Mains QIP 2024 UPSC Indian Economy Revision PDF

By: Basava Uppin INDIAN ECONOMY QIP Mains Revision 2024 By Basava Uppin  Structure of QIP Mains 2024 By: Basava Uppin Decoding Importance of E...

By: Basava Uppin INDIAN ECONOMY QIP Mains Revision 2024 By Basava Uppin  Structure of QIP Mains 2024 By: Basava Uppin Decoding Importance of Economy 1 Syllabus Relative Weightage of Economy Relative Weightage of Themes in in GS-3 Economy Key Takeaways for Mains 2024 2 Approach and Strategy for Mains 2024 Discussion of Important Themes/Topics 3 Adopt 360 Degree Approach 3-4 Practice Questions for each Approach to Answer Writing Topic 4 Answer Writing Practice  UPSC Mains Syllabus 5 Pillars Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5 Growth and Development Budgeting Agriculture/ PDS/ Land Reforms/ Food Industrial Policy & Infrastructure and Indian Economy and Government Processing LPG Investment issues relating to Budgeting Agriculture: Major crops-cropping patterns in Effects of Infrastructure: planning, mobilization of various parts of the country, - different types of liberalization on Energy, Ports, resources, growth, irrigation and irrigation systems storage, the economy Roads, development and transport and marketing of agricultural Changes in Airports, employment. produce and issues and related constraints; e- industrial policy Railways etc. Inclusive growth and technology in the aid of farmers, Issues related and their effects Investment issues arising from it. to direct and indirect farm subsidies and on industrial models. minimum support prices; Technology missions; growth. economics of animal-rearing. PDS: Objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Food processing and related industries- scope and significance, location, upstream and downstream requirements, supply chain management. Land reforms in India.  WEIGHTAGE OF DIFFERENT SUBJECTS IN GS-3 By: Basava Uppin 250 200 150 100 50 0 Mains Mains Mains Mains Mains Mains Mains 2017 2018 2019 2020 2021 2022 2023 Disaster Management 30 30 25 15 25 10 10 Internal Security 35 35 40 50 50 50 50 Science &Technology 35 40 35 35 40 30 50 Environment 25 35 40 35 35 50 40 Indian Economy 125 110 110 115 100 110 100  DECODING TRENDS IN INDIAN ECONOMY- WEIGHTAGE OF By: Basava Uppin DIFFERENT THEMES 125 100 75 50 25 0 Mains Mains Mains Mains Mains Mains Mains 2017 2018 2019 2020 2021 2022 2023 Infrastructure and Investment 10 0 0 30 15 15 10 Industrial Policy + External 15 15 0 0 0 15 10 Sector Budgeting 15 10 25 15 10 0 0 Growth and Development 35 25 25 20 25 20 30 Agriculture + Land Reforms + 50 60 60 50 50 50 50 Food Processing + PDS  By: Basava Uppin Direct Questions from Syllabus Ex: Role of E-Technology, Direct and Indirect Source Subsidies etc. Current Affairs Mains Revision PPT based Question Mains Compass 2024 (Only those topics Ex: PPP in Railways, V- which are not covered Shaped Recovery in PPT) Key Takeaways for Mains 2024 360 Degree Answer Writing Approach Practice Questions which should Ex: Mobilization of be asked as 10 Marker are Value Addition Resources, Government asked as 15 Marker and Budget Budgeting, Industrial vice-versa. Committee Policy etc. Case Studies Diagram Eco Survey Facts  By: Basava Uppin Topics under theme of Inclusive Growth Inclusive Growth Meaning Welfare Vs Inclusive Growth Why Inclusive Growth? Challenges & Strategies Inequality in India Why Inequality matters? New Welfare Approach (Eco Survey 2023-24) Relationship between Inequality and GDP Pillars of New Welfare Approach Strategies needed Has New Welfare approach paid off? Inclusive Growth Poverty in India Balanced Regional Development MPI: Why is it a right Indicator to measure Structural Transformation Poverty? in Rural India and Strategies Vulnerable Sections needed Women-led Development India’s Progress in MPI SHG Model: Critical Analysis Senior Citizens: Silver Economy  By: Basava Uppin Topics under theme of Budgeting Overview Major Reforms Types of Budgeting: Outcome and Gender Budgeting Tax Fiscal Federalism Mobilization of Tax PFMS Tax on Agri. Income Finances of State Govts. Important Taxes in news: GST, CGT on Challenges in Fiscal Cryptos, Global Federalism Minimum Tax etc. Government Budgeting Expenditure Management Disinvestment Capital Expenditure Disinvestment: Need, Freebies Challenges and Strategies Borrowings FRBM Act Debt Sustainability Fiscal Council Off-Budget Financing  By: Basava Uppin Important Factsheet for Inclusive Growth (Important for GS Paper-1, Paper-2 & Essay as well) Inequality in India World Inequality Lab: Top 1% of the country account for 23% of income and 40% of the wealth. In terms of income distribution, India is most unequal country. Number of billionaires has increased from 1 in 1991 to 162 in 2022 Gender Inequality: Lower ranking in Gender Inequality Index (108th); Disparity between Male LFLR (78%) and Female LFPR (37%) India’s progress in Poverty Multidimensional poverty has reduced from 29% ( 2013-14) to 11% (2022-23). Around 24.82 crore people have escaped poverty during this period Eradication Fastest reduction Uttar Pradesh followed by Bihar, MP, and Rajasthan. India likely to achieve SDG Target 1.2 (reducing multidimensional poverty by at least half) much ahead of 2030. Education Total expenditure: 3% of GDP as against the target of 6% under NEP Gross Enrolment Ratio: Primary Education( 100%); Secondary Education (80%); Higher Education (28%). GER for females in Higher Education has been higher than male GER for 5 consecutive years. Health Total Expenditure: 1.9% of GDP; Out-of-pocket expenditure has reduced from 64% (2013-14) to 47% Sex Ratio has improved from 991 (NFHS-4) to 1020 (NFHS-5) Sex ratio at birth (SRB) has improved from 918 (2014-15) to 930 (2023-24) Total Fertility rate has reduced to below Replacement level fertility at 2.0 IMR has reduced from 40 to 35 Percentage of Institutional births improved from 79% to 89%. Gender Gap Women constitute 49% of population but contribute only 18% of output in India Lower ranking in Gender Inequality Index (108th) and Global Gender Gap (129th) Disparity between Male LFLR (77%) and Female LFPR (37%) Disproportionate burden of unpaid care work (66 percent of the work done by Indian women is unpaid) Gender-Wage gap of 35% Achievements in women- Share of Gender Budget to total Budget has increased to 6.5 %, the highest since its introduction in 2006. led development Increase in Female LFPR from 23% (2017-18) to 37% (2022-23) 1 crore lakhpati didis. Target has been enhanced from 2 crore to 3 crores. More than 50% of the Bank accounts are owned by women More than 50% of the loans under Mudra and Stand-up India are given to Women Energy Poverty Even though India accounts for 18% of the world's population, it uses only around 6% of the world's energy. India’s per-capita energy consumption is one-third of global average. Silver Economy Estimated to be worth $ 7bn. Share of Senior Citizens set to double from 8% (2011) to 16% (2041)  By: Basava Uppin Planning, Mobilization of Resources, Growth and Employment: Analysis of the Previous Year Mains Questions Questions related to Planning How are the principles followed by NITI Aayog different from those followed by the erstwhile planning commission in India? (Mains 2018, 15 Marks)  By: Basava Uppin Planning + Growth and Mobilization of Resources + Employment: Analysis of the Previous Year Mains Questions Questions related to Growth and Mobilization of Resources Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015 (Mains 2021, 10 Marks). Do you agree that the Indian economy has recently experienced V- shaped recovery? Give reasons in support of your answer (Mains 