The structure of the Indian economy is a multifaceted tapestry that reflects the diverse and dynamic nature of the nation. As one of the world’s fastest-growing major economies, India’s economic landscape is shaped by a combination of traditional agrarian practices, burgeoning industrialization, and a rapidly expanding services sector. Understanding the intricacies of the Indian economy is crucial for aspirants preparing for the Union Public Service Commission (UPSC) examinations, as it provides a comprehensive perspective on the country’s economic development, challenges, and opportunities. This brief overview will delve into the key components of the Indian economy, exploring the sectors that contribute to its growth, the role of government policies, and the socio-economic factors that influence its trajectory. By gaining insights into the structure of the Indian economy, UPSC aspirants can navigate the complexities of economic governance and contribute meaningfully to the nation’s development.
Indian Economy At The Time Of Independence: Basic Characteristics
At the time of India’s independence in 1947, the Indian economy was primarily agrarian, with agriculture contributing to around 50% of the country’s GDP. The following are some of the basic characteristics of the Indian economy at the time of independence:
Colonial exploitation: India was under British colonial rule for over 200 years, during which time the Indian economy was exploited for the benefit of the British Empire. India was primarily an exporter of raw materials and an importer of finished goods, which led to a trade imbalance and economic dependence on Britain.
Low industrialization: The Indian economy was characterized by low levels of industrialization, with only a few industries, such as textiles and jute, being developed to a significant extent. Most industries were small-scale and lacked modern technology.
Limited infrastructure: The country had limited infrastructure, including inadequate transportation networks, communication systems, and power generation capacity.
High poverty and unemployment: The majority of the population lived in poverty, with high levels of unemployment and underemployment in the agricultural sector.
Dual economy: India had a dual economy, with a modern sector consisting of a small number of large industries and a traditional sector consisting of small-scale, labor-intensive industries and subsistence agriculture.
Unequal distribution of wealth: There was a high degree of inequality in the distribution of wealth, with a small elite class owning most of the land and wealth in the country.
Weak financial system: India’s financial system was weak, with limited access to credit and financial services for small businesses and individuals.
There are certain critical lessons to be learned from the sixty years of development experience:
- Macroeconomic stability is an essential prerequisite for achieving the growth needed for development.
- Growth does not trickle down; development must address human needs directly.
- No one policy will trigger development – a comprehensive approach is needed.
- Institutions matter, sustained development should be rooted in processes that are socially inclusive and responsive to changing circumstances.
These characteristics laid the foundation for the challenges that the Indian economy faced in the post-independence era and the policies that were implemented to address them.
Indian Economy In The Present Times Basic Characteristics Of The Indian Economy In Present Times.
Indian economy in the present times
Market size
India’s real gross domestic product (GDP) at current prices stood at Rs. 135.13 lakh crore (US$ 1.82 trillion) in FY21, as per the provisional estimates of annual national income for 2020-21.
India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.
India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030’s, for productivity and economic growth according to McKinsey Global Institute. The net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.
According to data from the RBI, as of the week ended on June 04, 2021, the foreign exchange reserves in India increased by US$ 6.842 billion to reach US$ 605 billion.
According to the McKinsey Global Institute, India needs to boost its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030 to increase productivity and economic growth. The net employment rate needs to grow by 1.5% per annum from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030. India’s current account deficit (CAD), primarily driven by an increase in the trade deficit, stood at 2.1% of GDP in the first quarter of FY 2022-23.
Exports fared remarkably well during the pandemic and aided recovery when all other growth engines were losing steam in terms of their contribution to GDP. Going forward, the contribution of merchandise exports may waver as several of India’s trade partners witness an economic slowdown.
Recent Developments
With an improvement in the economic scenario, there have been investments across various sectors of the economy. The Private Equity – Venture Capital (PE-VC) sector recorded investments worth US$ 20 billion in the first five months of 2021, registering a 2x growth in value compared with the same period in 2020. Some of the important recent developments in the Indian economy are as follows:
- Merchandise exports stood at US$ 62.89 billion between April 2021 and May 2021, while imports touched US$ 84.27 billion. The estimated value of service exports and imports Cumulative FDI equity inflows in India stood at US$ 763.58 billion between April 2000 and March 2021. Foreign Direct Investment (FDI) inflows in India stood at US$ 6.24 billion in April 2021, registering an increase of 38% YoY.
