 crore beneficiaries under the DBT.
  • Financial Inclusion: Total beneficiaries under the PM Jan Dhan Yojana were at 51.5 crore as of Jan 2024, a 3.5 fold growth since March 2015.
    • Almost 56% of Jan Dhan account holders are women, and 2/3rd of these accounts are in rural and semi-urban areas.
  • Covid Vaccination: The CoWin app enabled 221 crore vaccination doses being administered to the population aged18 years and above.
  • Space Sector: Up to July 2023, India had launched 431 foreign satellites, out of which 396 have been launched since June 2014.

Journey of Amritkal

• Reforms undertaken over the last ten years have strengthened a resilient, partnership-based governance and India embarks on her 'Amrit Kaal' journey with confidence, supported by macroeconomic and financial stability.

What Made the Indian Economy Resilient?

• The Indian economy has maintained the post-Covid recovery consistently.
  • The National Statistical Office has estimated India's real GDP to grow at 7.3% in FY24.
  • The share of services in total GVA, in volume terms, has risen from 51.1% in FY14 to 54.6% in FY24.
• Resilience is displayed declining unemployment rate, Rail freight traffic and port cargo traffic are growing, and steady growth in the volume of E-way bill generation etc.

Resilience of Consumption Demand

• Growth in Private Final Consumption Expenditure (PFCE)
  • PFCE has emerged as a major growth driver post-Covid pandemic, playing a pivotal role in sustaining the economy amid external conflicts, sluggish global demand etc.
  • The share of PFCE in GDP at current prices increased to an average of 60.8% in the last three years ending FY24 from 58.4 % in the 8 years preceding the onset of the pandemic.
  • The increase in PFCE is balanced across all components, including durables, semi durables and services and the Demand for services rebounded.
  • Contributing Factors: Secured Consumption Base resulting from the robust Increase in Per Capita Real GNI in the 9 years preceding the pandemic and the Astute Management of Covid-19
    • Astute Management of Covid-19: Built a positive economic outlook and led people to believe in higher future incomes, inducing them to increase spending.

Enabling Investment-led Economic Growth

• Overall, the investment rate of the economy for the last three years has consistently surpassed the levels of FY16 relative to GDP.
• The increase in investments is driven by all three sectors of the economy - public sector, private sector, and households.

First two Decades of the Millennium

• First Decade: The impressive investment rate was based on excessive borrowing and over-optimism, which eventually proved unsustainable.

• Second Decade: The investment share of GDP came down: Banks were reluctant to lend to thus corporates had to trim their balance sheets by selling assets and paying off debts.

  • High deficit and high inflation caused Indian economy to be placed in the 'fragile-five' emerging economies.

• In recent years' investment emerged as a crucial economic driver where increased private corporate investment and Investment-Boosting Reforms and Healthier Balance Sheets have banks responging with greater credit disbursement. - Capital Expenditure of the Public sector including state grants for capital assets (increased by 5.1 times from ₹5.6 lakh crore in FY15 to 18.6 lakh crore in FY24.

  • Government has rebalanced its fiscal expenditure, increasing capital spending from 12% of total expenditure in FY18 to.

• Emphasis on Infrastructure-Addressed Supply-Side Deficiencies: The government expedited stalled infrastructure projects due to construction delays, inadequate financing, and legal & land issues etc.

• Indicators of Private Capex Upcycle in the Post-Pandemic Years. The Index of Industrial Production (IIP) shows that the capital goods index and infrastructure/construction goods index increased by 7.5% and 11.1% respectively, in FY 24 and that Household sector investment has the largest share in the total Gross Fixed Capital Formation (GFCF) etc.

Agricultural Sector Policies Ensuring Food Security

• Despite global crisis, the sector has demonstrated remarkable resilience and grew at a higher average annual rate from FY15 to FY23 compared to FY05 to FY14.
  • In FY23, the sector grew 4.0%, compared to the previous year and is estimated to constitute 18% of India's GVA in FY24.
    • Total food grains production for FY23 reached 329.7 MT with India being the largest producer of milk, pulses, and spices worldwide and 2nd largest producer of fruits, vegetables, tea, farmed fish, sugarcane, wheat, rice, cotton, and sugar.
      • India's Key Initiatives include Remunerative Prices to Farmers since 2018-19 and provides 50% over for crops covered under MSP along with The Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) scheme to promote financial support to farmers,Digital Inclusion and measures to Promote Technology Adoption in Agriculture.