2021, 15 Marks) Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (Mains 2020, 10 Marks) Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity. (Mains 2020, 15 Marks) Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (Mains 2019, 10 Marks) Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the other factors available for growth potential? (Mains 2017, 10 Marks) Justify the need for FDI for the development of Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (Mains 2016, 12.5 Marks) Foreign Direct Investment (FDI) in the defence sector is now set to be liberalized: What influence this is expected to have on Indian defence and economy in the short and long run? (Mains 2014, 12.5 Marks) What do you understand by monetary policy transmission? Discuss the impediments to monetary policy transmission in India? (Mains 2013, 12.5 Marks)  By: Basava Uppin Planning, Mobilization of Resources, Growth and Employment: Analysis of the Previous Year Mains Questions Questions related to Employment Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. (Mains 2023, 15 Marks) “Economic growth in the recent past has been led by increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour (Mains 2022, 15 Marks) How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (Mains 2016, 12.5 Marks) The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this view? Give arguments in favour of your answer. (Mains 2015, 12.5 Marks) While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain.(Mains 2014, 12.5 Marks)  By: Basava Uppin Planning 1. Different types of Planning 2. Planning Commission Employment Vs NITI Aayog 1. Employment Situation 3. Relevance of Planning and impact of Covid-19 Savings, Consumption in Market-led Economy 2. Jobless Growth 4. Critical Analysis- NITI and Investment 3. Informalization of 1. Mobilization of Savings Aayog Workforce 2. Decline in Household 4. Female LFPR Savings 5. Skilling India 3. Consumption-led to 6. 7. Gig Economy New Labour Codes Pillar 1: Investment-led Economy Growth and Mobilization of Resources Development Other Drivers of Growth 1. Innovation Savings and 2. Entrepreneurship Investment 3. Land (To be covered in Bond Market in India Land Reforms) Demographic Vision of Viksit Bharat 4. Export-led Economy (To Transition be covered in External Productivity Sector) Middle Income Trap  Planning in India By: Basava Uppin Questions related to Planning How are the principles followed by NITI Aayog different from those followed by the erstwhile planning commission in India? (Mains 2018, 15 Marks) Sl. No Questions: Planning in India Themes Covered What are the different types of Planning adopted in India since Independence? Critically evaluate their Different types of Planning in 1 performance in India (15 Marks) India- Strengths & Weakness What factors led to replacement of Planning Commission by NITI Aayog? Critically analyse the role of NITI Planning Commission Vs NITI Aayog in India’s planning since 2014. (15 Marks) Aayog; Critical Analysis of NITI 2 Aayog Planning ‘now’ has to be very different from planning ‘then’. Analyse the statement in context of role of Relevance of Planning in 3 planning in Market-led Economy. (10 Marks) Market Led Economy Planning in India has been shaped by Political-Economic set up and our aspirations. India has moved from Pre-1991 “Imperative Planning” to Post-1991 “Indicative By: BasavaPlanning” Uppin and now focusses on “Strategic Planning”. Further, India has also emphasized on “Decentralized Planning” through PRIs/ULBs. Framework: Growth (Savings, Investment, Exports, Demand) + Employment + Inclusive Growth + Budgeting + Agriculture + Food Security + Industries + Infrastructure Imperative Planning/ Directed Planning Indicative Planning Adopted from 1951 to 1990. More suited to Socialistic Era Adopted from 1991 to 2017. More suited to Market-led Economy Implemented by Planning Commission Implemented by Planning Commission (1991-2014) and NITI Aayog (2015-2017) Included 1st (1951-1956) to 7th (1985-1990) Year Plans Included 8th (1992-1997) to 12th (2012-2017) Year Plans Role of Government: Planner, Financer and Implementer. Limited role of Private sector Role of Govt: Coordinator, Enabler and Facilitator. Proactive role of Pvt. Sector Centralized Planning Collaborative Planning as it envisages more role to the States and Private Sector Critical Evaluation of Imperative Planning Critical Evaluation of Indicative Planning Hits Misses Rapid Increase in GDP size from $ 260 bn Increase in Income Inequality since Pragmatic: More suited to time as Private Hindu rate of Growth: Avg. GDP growth to $ 2.6 Trillion. 10 times in just 25 years. 1991 Reforms (Oxfam Report) Sector was under-developed rate was just around 3.5% Increase in private sector Investment due Jobless Growth: Low employment Increase in Savings and Investment from Lower share of Private Sector Investment to market-led economy Elasticity (0.1) around 10%(1950) to 25% (1990) due to its limited role. Decrease in BPL Population from 45% Agriculture sector: Lack of explicit (1991) to 22% (2011-12). focus on increasing income level of Increase in GDP size from $ 30 billion Jobless Growth due to focus on Capital Farmers (1951) to $ 250 billion (1991). 8 times Intensive Manufacturing. Rapid Growth of Services sector such as Focus on Poverty Reduction: IRDP,20-Point Agriculture: Disguised Unemployment; IT/BPM, Financial Sector, Aviation, Telecom Programme, Nationalization of Banks, Green Revolution: Regional Disparity and etc. due to private sector. National Rural Employment Programme. monocropping Development of World Class Infrastructure Focus on Balanced Regional Development: due to various PPP Models Industries: Lack of focus on Labour CADP, DPAP, DDP, HADP, Tribal Area Intensive Industries; Dominance of Dwarf Universalization of Primary Education Development Programme etc. Firms through Sarva Shiksha Abhiyaan and RTE. Heavy Iron and Steel Industries developed Education: Lack of focus on Note: Agriculture: Green Revolution and White Universalization of Primary Education 1. Rolling Plans: Adopted by the Janata Party Government to ensure more Revolution ensured Food Security Budgeting: Distinction between Plan and flexibility in Planning. But was discontinued later. Education: Development of IITs and IIMs. Non-Plan Expenditure led to neglect of 2. Strategic Planning: 15-year Vision Document, 7-year Strategy document and 3- Demography: Increase in Life Expectancy, Maintenance of Assets year Action Agenda to be laid down by NITI Aayog. Decrease in Fertility rate, IMR, MMR etc. 3. Decentralized Planning through PRIs/ULBs.  Question for Practice By: Basava Uppin What are the different types of Planning adopted in India since Independence? Critically evaluate their performance in India. (15 Marks) Suggested Answer Structure Introduction: Evolution of Planning in India- Types and Rationale(Around 15-25 Words) Planning in India has been shaped by Political-Economic set up and our aspirations. India has moved from Pre-1991 “Imperative Planning” to Post- 1991 “Indicative Planning” and now focusses on “Strategic Planning”. Further, India has also emphasized on “Decentralized Planning” through PRIs/ULBs. Body: Part 1: Imperative Planning: Briefly mention about Nature of Planning in 1-2 statements followed by Hits and Misses in Bullet Points. Part 2: Indicative Planning: Briefly mention about Nature of Planning in 1-2 statements followed by Hits and Misses in Bullet Points. Part 3: Write briefly about Rolling Plans, Decentralized Planning and Strategic Planning in 2-3 statements. Conclusion: Reforms needed in NITI Aayog Achieving the goals of Viksit Bharat and SDGs hinges on Planning. NITI Aayog should be established as statutory body with renewed focus on “New Planning” to achieve these objectives.  