- India’s Index of Industrial Production (IIP) for April 2021 stood at 126.6 against 143.4 for March 2021.
- Consumer Food Price Index (CFPI) – Combined inflation was 5.01 in May 2021 against 1.96 in April 2021.
- Consumer Price Index (CPI) – Combined inflation was 6.30 in May 2021 against 4.23 in April 2021.
- In June 2021, foreign portfolio investors (FPIs) turned net buyers by investing Rs. 12,714 crore (US$ 1.71 billion) in the Indian markets. According to depository data, between June 1, 2021, and June 25, 2021, FPIs invested Rs. 15,282 crore (US$ 2.06 billion) in equities.
- between April 2021 and May 2021 stood at US$ 35.39 billion and US$ 19.86 billion, respectively.
- In May 2021, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 50.8.
- Gross GST collections stood at Rs. 141,384 crore (US$ 19.41 billion) in April 2021.
Government Initiatives
The budget aimed at energizing the Indian economy through a combination of short-term, medium-term and long-term measures.
- In the Union Budget 2021-22, capital expenditure for FY22 is likely to increase by 34.5% at Rs. 5.5 lakh crore (US$ 75.81 billion) over FY21 (BE) to boost the economy.
- Increased government expenditure is expected to attract private investments, with production-linked incentive schemes providing excellent opportunities. Consistently proactive, graded and measured policy support is anticipated to boost the Indian economy.
- In May 2021, the government approved the production-linked incentive (PLI) scheme for manufacturing advanced chemistry cell (ACC) batteries at an estimated outlay of Rs. 18,100 crores (US$ 2.44 billion); this move is expected to attract domestic and foreign investments worth Rs. 45,000 crores (US$ 6.07 billion).
- The Union Cabinet approved the production-linked incentive (PLI) scheme for white goods (air conditioners and LED lights) with a budgetary outlay of Rs. 6,238 crores (US$ 848.96 million) and the ‘National Programme on High-Efficiency Solar PV (Photo Voltaic) Modules’ with an outlay of Rs. 4,500 crore US$ 612.43 million).
- In June 2021, the RBI (Reserve Bank of India) announced that the investment limit for FPI (foreign portfolio investors) in the State Development Loans (SDLs) and government securities (G-secs) would remain unaffected at 2% and 6%, respectively, in FY22.
- To boost the overall audit quality, and transparency and add value to businesses, in April 2021, the RBI issued a notice on new norms to appoint statutory and central auditors for commercial banks, large urban co-operatives, and large non-banks and housing finance firms.
- In May 2021, the Government of India allocated Rs. 2,250 crore (US$ 306.80 million) for the development of the horticulture sector in 2021-22.
- In November 2020, the Government of India announced Rs. 2.65 lakh crore (US$ 36 billion) stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction, and housing. Also, India’s cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.
- Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India. Mr. Narendra Modi, Prime Minister of India, launched the Make in India initiative to boost the country’s manufacturing sector and increase the purchasing power of the average Indian consumer, which would further drive demand and spur development, thus benefiting investors. The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector to take it to 25% of the GDP from the current 17%. Besides, the Government has also come up with the Digital India initiative, which focuses on three core components: the creation of digital infrastructure, delivering services digitally, and increasing digital literacy.
Some of the recent initiatives and developments undertaken by the Government are listed below
In June 2021, the RBI Governor announced the policy repo rate unchanged at 4%. He also announced various measures including Rs. 15,000 crore (US$ 2.05 billion) in liquidity support to contact-intensive sectors such as tourism and hospitality.
In June 2021, Finance Ministers of G-7 countries, including the US, the UK, Japan, Italy, Germany, France, and Canada, attained a historic contract on taxing multinational firms as per which the minimum global tax rate would be at least 15%. The move is expected to benefit India by increasing foreign direct investments in the country.
In June 2021, the Indian government signed a US$ 32 million loan with the World Bank for improving healthcare services in Mizoram.
In May 2021, the Government of India (GoI) and the European Investment Bank (EIB) signed the finance contract for the second tranche of EUR 150 million (US$ 182.30 million) for the Pune Metro Rail project.
According to an official source, as of June 2021, 29 companies including global electronics manufacturing organizations, such as companies Foxconn, Sanmina SCI, Flex, and Jabil Circuit, have registered under the Rs. 12,195 crores (US$ 1.64 billion) production-linked incentive scheme for the telecom sector.