Reform Push to the Indian Industry

• The Reforms for MSMEs - Union Budget-FY24 has facilitated timely payment receipts for MSMEs and the Logistics cost has declined by .8 to .9 % points of GDP between FY14 and FY22 along with regulatory reforms designed to improve Start-up India and the ease of doing.
• Regulations in transport and regulatory reforms improved along with a decline Gross Non-Performing Assets of SCBs declining from 7.7% to 4.7%.
• Reform of Reforms by the Govt -RBI and its implementation of the 'Asset Quality Review' (AQR) and the Reforms in Indian Industry include industrial growth accelerating as well as promoting increased production under the Production Linked Incentive (PLI) scheme which provided loans and reforms as well as the Pradhan Mantri Mudra Yojana.

Digital Infrastructure and Delivery of Citizen-Centric Services

Introduction: Post-Covid economic recovery revealed India's robust digital public infrastructure with efforts to push Demonetisation and have a surge in FDI in the telecom sector.

• This led to the roll out of The GST that served about 140 tax active taxpayers in April 2023 along with payments and an electronic commerce market which had the most effect due to factors like rise in smart phones and proliferations.
• Growth of India Stack was seen due to both government measures and demonetization.
  • PM eVIDYA, which launched to bridge learning gaps, also contributed along with other effects. Impact and Status of The Banking Sector where Non-food Bank Credits are The highest In 10 years, -Public Sector Banks’s profit is improving and MSMEs are also seeing average growth.

Credit Creation

The Sector is back due an overall boom in previous years because of recent demand. - Banks, public sectors NBFCS have aided in this growth which is due to measures implemented under the RBI to improve the "Balance Sheets" of banks in the sector.

Evolving Financial Markets to Support the Investment Needs of a Growing Economy

India also had growth and resilient Financial Markets in the form of performance and increasing markets due and rise in retail digital investors etc. to digital technology along with bond and capital markets. There was impetus to this market in recent years due to government measures and schemes.

Safeguarding Macroeconomic Stability

During the Covid-19 Pandemic Macro and the Govt enacted policy like flexible targetting and various Government subsidies saw reduced volatility and inflation for many sectors within the economy.

Human Resources: Dovetailing Growth with Capacitating Welfare

• Focuses not only on building social infrastructure but also enables individuals to improve their standard of living and utilize the opportunities accompanying high growth.

A New Approach to Welfare

Focuses not only on building social infrastructure but also enables individuals to improve their standard of living and utilize the opportunities accompanying high growth as well as invest in health and sanititation to decrease disease.The Swachh Bharat Mission (SBM) saw the country achieve ODF status at the village level. The approach also aimed to target the Expansion of the Big Tent under the New Welfare Approach for Revamped Education to and Healthcare as a result of the increase in poverty and decline in female mmr.

Transforming Social Economic Standing

The nation implemented large-scale skilling programs, created entrepreneurial and basic amenities through the implementation of the Swachh Bharat Mission

Women-led development: Tapping the Gender Dividend for India@100

The nation is seeing improve Women-led development through greater Political Reservations for Women and improvements due to rising rates in the Economic Empowerment of Women which have supported Sukanya Samriddhi Yojana .

Eyes on the Long-Term

• Mitigation: The nation aims for approaches, which will require sustained and strategic endeavor and a whole-of-society approach to nutrition.

Skill Development and Entrepreneurship

• The government has taken proactive measures to ensure “ease of acquiring skill" and enhance the employability of Indians
• With government efforts to and launch the Skill India Digital platform along with WorldSkills support the nations's industries.

Share of export

The of FY22 to FY23 improved for sectors outside of FDI due to trade, economic growth, exchange and improvements within infrastructure, with India emerging as a huge recipient for FDI equity.

Climate Actions

• There Are various govt schemes geared towards reducing environmental waste/pollution. The Schemes will target new markets as they try to Enable MSME exporters under the "One Sun " and " One earth" grid of the The Energy Conservation Act.

Explore India's economic strategy in the 1950s, growth rates from 1952-1960, and its share of world income. It also covers factors driving recent economic progress, projected growth rates, climate action, and initiatives like NIPUN Bharat Mission and PM SVANidhi.