Planning Commission Vs NITI Aayog By: Basava Uppin Problems with Planning Commission How NITI Aayog addresses these problems? Planning Commission was more suited to Pre-1991 Imperative Planning. NITI Aayog is more suited to “Strategic Planning”- Laying down future vision, Identifying future problems and creating solutions, monitoring and evaluating progress etc. Enhanced Role Think-Tank: Make India future-ready. Ex: Composite Water Management Index, Responsible AI, Electric Mobility etc. Limited role of Planning and Allocation of Finances. Monitoring and Evaluation of schemes to make innovative improvements. Ex: MPI, SDG India Index, Export Preparedness Index etc. Achieve Coordination between Ministries by ensuring Convergence of Schemes Ex: Aspirational District Programme, National Monetization Pipeline Balanced Regional Development: Island Development Agency; NITI Forum for Northeast etc. Hurt Federalism in India: Centralized Planning and “One Size Fits all Promotes Cooperative Federalism Ex: Encouraging States to set up State Institution Approach” for Transformation; Helps States to prepare State Vision Documents and Strategies. Promotes Competitive Federalism Ex: SDG India Index, Export Preparedness Index Power of Planning Commission to allocate Finances to the Central NITI Aayog does not has the power to transfer Finances to the States. Government Ministries and States led to numerous problems: Overlapping of functions with Finance Ministry and Finance It has led to increase in States' share of taxes in the Central Divisible pool from 32% Commission. (13th FC) to 42% (14th FC). Distinction between Plan and Non-Plan Expenditure led to neglect of Maintenance related expenditure. As the FC transfers are in the form of untied grants/transfers, it has led to more Transfer of Tied Grants by the Planning Commission to the States financial and operational autonomy to the states. affected the Financial and Operational Autonomy of the States. Centralization of powers. Called as “Super Cabinet”. Decrease in power of NITI Aayog has led to more powers in the hands of Ministries and States.  Reforms needed in NITI Aayog By: Basava Uppin Present Problems and Challenges Strategies needed Lack of Legitimacy and Strong leadership. NITI Aayog should be set up through an act of Parliament so that it can have required legitimacy and be answerable to the Parliament. Head of NITI Aayog should be a cabinet minister with the title of Minister of Economic Development and should be invited to all Cabinet meetings Published India@75 Strategy document. However, failed to prepare Vision Prepare Vision Document for Viksit Bharat by 2047 with a medium-term target to document so far. become $ 7 trillion economy by 2030. Increase in Inequalities (Gender Disparities; Rural-Urban Divide; Focus on Redistributive Planning to reduce existing inequalities and promote Concentration of Wealth) due to Market-led Economy inclusive growth and development. Ex: Strategies to reduce Gender Disparities Certain problems such as Poor Education and Health outcomes need Inter- NITI Aayog should act as forum for coordination of all relevant ministries and ministerial coordination. Role of NITI Aayog has been mostly confined to departments for multi-sectoral policy making. measuring Indices such as SDG Index, Health Index etc. Limited role of NITI Aayog in creating conditions conducive for facilitation NITI Aayog must play more pro-active role in facilitating private sector investment on of private sector investment. the lines of National Monetization Pipeline. For example, NITI Aayog could explore PPP in Social Sector. Lack of Emphasis on Decentralized Planning as few states have set up State Encourage states to set up their own institutions and formulate vision Ex: TN’s Vision Institutions for Transformation. for $ 1 trillion economy by 2030.  Question for Practice By: Basava Uppin What factors led to replacement of Planning Commission by NITI Aayog? Critically analyse the role of NITI Aayog in India’s planning since 2014. (15 Marks) Suggested Answer Structure Introduction: Planning in India has been shaped by Political-Economic set up and our aspirations. India has moved from Pre-1991 “Imperative Planning” to Post- 1991 “Indicative Planning” and now focusses on “Strategic Planning”. Further, India has also emphasized on “Decentralized Planning” through PRIs/ULBs. Body: Part 1: Problems with Planning Commission and how these problems are addressed by NITI Aayog ( Follow Tabular Format) Part 2: Briefly highlight the strengths (same as role of NITI Aayog) in 1-2 statements. Highlight the Problems with NITI Aayog in Bullet Points. Conclusion: Reforms needed in NITI Aayog Hence, NITI Aayog should be established as statutory body to ensure legitimacy and accountability. Further, it must focus on “New Planning” encompassing “Redistributive Planning”, “Coordinated Planning” and “Decentralised Planning” to help achieve goal of Viksit Bharat by 2047.  Relevance of Planning in Market Led Economy By: Basava Uppin Some of the Economists highlight that Planning has no relevance in the market led economy as the Government role is considerably reduced. Without Government owned agencies, it becomes difficult to meet the targets set under the Plans. Hence, planning may have little meaning in the absence of adequate financial resources and agencies at the disposal of the Government to finance and implement plans. However, Planning remains relevant even in market led economy. Only the nature of planning changes from "Imperative" to "Indicative Planning". Planning in the market led economy may fulfil the following roles: Prescriptive Planning: Planning can lay down long term vision and be more pro-active. Planning can become "Fire-Proofing" exercise wherein future problems can be anticipated and accordingly strategies can be devised in the present times to counter such problems. Example: Strategies to become developed economy by 2047. Redistributive Planning: Planning can be used to reduce existing inequalities and promote inclusive growth and development. For example, as a "Think Tank", NITI Aayog carries out critical review of Government schemes and policies, identifies gaps and suggest innovative approaches. Attract Private Sector Investment: The share of Private sector Investment in Infrastructure continues to remain lower (30%) and hence planning can create conducive conditions for attracting private sector investment. For example, National Monetisation Pipeline is formulated by NITI Aayog and seeks to raise Rs 6 lakh crores over the next 4 years. Promote Balanced Regional Development: Planning can focus on solving region-specific problems by bringing all the stakeholders together. Ex: NITI Forum for Northeast, Island Development Agency. Ensure Convergence of schemes and policies at the ground level Ex: Aspirational Districts Programme. Promote Cooperative and Competitive Federalism through initiatives such as SDG Index, Health Index, Composite Water Management Index etc.  