In May 2021, the Union Cabinet approved the signing of a memorandum of understanding (MoU) on migration and mobility partnership between the Government of India, the United Kingdom of Great Britain, and Northern Ireland.
In April 2021, Minister for Railways and Commerce & Industry and Consumer Affairs, Food & Public Distribution, Mr. Piyush Goyal, launched the ‘DGFT Trade Facilitation app to provide instant access to exporters/importers anytime and anywhere.
In April 2021, Dr. Ahmed Abdul Rahman AlBanna, Ambassador of the UAE to India and Founding Patron of IFIICC stated that trilateral trade between India, the UAE, and Israel is expected to reach US$ 110 billion by 2030.
India is expected to attract investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23.
The Government of India is going to increase public health spending to 2.5% of the GDP by 2025.
For the implementation of the Agriculture Export Policy, the Government approved an outlay of Rs. 2.068 billion (US$ 29.59 million) for 2019, aimed at doubling farmers’ income by 2022.
Road Ahead
As indicated by provisional estimates released by the National Statistical Office (NSO), India posted a V-shaped recovery in the second half of FY21. As per these estimates, India registered an increase of 1.1% in the second half of FY21; this was driven by the gradual and phased unlocking of industrial activities, increased investments, and growth in government expenditure.
As per the Reserve Bank of India’s (RBI) estimates, India’s real GDP growth is projected at 9.5% in FY22; this includes an 18.5% increase in the first quarter of FY22; 7.9% growth in the second quarter of FY22; 7.2% rise in the third quarter of FY22 and 6.6% growth in the fourth quarter of FY22.
India is focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30%, and has plans to increase its renewable energy capacity from 175 gigawatts (GW) by 2022. In line with this, in May 2021, India, along with the UK, jointly launched a ‘Roadmap 2030’ to collaborate and combat climate change by 2030.
India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to a shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass the USA to become the second-largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by Price Water house Coopers.
Features Of the Indian Economy
Important Features of the Indian Economy
1. Low per capita income
India is known worldwide as a country with low per capita income. Per capita income is defined as the ratio of national income to overpopulation. This may not reflect each individual’s actual income, but shows her average annual income for an Indian citizen. From 2012 to 2013 her per capita income in India is estimated at 39,168 i.e about 3,264 per month.
Comparing India’s per capita income with the rest of the world shows that India lags far behind many other countries. For example, her per capita income in the US is 15 times higher than that in India, while her per capita income in China is more than three times higher than that in India.
2. Intense Demographic pressure
India ranked 2nd in the world after China in terms of population. According to the 2011 census, India’s population exceeds 1.21 billion. Between 1990 and 2001 she increased by 1.03%. A major reason for India’s rapid population growth is its sharp decline in mortality, but not so rapidly in its fertility rate.
The mortality rate is defined as the number of people who die per 1000 population and the fertility rate is defined as the number of people who give birth to one child per 1000 population.
In 2010, the birth rate was 22.1 per 1,000 population, but the death rate was only 7.2 per 1,000 population. It is a sign of development. Low mortality reflects a better public health system. However, the high birth rate is a problem because it directly affects population growth.
After 1921, India’s population grew rapidly. This is because fertility rates have fallen very slowly and mortality rates have fallen very quickly. The birth rate dropped from 49 in 1921 to 22.1 in 2010, and the death rate dropped from 49 to 7.2 over the same period. Therefore, India’s population growth is very rapid.
Severe demographic pressure is a major concern for India. Public funding is strained to mobilize sufficient resources to provide public education, health care, infrastructure, and more.
3. Poverty and Inequality
About 269.3 million people lived in poverty in India from 2011-2012, according to the Indian government. This was about 22% of India’s population. A person is said to be poor if he cannot consume the amount of food required to reach the minimum calorie count of 2400 in rural areas and 2100 in urban areas. For this, you have to earn the necessary amount of money to buy groceries.
The government also estimates the required amount to be $816 per person per month in rural areas and $1000 in urban areas. This equates to around €28 in rural areas and around €33 per person per day in urban areas. This is known as the poverty line. This means that his 269.9 million in India earned a meager income from 2011 to 2012.