By: Basava Uppin Sl. No Questions: Growth Themes Covered Mobilization of Savings is crucial for realization of $ 7 trillion Economy. Explain the statement. Discuss various Mobilization of Savings: 1 challenges in Mobilization of Savings in India. (10 Marks) Significance and Challenges Do you think that the recent decline in Net Financial Savings of the Households is a cause of concern? Give Recent Controversy over 2 arguments in support of your answer. (15 Marks) Decline in Household Savings Establishment relationship between Savings, Consumption and Investment in an Economy. Discuss the Problems with Consumption- 3 problems and challenges with Consumption-led economy. (15 Marks) led economy Highlight the results of the latest Monthly Per-Capita Consumption Expenditure Survey. Discuss its macro- Consumption Expenditure 4 economic implications from the point of view of Inequality and changes in consumption pattern. (10 Marks) survey India needs to pursue Investment-led model to become $ 7 trillion Economy. Argue. Also, discuss the challenges Investment-led Economy 5 before India in pursuing Investment-led Economy. (15 Marks) India’s innovation quotient will determine its future. Explain this statement. What do you think are the Innovation Ecosystem in India 6 challenges in the R&D Ecosystem in India? (10 Marks) What are the drivers of the Start-up Ecosystem in India?. Also, discuss the challenges faced by Indian Challenges and Strategies to 7 Start-ups. (15 Marks) boost SEZs in India 8  Value Addition for Growth and Development By: Basava Uppin GDP With GDP Size of $3.9 trillion, India is fifth largest economy. In terms of PPP, India is placed at 3rd Position. Drivers of GDP GDP is calculated as PFCE (60%) + GCF (32%) + GFCE (10%) + Net Exports (-2%) PFCE accounting for 60% is the major driver of Indian Economy. Savings Rate Important Trends Declined from 34% (2011-12) to 30% (2022-23). Households Savings account for 60% of the total savings in India. Important Case Studies Savings rate in China: 40% Harrod-Domar Model Decline in Net Financial Net Financial Savings of the households declined to 47-year low of 5% of GDP. Savings of Households Household Debt Increased to 40% of the GDP. Investment Rate Declined from 34% (2011-12) to 30% (2022-23). Private Sector account for the largest share of Investment (20% of GDP) Decline in Private Sector Investment from 25% (2011-12) to 20% (2022-23) Important Case Studies Investment rate in China: 50% Expenditure on R&D Important Trends Doubled from 60,000 crores to Rs 1.2 lakh crores in the last decade. Stagnation in terms of GDP at 0.64% since last 2 decades. Important Case Studies Innovation Clusters in China Expenditure on R&D: China (2.1%); USA (2.8%), South Korea (4.6%) Start-up Ecosystem Important Trends India has the 3rd largest Start-up Ecosystem with more than 1 lakh registered Start-ups. More than 100 Unicorns in India. 50% of DPIIT recognised Start-ups are from Tier II & Tier III cities. Wealth Creation: 10 percent increase in registration of new firms in a district yields a 1.8 percent increase in GDDP. Important Case Studies Successful start-ups: Zerodha, Zepto, Ola, Cred, Nyka etc. We-Hub: India’s first and only state supported incubation centre to promote women entrepreneurship  Savings in the Economy By: Basava Uppin Business Standard, Oct 2023 Mint, Apr 2024 ET, June 2024 Article by Ananta Nageswaran Mains Previous Year Question Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the other factors available for growth potential? (Mains 2017, 10 Marks) Practice Questions 1. Mobilization of Savings is crucial for realization of $ 7 trillion Economy. Explain the statement. Discuss various challenges in Mobilization of Savings in India. (10 Marks) 2. Do you think that the recent decline in Net Financial Savings of the Households is a cause of concern? Give arguments in support of your answer. (15 Marks)  By: Basava Uppin Increase in Savings (Deposits, Shares, Bonds, G-Secs, Small Savings Schemes, Insurance & Pension) More Money available with Banks- Fall in Interest Increase in Income Levels > Increase in rate Consumption Expenditure Easy Access to Capital for Companies Importance of Source for Government Borrowings Savings Less Dependence on Imported Goods Increase in Income Levels Increase in GFCF, Govt. Expenditure and Net Exports Increase in GDP  Factors affecting Savings By: Basava Uppin Importance of Savings in Economy Income levels: Low Income levels lead to decrease in Savings Enable Capital Formation: Increase in Savings in form of Deposits, Shares, Economic Uncertainty such as Covid-19 increases Savings Bonds etc. enable more investment by Private Sector. Higher Consumption Expenditure leads to Decrease in Savings Ex: USA Financing Fiscal Deficit: Household Savings are major source of Financing Deficit in form of Small Savings Schemes and G-Secs. Financial Inclusion: Bank Account, Insurance, Pension increases Savings Impact on BoP: Increase in Savings leads to reduced demand for imported Access to Financial Market: Shares, Bonds, G-Secs increases Savings Goods. Higher investment made through Savings leads to increase in Interest Rate: Higher Interest rate leads to increase in Savings exports. Hence, Improvement in Current Account. Increase in GDP: Higher Disposable Income leads to increase in Savings Reduce Dependence on Foreign Capital Demography: Demographic Dividend leads to decrease in Dependency ratio and increase Increase in GDP due to increase in GCF, GFCE and Net Exports. Rapid Growth in Savings of East Asian Economies and China (40%-Savings Rate). Harrod-Domar Model adopted in 2nd FYP focused on enhancing Savings. Government Tax Policies can encourage Savings Higher Borrowings lead to higher Interest Burden and decrease Savings Higher Resilience of Economy: Higher Savings enable Economy to withstand shocks such as Covid-19 or Global Recession. Challenges in Mobilization of Savings in India Low Per-Capita Income of $ 2000 (Rs 1.65 Lakh). India ranks 142 among 197 countries Higher Consumption Expenditure (60% of GDP) has led to lower Savings Savings Financial Literacy: Consistent improvement in RBI’s Financial Inclusion Index. Need to improve Financial Literacy. 20% of Jan Dhan Accounts are inoperative. Present status of Savings Access to Financial Market: Surge in Demat accounts to 16 crores. But still under- Gross domestic Savings is around 30% of GDP. Decline in Savings rate penetrated. from 34% (2011-12) to 30% in 2022-23. Higher Inflation in recent years has eroded Savings Households account for 60% of the Savings in India Low GDP Growth rate in recent years has led to decrease in Savings from 37% to 30% in last decade. Option to avail New Tax Regime without any Tax Exemptions/Benefits has led to decrease in Savings Increase in Household Debt leads to increase in Interest burden and reduces savings  Decline in Net Financial Savings of Households By: Basava Uppin Trends: Trends in Household Savings 2011-12: 34% 60% of 60% of Savings. Savings. 2022-23: 30% Decline Decline to to 6-year 6-year low low of of 18% 18% Gross Domestic Savings = Households + Private + Public 1 Net Financial Savings ( Currency, Deposits, Shares, Bonds, Mutual Funds, Physical Savings (Home, Gold, Silver) Insurance, Pension funds) Increase in Physical Savings to decade high of 13% Calculated as (Financial Assets – Financial Liabilities) Net Financial Savings declined to 47-year low of 5%. Average Savings rate in 3 last Decade was around 7.5%. Is it a reason for concern? No Yes Driver of Growth: Decrease in Savings has Major Cause of Decline: Net Financial Assets has led to higher consumption expenditure reduced due to (a) Lower Growth of Financial Assets 2 post-covid and hence responsible for quick (b) Increase in Liabilities (c) Shift from Financial Assets Reasons for Decline in Net Financial Savings of Households revival of Economy. to Physical Savings. However, major factor is Increase (Both Financial Assets and Liabilities increased. But Increase in Liabilities was in Liabilities. more than Assets) Empirical Evidence: Decline in Savings between 2004-08 has led to higher GDP. Higher Debt Burden of Households of all-time high of Higher borrowings by the Households due to low interest rates. Increase in Financial (40%) may lead to Debt Trap and affect Balance sheet Shift of Savings from Financial Assets to Liabilities (flow) by 75% in one year. of Banks (Similar to Twin-Balance Sheet Problem) Physical Assets. Household sector’s saving Lower Growth in Financial Assets due to Inflation in the form of physical assets can be taken Higher Interest Burden on Households may lead to to be the same as the capital formation of decrease in Savings and Consumption Expenditure Increased Preference for Physical Savings due to revival of Real Estate Sector and the household sector. Appreciation in Gold. Increase in Interest rate on Loans Drawdown on Excess Financial Savings: Increase in Savings during Covid to 11.5% Hurt Investment by Private Sector due to uncertainty and weak demand. These savings accumulated by the Affect Borrowing by the Government as Household households have been used to buy Physical Assets such as Home and Gold. Savings account for larger share. Higher Reliance on External Borrowings due to decrease in Savings  Question for Practice By: Basava Uppin Mobilization of Savings is crucial for realization of $ 7 trillion Economy. Explain the statement. Discuss various challenges in Mobilization of Savings in India. (10 Marks) Suggested Answer Structure Introduction: Present Status and Trends in Savings Rate in India “The Gross Domestic Savings in India is around 30% of GDP, wherein households account for 60% of total Savings. As evident in growth model of China and East Asian Economies, mobilization of savings is accompanied by higher GDP growth”. Body: Part 1: Why Savings are crucial for realization of $ 7 trillion Economy? Part 2: Highlight recent Trends in Savings (Including decline in Net Financial Savings of Households) Part 3: Challenges in Mobilization of Savings Conclusion: Implications and Future Strategies “Lower Savings is generally accompanied by Slower growth of Economies as evident in Latin America and Africa. Hence, there is a need to mobilize savings through controlling Inflation, Improving Financial literacy, deepening of capital market, Tax policies etc.” Answer Enrichment Use Diagram highlighting Virtuous cycle of Savings and GDP Growth. Use Facts to highlight the recent trends in Savings Rate. Use Case Study of (a) China and (b) Harrod-Domar Model to highlight the significance of Savings  Question for Practice By: Basava Uppin Do you think that the recent decline in Net Financial Savings of the Households is a cause of concern? Give arguments in support of your answer. (15 Marks) Suggested Answer Structure Introduction: Present Status about Decline in Net Financial Savings of Households “The Net Financial Savings of the Households has reduced to 47-year low of 5% of GDP. The Government believes that the recent decline is not a cause of concern. However, some of the economists have highlighted that this may have an adverse effect on our economy. Body: Part 1: Reasons for the decline in the Net Financial Savings Part 2: Why is it not a cause of concern? Part 3: How it may adversely affect the economy? Conclusion: The recent decline in the Net Financial Savings of the households is not a cause of concern in the short-run. However, if it continues to persist in the long-run, it may adversely affect our ability to realize the vision of $ 7 trillion economy. Answer Enrichment Use Diagram highlighting Virtuous cycle of Savings and GDP Growth. Use Facts to highlight the increase in Household Debt  Consumption-led Economy By: Basava Uppin Businessline, June 2024 Indian Express, Mar 2024 Practice Questions 1. Establishment relationship between Savings, Consumption and Investment in an Economy. Discuss the problems and challenges with Consumption-led economy. (15 Marks) 2. Highlight the results of the latest Monthly Per-Capita Consumption Expenditure Survey. Discuss its macro-economic implications from the point of view of Inequality and changes in consumption pattern. (10 Marks)  Consumption-led Economy By: Basava Uppin Present Status: Private Final Consumption Expenditure (PFCE) is major driver accounting for almost 55% of GDP. Higher Consumption Expenditure increases demand for Goods and thus encourages Investment leading to increase in GDP. Relationship between Consumption, Savings, Investment and GDP Problems with Consumption-led Economy Low Consumption High Consumption Moderate Unsustainable growth in long run as propensity to consume decreases with fall in Expenditure Expenditure Consumption Demographic Dividend. Share of younger population in India is set to reduce and Expenditure hence this could affect Consumption and hence GDP in future. Decrease in Savings due to higher consumption expenditure. Household Financial High Savings Low Savings Savings has reduced to 47-year low of 5% in 2022-23. Adequate Savings Lower Demand High Demand Increase in Inflation due to rising demand as evident in the post-pandemic recent past Moderate Demand in India where Inflation remained above target of 6%. Decline in Investment from 34% (2007-08) to 30% (2022-23). Discourages Lack of Adequate Decrease in Net Exports (-2%) due to decline in exports and increase in Imports. Investment Savings to make Encourage more Higher Volatility in Tax collections such as GST due to volatility in consumption Investment Investment expenditure. Under-developed Manufacturing as Household's demand for Services such as Increase in Demand Banking, Education, Health, Tourism & Transportation, Telecommunication etc. is Decrease in GDP leads to Inflation Increase in GDP generally higher as compared to Manufacturing goods. Rapid Growth of Services sector post-1991 Reforms is attributed to their higher demand. Imbalanced Industrialization as more focus is given to Consumer Goods Industry Decrease in Income Increase in Income (Mobile, Automobiles, Pharmaceuticals etc.) as compared to Capital Goods Industry Income accompanied by Stagflation levels accompanied (Machinery, Telecom Equipment, Transport Equipment etc.). 60% of Capital Goods by positive imported into India. rising Uncertainty sentiments about Increase in Debt Burden of households and adverse impact on Financial position of Future Banks. Household Debt Burden has increased to all-time of 40% in India in 2022-23. Way Forward: As evident in growth model of China and East Asian Economies, we need to shift from Consumption-led Economy to Investment-led Economy to become Viksit Bharat by 2047. Such a growth model would promote investment, increase GDP, boost jobs, increase per capita income and thus sustain Savings-Investment-GDP virtuous cycle. By: Basava Uppin  Details about Household Consumption Expenditure Survey By: Basava Uppin Published by National Statistical Office Details captured Per Capita Consumption Expenditure in Rural and Urban Areas + Percentage share of Goods and Services in the Monthly expenditure Importance Used for estimation of Poverty line + Used for assigning weightage to different commodity groups in the CPI. When was the last The survey are carried out in “quinquennial” basis i.e., every 5 years. The last such survey was carried out in 2011-12. The results of the survey conducted in 2017-18 survey conducted? was not released due to “Quality” of the data. Important Changes Wider coverage of Goods and Services in comparison to previous survey in Latest Survey Three separate surveys on (a) food items (b) consumable and service items (c) durable goods Multiple Visits to the Households. Important Findings Absolute MPCE: Average estimated MPCE in 2022-23 