Poverty is closely related to inequality in the distribution of income and wealth. Few people in India own physical assets, but the majority have little or no assets in the form of land, houses, fixed deposits, company shares, savings, etc. Only the top 5% of households control about 38% of India’s total wealth, while the bottom 60% of households control only 13% of the wealth. This shows that economic power is concentrated in very few hands.
Another issue related to poverty is unemployment. One of the main reasons for India’s poverty is the lack of employment opportunities for all workers in the country. The workforce includes adults willing to work. If not enough jobs are created each year, the problem of unemployment will increase.
In India, large numbers of people are joining the workforce each year due to population growth, a few more educated people, and the lack of expansion of the industrial and service sectors at the required rate.
4. Agriculture-centric economy
Most of India’s working population depends on agriculture for their livelihood. In 2011, about 58% of India’s labor force was engaged in agriculture. Nevertheless, agriculture accounts for just over 17% of India’s gross domestic product.
A major concern for Indian agriculture is the very low productivity of this sector. The land has strong population pressure to feed a large number. Due to rural population pressure, the available land area per capita is very small and there is no benefit to obtaining higher yields.
Second, less land is available per person, forcing the majority of people to become low-paid agricultural laborers.
Third, Indian agriculture suffers from a lack of better technology and irrigation facilities.
Fourth, Indian people, who have no education or training, work in agriculture. Therefore, it is one of the reasons for the decline in agricultural productivity.
5. Higher rate of formation of capital
One of the major problems of the Indian economy at the time of independence was the lack of capital stock such as land and buildings, machinery and equipment, and savings. For the economic activities of production and consumption to continue to circulate, we must use a certain ratio of production, savings, and investment.
However, during the first 40 to 50 years of independence, the required quota was never met. The main reason is the high consumption rate of essentials by the people, especially by poor and middle-income groups. As a result, collective household savings were very meager. The consumption rate of durable goods was insignificant But things have changed in the last few years.
Economists calculated it to support the growing population India should invest 14% of its GDP. It is encouraging to see India’s savings rate of 31.7% in 2011. This was made possible because people were saving in banks, being able to spend on durable goods, and being heavily invested in public works and infrastructure.
6. Planned economy
India is a planned economy. The development process continued throughout his five-year plan from 1951 to his first planning period in 1956. The benefits of planning are well known. Through planning, the country first establishes priorities and provides financial estimates for achieving the same.
Therefore, efforts are being made to mobilize resources from various sources at a minimal cost. India has already completed 12 five-year planning periods. After each plan, a review is conducted to analyze successes and shortfalls. Therefore, the following plans are improved.
Today, India is experiencing economic growth and is widely recognized as a future economic powerhouse. India’s per capita income is growing faster than ever before. India is considered a large market for various products. All this is possible due to planning in India.
Role Of Agriculture In India
Agriculture plays a vital role in the Indian economy. Over 70 percent of rural households depend on agriculture. Agriculture is an important sector of the Indian economy as it contributes about 17% to the total GDP and provides employment to around 58% of the population. Indian agriculture has registered impressive growth over the last few decades. The foodgrains production has increased from 51 million tonnes (MT) in 1950-51 to 250MT during 2011-12 highest ever since independence
The share of agriculture in GDP increased to 19.9 percent in 2020-21 from 17.8 percent in 2019-20. The last time the contribution of the agriculture sector to GDP was at 20 percent was in 2003-04.
India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for about 58% of India’s population. India has the world’s largest cattle herd (buffaloes), the largest area planted to wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. The agriculture sector in India holds the record for the second-largest agricultural land in the world generating employment for about half of the country’s population. Thus, farmers become an integral part of the sector to provide us with a means of sustenance.
Consumer spending in India will return to growth in 2021 after the pandemic-led contraction, expanding by as much as 6.6%. The Indian food industry is poised for huge growth, increasing its contribution to the world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India, and is ranked fifth in terms of production, consumption, export, and expected growth.
- India is the biggest exporter of cotton in the world.
- India is the largest producer of ginger, okra, potatoes, onions, brinjal, etc., among vegetables.
- Sikkim is the first state in the world that claims 100% organic farming.
- India ranks 2nd in the world in agriculture production.
- India’s world rank in services and industry sectors is 9th and 5th respectively.
- Indian agricultural production has increased from 87 USD bn to 459 USD bn in the past 15 years (12% annual growth).
- Globally India ranks 9th for agricultural exports.