has been Rs. 3,773 in rural India and Rs. 6,459 in urban India. Trends in MPCE: Increase in both rural MPCE (9% every year) and Urban MPCE (8.5% every year). Shift in Consumption from Food to Non-Food: Percentage share of expenditure on Food declined in both Rural and Urban Areas to below 50%. (Engel’s Law) Shift in Consumption pattern of Food: Within Food Category, Decline in share of expenditure on cereals by from 10% to 5% due to Free Food grains under PDS. Highest expenditure on “Beverages, Refreshments and Processed Food”. Increased Preference to Protein based Foods. Positives Areas of Concern Gap between Rural and MPCE has reduced. Sluggish Growth of MPCE due to rising Inflation. However, in real terms, average MPCE has increased by just around 1.3 times Decline in Poverty to below 5% as per Suresh Consumption Inequality: Top 5% of the Households with highest MPCE consume Tendulkar Methodology (NITI Aayog’s CEO) around 10 times of bottom 5% of Households. Increase in aspiration as share of food in the Regional Disparity: Average MPCE in the southern and northern states remains close consumption expenditure has declined. to twice as high as that in their eastern counterparts. Increase in Expenditure on Education.  Investment-led Economy By: Basava Uppin The Hindu, April 2024 Indian Express, Mar 2024 Mains Previous Year Question Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity. (Mains 2020, 15 Marks) Practice Question India needs to pursue Investment-led model to become $ 7 trillion Economy. Argue. Also, discuss the challenges before India in pursuing Investment- led Economy.  Reasons for fall in Private Sector Investment By:toBasava Why should India shift from Consumption-led Uppin Investment- Poor Financial Position of Banks: High Investment rate of 36% between 2004-05 to 2007- led Economy? 08 was driven by Credit Boom. Later, higher NPAs of Banks (11%) in 2016-17 led to fall in investments. Promotes Self-Sustaining Virtuous Economic Cycle: Increase in Investment--> Increase in Productivity--> Increase in GDP--> Increase in Income Levels--> Higher rate of Interest due to adoption of contractionary policy by the RBI between 2012- Increase in Savings. (Eco Survey 2018-19) 13 to 2016-17. Realizing Vision of Viksit Bharat requires increasing investment rate from External Shock in the form of Taper Tantrums (2013 and 2023) led to fall in FPI, large scale 30% to 40%. China's investment rate was quite high at 50%. Rupee Depreciation and increased exchange rate risk for ECBs. Problems with Consumption-led Economy as it is unsustainable in the long- Under-Developed Capital Market: Well-Developed Capital market would have enabled run due to fall in Demographic Dividend after 2041. companies to undertake investment inspite of poor financial position of Banks. Investment needs in Infrastructure of around 143 lakh crores by 20230 Economic Slowdown since 2017-18 led to decrease in profits of Companies and fall in Consumption Expenditure land thus discouraged investment. Pursue Export-led Model leading to increase in Net Exports (-2%) Decline in FDI inflows to its lowest level in last 16 years in 2022-23. Enhances productivity through enhanced human capital formation in terms of Education, Health & Skills. Initiatives taken by Government Promotes Inclusive Growth through Job Creation, increase in per capita income etc. Higher Expenditure by Government on Capex to crowd-in private sector investment. Enhances Quality of Fiscal Deficit through through higher expenditure on Improving Balance sheet of Banks through IBC, Bad Bank, NaBFID, Recapitalization etc. Capital Assets leading to higher Debt Sustainability (Positive GIRD) Investment Liberalized FDI norms which include recent changes such as 100% FDI in space Sector, Address Structural problems in agriculture such as poor adoption of Defence, Coal Mining etc. mechanization, poor irrigation facilities, disguised unemployment, post- harvest losses (20-25%) etc. Tax reforms such as Introduction of GST, Cut in Corporate Tax rates to 15% for new domestic manufacturing companies. Signing of FTAs and integration into GVCs Investment: Meaning, Present Status and Trends Encouraging more Investment in Manufacturing sector through PLI Scheme, recent Meaning: Investment rate is calculated as ratio of GFCF to Nominal GDP. changes in definition of MSMEs, Start-up India etc. Present Status: 30% of GDP. Share of Private Sector (20%) is more than Public Sector. Higher Investment in creation of Infrastructure through NIP (Rs 111 Lakh crores), Gati Recent Trends: Shakti, NMP, Bharatmala, Sagaramala, UDAN etc. Investment Rate has declined from 34% (2011-12) to 30% (2023-24) Improved Ease of doing Business such as Simplification of procedure, Single window Share of Private sector Investment has reduced from 25% (2011-12) to clearances etc. 20% (2023-24)  By: Basava Uppin TRENDS IN INVESTMENT RATE Consumption-led to Investment-led Model Higher Savings Increase in Income Levels > Consumption Higher Investment Expenditure Virtuous Economic Cycle (Eco Survey 2018-19) Increase in Income Increase in GDP Levels Increase in Job Creation  Question for Practice By: Basava Uppin India needs to pursue Investment-led model to become $ 7 trillion Economy. Argue. Also, discuss the challenges before India in pursuing Investment-led Economy. (15 Marks) Suggested Answer Structure Introduction: Highlight the Present Status and Trends in Investment Rates Body: Part 1: Why Should India shift to Investment-led economy? Part 2: Challenges in pursuing Investment-led economy Framework: GDP (Savings + Consumption + Investment (Bank/NBFC , Capital Market, FDI, ECB) + Budgeting (Higher Revenue Expenditure) + Net Exports (External Shocks, Rising Protectionism etc.) + Technology (R&D Expenditure) Conclusion: Initiatives taken Indeed, as evident in the growth model of East Asian Countries, shift towards Investment is key to become Viksit Bharat. However, based upon the recent experience of China, we need to ensure that such a model does not lead to over-capacity, debt accumulation, resource misallocation etc. Answer Enrichment Use Diagram highlighting Virtuous cycle of Savings and GDP Growth. Use Facts to highlight the recent trends in Investment rate Use Case Study of China to highlight the significance of higher Investment Rates.  Innovation By: Basava Uppin Businessline, May2024 Mains Question for Practice India’s innovation quotient will determine its future. Explain this statement. What do you think are the challenges in the R&D Ecosystem in India? (10 Marks)  Challenges in R&D Ecosystem (Eco survey 2017-18) By: Basava Uppin Stagnation in GERD: Even though the R&D expenditure has increased in terms of absolute India’s Achievements (PIB) value, the GERD as % of GDP at 0.64% has remained stagnant in the last 2 decades. Improvement in Global Innovation Index (GII) ranking from 81 (2015) to Lower Expenditure on R&D: India’s spending on R&D is well below that in major 40 (2023) countries such as the US (2.8), China (2.1), Israel (4.6) and South Korea (4.6). India is ranked 7th in terms of Resident Patent Filing activity. Lower Share of Private Sector Investment: Unlike developed economies, the R&D Ranks third in global scientific publications. expenditure in India is mainly driven by public sector. Space Technology: Chandrayaan 3, Gaganyaan, NavIC etc. Imbalanced Investment: Public Sector investment in R&D is mainly driven by Defence, Space and Atomic Energy. The amount of investment in critical sector such as Health (R&D investment by ICMR) is too low. Role of Universities in India: Universities in many countries play a critical role in both creating the talent pool for research as well generating high quality research output. However, the Universities in India have largely focussed only on teaching. Why Should India focus on Innovation? Enhances productivity of factors of production- Land, Labour, Capital etc. Initiatives Taken (PIB) For example, introduction of Nano Urea in Agriculture. Ensure Aatma Nirbhar Bharat- Reduce dependence on critical technologies Anusandhan National Research Foundation (ANRF): Apex body to promote R&D. such as Semiconductors, Electric batteries etc. National Quantum Mission to promote Quantum Technology Enable India to move up the Global Value Chain rather than just focussing Atal Innovation Mission has established Atal Tinkering labs at Schools R&D on "Assembly in India". INSPIRE Scheme to attract youth to pursue career in R&D Ecosystem Be future ready for IR 4.0 which relies on advanced technology such as AI, Women in Science and Engineering (WISE) to encourage women in R&D. Robotics, MI etc. Recommendations Fall in Demographic dividend beyond 2040 requires labour productivity to increase. Improve Math and Cognitive Skills at the school level. (Unless the foundation of Primary Improve standard of living through innovations in vaccine technology, space Education is strong, the superstructure of R&D cannot be strengthened) technology etc. Encourage Investigator-led Research: Provide necessary funding and support to the researchers to take up research. Encourage funding by Private Sector by providing adequate incentives. Present Status Leverage scientific diaspora: There are today more than 100,000 people with PhDs, who Gross Expenditure on R&D (GERD): were born in India but are now living and working outside India. There is a need to Absolute amount: Doubled from 60,000 crore in 2010–11 to Rs. 1.27 lakh attract these scientists back to India. crore in 2020–21. Percentage of GDP: 0.64% (Stagnant since last 2 decades) Adopt Innovation clusters on the lines of China  Entrepreneurship By: Basava Uppin Live mint, Jan 2020 Financial Express, April 2024 Mains Practice Question What are the drivers of the Start-up Ecosystem in India?. Also, discuss the challenges faced by Indian Start-ups.  By: Basava Uppin Initiatives Start-up India scheme: 3 pillars Growth Drivers of Start-ups Improved Ease of Doing Business Ex: Easier compliance, easier exit process Increase in Literacy rates and Education Ex: More Start-ups in Western and for failed Startups, legal support, fast tracking of patent applications etc. Southern States as compared to Eastern States. Exemptions on Income Tax and Capital Gains Tax for eligible Start ups Young Demography characterised by risk taking Ex: Nitin Kamath (Zerodha), Industry-Academia partnership through incubators and innovation labs Bhavish Agarwal (Ola), Vijay Shekhar (Paytm) etc. Promoting Innovations in Individuals, Start-ups and MSMEs (PRISM) Incubation and Mentorship support at top colleges and Universities Ex: WE- Innovations for Defence Excellence (iDEX) HUB- India's first and only State led incubator for women entrepreneurs in State-government's specific schemes: WE-HUB- India's first and only State led Telangana incubator for women entrepreneurs in Telangana; Grassroots Innovations Access to Funding- through VCF including state-funded such as Gujarat Augmentation Network (GIAN) in Gujarat venture Finance Limited, Angel Investors, IPO (Zomato, Nyka, Policy Bazaar, Paytm). 15X increase in funding between 2015-2022. Government Policies such as Start-up India which provides for tax Challenges faced by Start-ups exemption and Fund of Funds. Rapid growth of ICT Technology Ex: Ola, Zerodha, Paytm, Cred etc. Increase in share of Bootstrapped Start-ups due to lack of access to adequate credit Regulatory vacuum: Lack of Strict rules and regulations enabled faster from banks, limited number of Angel Investors and Venture Capital Funds. Ex: Zerodha growth of companies in initial years. Ex: Flipkart, Ola, Rapido etc. Low Survival rate: Only 20 per cent of start-ups survive beyond five years. Improved Ease of Doing Business Ex: Easier compliance, easier exit process Undifferentiated business models: Start-ups emulate already successful ideas and fail for failed Start-ups, legal support, fast tracking of patent applications etc. to differentiate themselves from their competitors Ex: Recent Failure of Dunzo. Start-up Funding winter: Investments in India decreased by nearly 65% in a year due to Ecosystem contractionary monetary policy across major economies (including India), Continuing geopolitical uncertainty etc. Flipping of Indian Start-ups due to poor ease of doing business. Governance issues such as misreporting of financial data, ignorance of regulatory requirements etc. Ex: Byju’s Tax-related issues: Finance Act 2023 expanded scope of Angel Tax to include non- Present Status resident investments in unlisted Indian companies. Lack of adequate mentoring from experienced leaders of established companies, India ranks third in Start-up Ecosystem with 1 lakh recognised 'Start-Ups' incubators and investors. and around 111 unicorn companies. 50% of DPIIT recognised Start-ups are from Tier II & Tier III cities. Wealth Creation: 10 percent increase in registration of new firms in a district yields a 1.8 percent increase in GDDP.  Growth & Productivity By: Basava Uppin Mains 2022 Economic growth in the recent past has been led by increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity. (15 Marks, 250 Words) Mains Question for Practice 1. What do you mean by Total Factor Productivity of Indian Economy? Discuss as to why should India focus on enhancing TFP to achieve faster GDP growth rate. (15 Marks) 2. What are the growth drivers of Indian Economy in the recent times? What are the challenges before Indian in realizing its vision of Viksit Bharat by 2047?  By: Basava Uppin Need to Enhance TFP Challenges in enhancing TFP Vision of $ 7 trillion economy: TFP enables production of more goods and Delay in Implementing Factor Market Reforms: services by efficiently utilising the available inputs. For example, higher TFP Land: Limited success of Land Reforms in Agriculture, Absence of legal framework to of Indian economy is due to higher TFP in the services sector. facilitate Land Leasing in most of the states, Delay in digitisation of land records, Double Farmers' income: through efficient utilisation of inputs such as land, conflict prone and cumbersome land acquisition procedure etc. water, labour, seeds etc. (Dalwai Panel) Labour: Delays in notification of new labour codes, Low Employability, Poor Skill Set Boost Manufacturing Competitiveness whose share to India's GDP has etc. remained stagnant (around 17%) since 1991 reforms. Capital: Higher Dependence on Banking sector, Underdeveloped Bond Market, Demographic Transition: Fall in working-age population beyond 2041 Limited Private sector investment in PPP etc. requires to enhance labour productivity. Entrepreneurship: Lack of access to adequate capital, Issues related to Taxation such Win-Win-Win Situation as higher TFP benefits Industries (in the form of as Angel Tax, Problem of exit due to Chakravyuha challenge of Indian economy etc. higher profits), workers (in the form of higher wages), Government ( in the Lack of adequate investment in Education ( 3% of GDP), Health (1.9% of GDP) has led to form of higher tax collections) poor education and health outcomes. Ensure Aatma Nirbhar Bharat: Higher TFP enables India to reduce imports, Jobless Growth: Increase in labour productivity has led to increase in GDP without boost domestic manufacturing, attracts investment and get integrated