Growth Of The Services Sector In India
The reforms of the 1990s have been associated with the expansion of the service sector in India. Midway through the 1980s, the service sector began to expand, but it took off in the 1990s when India started a series of economic reforms in response to a serious balance of payments issue.
The services sector is not only the dominant sector in India’s GDP but has also attracted significant foreign investment, has contributed significantly to exports, and has provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. To enhance India’s commercial services export share in the global services market from 3.3% and permit a multi-fold expansion in the GDP, the government is also making significant efforts in this direction.
India is a unique emerging market in the globe due to its unique skills and competitive advantage created by knowledge-based services. The Indian services industry, which is supported by numerous government initiatives like smart Cities, clean India, and digital India is fostering an environment that is strengthening the services sector. The sector has the potential to open up a multi-trillion-dollar opportunity that might stimulate symbiotic growth for all nations.
Status Of Human Resource In India
India has 62.5% of its population in the age group of 15-59 years which is ever-increasing and will be at its peak around 2036 when it will reach approximately 65%. These population parameters indicate the availability of demographic dividend in India, which started in 2005-06 and will last till 2055-56. According to the Economic Survey 2018-19, India’s Demographic Dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, population is expected to hit 59%. India has one of the youngest populations in an aging world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependent population — children aged 14 or below as well as people above 65 years of age. This bulge in the working-age population is going to last till 2055, or 37 years from its beginning. This transition happens largely because of a decrease in the total fertility rate(TFR, which is the number of births per woman) after the increase in life expectancy gets stabilized.
Increased Labour Force enhances the productivity of the economy. Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure. A rise in women’s workforce naturally accompanies a decline in fertility, which can be a new source of growth. Increase in the savings rate, as the working age also happens to be the prime period for saving. A massive shift towards a middle-class society, that is, the rise of the aspirational class. The demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
The challenges existing in the Indian population:
Asymmetric demography
The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realized only if India can create gainful employment opportunities for this working-age population.
Lack of skills
Most of the new jobs that will be created in the future will be highly skilled and lack of skill in the Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.
Low human development parameters
: India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming. Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled. The informal nature of the economy in India Is another hurdle in reaping the benefits of demographic transition in India.
Jobless growth
There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, the fourth industrial revolution, and technological progress. As per the NSSO Periodic Labour Force Survey 2017-18, India’s labor force participation rate for the age group 15-59 years is around 53%, that is, around half of the working-age population is jobless.
Suggestions for Improving Human Resources and Building Human Capital
Building human capital:
Investing in people through healthcare, quality education, jobs, and skills helps build human capital, which is key to supporting economic growth, ending extreme poverty, and creating a more inclusive society.
Skill development to increase the employability of the young population. India’s labor force needs to be empowered with the right skills for the modern economy. The government has established the National Skill Development Corporation (NSDC) with the overall target of skilling/upskilling 500 million people in India by 2022..
Education:
Enhancing educational levels by properly investing in primary, secondary, and higher education. India, which has almost 41% of the population below the age of 20 years, can reap the demographic dividend only if with a better education system. Also, academic-industry collaboration is necessary to synchronize modern industry demands and learning levels in academics.
The establishment of the Higher Education Finance Agency (HEFA)is a welcome step in this direction.
Health: Improvement in healthcare infrastructure would ensure a higher number of productive days for the young labor force, thus increasing the productivity of the economy.
The success of schemes like Ayushman Bharat and the National Health Protection Scheme (NHPS) is necessary. Also nutrition level in women and children needs special care with effective implementation of the Integrated Child Development (ICDS) program.
Job Creation:
The nation needs to create ten million jobs per year to absorb the addition of young people into the workforce. Promoting businesses’ interests and entrepreneurship would help in job creation to employ the large labor force.
India’s improved ranking in the World Bank’s Ease of Doing Business Index is a good sign.
Schemes like Start-up India and Make in India, if implemented properly, would bring the desired result shortly.
Urbanization:
The large young and working population in the years to come will migrate to urban areas within their own and other States, leading to a rapid and large-scale increase in urban population. How these migrating people can have access to basic amenities, health, and social services in urban areas need to be the focus of urban policy planning.
Schemes such as Smart City Mission and AMRUT need to be effectively and carefully implemented.
Way Forward
- India is on the right side of a demographic transition that provides a golden opportunity for its rapid socio-economic development, if policymakers align the developmental policies with this demographic shift.