into commensurate increase in job creation. Hence, there is a need to enhance job creation global value chain. without affecting labour productivity. Self-Sustaining Virtuous Cycle: Increase in Investment, greater adoption of Decline in Female LFPR from 45% in 1990s to 37% in 2022. As per World Economic technology, higher skill sets of workers etc. leads to higher TFP and higher Forum, increase in female LFPR to match up to male LFPR (75%) can increase India's GDP growth rate. In turn, higher GDP rate facilitates more investment and GDP size by 27%. higher TFP. Domination of Dwarf firms in Manufacturing: MSMEs account for 45% of manufacturing TFP output. However, majority of the MSMEs are dwarf firms which are more than 10 years old but continue to employ less than 100 people. Poor Innovation Ecosystem in the form of lower investment in R&D (0.64% of GDP) Higher level of Informalisation reduces TFP due to low adoption of technology, limited Present Status (RBI’s KLEMS Database) use of capital, poor managerial skills etc. TFP growth accounted for about 20 per cent of India’s aggregate GDP growth between 2011 to 2019. Meaning Measures the efficiency with which various inputs such as capital, labour, raw materials etc are utilised. Can be measured as Total output divided by Total inputs (Capital, Labour, Raw Materials etc). Increase in TFP denotes input use efficiency i.e. how efficiently different inputs are utilised.  By: Basava Uppin Transformative Growth (2014-2024) Banking Sector Consolidation of PSBs Recapitalization of PSBs IBC Code Taxation Bad Bank- NARCL Inclusive Growth NaBFID Introduction of GST JAM Trinity Reduction in Corporate Ayushman Bharat Tax PM- Awas Yojana Simplification of Tax PM Ujjwala Yojana Key Growth Regime Drivers for Infrastructure Indian Economy National Investment External Sector Pipeline (NIP) Foreign Trade Policy 2023 National Monetization RoDTEP Scheme Pipeline (NMP) Signing of FTAs Manufacturing Gati Shakti Liberalization of FDI Bharatmala, Sagarmala, UDAN etc. Change in Definition of MSMEs National Logistics Policy Make in India PLI Scheme  Mains 2022 By: Basava Uppin Economic growth in the recent past has been led by increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity. (15 Marks, 250 Words) The paradoxical relationship between higher GDP growth rate and low employment elasticity (0.1) clearly highlights jobless growth in India. It shows that the higher GDP growth rate has been led by increase in labour productivity The labour productivity is measured as output of Goods and Services per worker. According to RBI’s KLEMS database, Labour productivity has increased post 1991 reforms due to capital deepening (higher capital per worker), improvement in technology, improvement in quality of labour etc. Agriculture: The decline in share of workforce from 58% to 45% in last decade has not led to decline in share of agricultural sector to India’s GDP (around 17%). Structural transformation: Post-1991 reforms, share of manufacturing sector to India’s GDP (17%) and Employment (12%) has remained stagnant. While the share of services sector to India’s GDP has increased to 55%. Focus on capital intensive industries due to complexity in labour laws and availability of cheaper credit through Government’s incentives. Productivity in Rural India: The contribution of rural areas to manufacturing output has doubled from 25% (1970-71) to 50% (2011-12). However, between 2005-12, the rural India witnessed negative employment growth rate of -2.8%  By: Basava Uppin Strategies needed: Promotion of secondary Agriculture to boost non-farm employment. Focus on Labour Intensive Industries such as Textile and Leather Incentivizing ‘infant’ MSME firms rather than dwarf firms wherein incentives should be limited to initial 5-7 years only. (Eco Survey 2019- 20) Change in Orientation of SEZs as 3 E’s- Employment and Economic Enclaves to boost employment creation.(Baba Kalyani Committee) Integrate “Assemble in India for the world” into Make in India to create 4 crore well-paid jobs by 2025 (Eco Survey 2018-19) Effective Implementation of Labour Reforms The above strategies would enable India to create more jobs and reap demographic dividend. At the same time, they do not adversely affect labour productivity and hence enable India to become $ trillion economy.  Middle Income Trap By: Basava Uppin Live mint, April 2024 Ideas for India, June 2024 Eco Survey, 2018-19 Mains Practice Question What do you mean by Middle Income Trap? Discuss the factors which lead to such a phenomenon? Do you think India is staring at such a phenomenon? Give arguments in support of your answer. (15 Marks) Meaning: Phenomenon wherein middle-income country fails to grow into high-income country and gets trapped in middle income status. Such economies get squeezed By: Basava Uppin between low-wage poor-countries which dominate in matured Industries and technologically advanced high-income countries which dominate in high-end technologies. Examples include Mexico, Brazil, Argentina, South Africa etc. Why do Countries fall into Middle Income Trap? (ADB’s Report) Causes Case Study (Use both Positive and Negative Case studies in Answer) Unfavorable Demography: Fall in Demographic Dividend leads to increase in Thailand failed to Capitalise on Demographic Dividend between 1970s and 2000s. Wages and lower Savings. Unable to compete with low-wage poor countries. South Korea used Window of opportunity to invest in Human Capital Formation. Low level of Innovation affects technological advancement and hence unable to Countries such as Brazil, Mexico, Argentina etc. have lower GERD. compete with technology advanced high-income countries Countries such as South Korea and Taiwan invest more than 4% of GDP on R&D. Low level of Development of Financial sector in form of Banking, Capital market Singapore & Hongkong established themselves as International Financial Hubs to attract affects credit creation & Investment. foreign Capital Low Level of Economic Diversification leads to higher reliance on specific sector South Africa: Dominated by Mining; Thailand: Dominated by Agriculture & Tourism. or commodities and hence prevents faster GDP growth. High level of Income Inequality leads to reduced human capital formation for the Countries such as Brazil, Argentina, Mexico characterised by high inequalities. poor people, lower savings, lower domestic demand etc. Singapore, Taiwan etc. have followed the Kuznets's curve. Failure to capitalise on Exports and getting integrated into global economy Countries such as Taiwan, South Korea etc. have boosted their exports. Inefficient labour markets such as inflexibility in hiring and firing practices. Flexible labour laws in Singapore and Taiwan Can India fall into Middle Income Trap? (Eco Survey 2018-19) Challenges before India Decline in Savings accompanied by Lower share of Investment. Backlash against Globalization: Unlike South Korea, difficult to pursue export-led model due to rise of protectionist policies by advanced economies. Over-reliance of Financial Sector on Banking. Under-Developed Capital Market. Low Expenditure on R&D (0.6%) of GDP. Rise in Income Inequality accompanied by lower expenditure on Education (3%) and Health (1.5%) Higher Logistics cost (10%) Inspite of these challenges, India would may not face Middle income trap due to (a) Productivity gains- 20% GDP due to increase in Productivity (b) Govt. policies such as Skill India, Make in India, Labour codes, Integration into GVCs. (c) window of opportunity of Demographic Dividend still open.  By: Basava Uppin Mobilization of Resources Broad based Question Specific Topic ba