- To reap the demographic dividend, proper investment in human capital is needed by focusing on education, skill development, and healthcare facilities.
- This demographic transition also brings complex challenges with it. If the increased workforce is not sufficiently skilled, educated, and provided gainful employment, we would be facing demographic disaster instead.
- By learning from global approaches from countries such as Japan and Korea and designing solutions considering the domestic complexities, we would be able to reap the benefits of a demographic dividend.
Status Of Natural Resources in India
India is a diverse country with a variety of natural resources, including forests, minerals, water, and biodiversity. The country has a rich and varied natural resource base that has played a critical role in shaping its economy and development. Here are some of the key natural resources in India and their current status:
Forests:
India has around 23% of its land covered by forests, which is a significant resource. However, deforestation, illegal logging, and forest fires have led to a decline in forest cover in some areas.
Minerals:
India is a major producer of minerals such as coal, iron ore, bauxite, and zinc. However, mining activities have led to environmental degradation and social conflicts in some areas.
Water:
India has a vast network of rivers, lakes, and groundwater resources. However, water scarcity, pollution, and overexploitation of groundwater are major challenges in many parts of the country.
Biodiversity:
India is one of the most biodiverse countries in the world, with a wide variety of flora and fauna. However, habitat loss, poaching, and climate change are threatening many species.
Overall, India’s natural resources are facing significant challenges due to overexploitation, pollution, and climate change. The government and civil society organizations are working to address these challenges through conservation efforts, sustainable resource management, and policy interventions.
Challenges Faced By the Indian Economy
There are different challenges that the Indian economy faces. Here are they:
Population Density
The population density of India is one of the highest in the world. This population density, coupled with Indian infrastructure which is not able to keep up with the population growth, is one of the main problems that the Indian economy faces.
Poverty Problems
Another challenge faced by the Indian economy is poverty. Nearly 22% of the population lives below the poverty line. This means that a large portion of the population is not able to participate in the economy and this leads to a vicious cycle of poverty.
Unemployment
Unemployment is another big challenge that the Indian economy faces. The unemployment rate in India is at a 45-year high. This means that there are a lot of people who are not able to find jobs. This leads to a lot of social problems as well.
Payment Deterioration
One of the most recent challenges faced by the Indian economy is payment deterioration. This is caused by the delay in payments from the government to contractors and suppliers. This has led to a lot of financial problems for the contractors and suppliers.
Poor Education
Another challenge that the Indian economy faces is poor education. The literacy rate in India is only around 74%. This means that a lot of people are not able to get good jobs and participate in the economy. This leads to a lot of social problems as well.
Private Debt
Another challenge faced by the Indian economy is private debt. The private debt to GDP ratio in India is one of the highest in the world. This means that a lot of people have taken out loans and are not able to repay them. This leads to a lot of financial problems for the economy.
Fixed Labour Laws
Another challenge faced by the Indian economy is fixed labor laws. These laws make it very difficult for companies to lay off workers. This leads to a lot of inefficiency in the economy and leads to a lot of financial problems for the companies.
Inadequate Infrastructure
One of the biggest challenges faced by the Indian economy is inadequate infrastructure. The infrastructure in India is not able to keep up with the population growth. This leads to a lot of problems such as traffic jams, power cuts, and water shortages.
Corruption
Corruption is another big challenge faced by the Indian economy. Corruption leads to a lot of inefficiency and waste in the economy. It also leads to a lot of social problems as well.
These are some of the challenges faced by the Indian economy. Population density, poverty problems, unemployment, payment deterioration, poor education, and private debt are some of the main challenges. These challenges need to be addressed to make the Indian economy stronger.
The Indian economy is currently facing several challenges. These include high levels of inflation, an unstable rupee, and a large current account deficit. In addition, the country faces significant infrastructure needs and a growing population that is increasingly young and educated. These factors present both opportunities and challenges for the country’s economic growth in the years ahead. Students who are interested in learning more about India’s economy should read this article for an overview of the most important issues facing the country today.
Overall Solutions To Achieve A New India By 2022
Using the above analysis of various dimensions of the Indian economy, we can conclude that while India has great economic prospects many challenges need to be overcome to harness the true potential of the economy. We have already seen the steps the government has taken and a few micro-level solutions to address these challenges. Now, we shall look at a few broader measures which can make our country a “Major Economic Powerhouse”.
Growth:
Raise investment rates to 36% of GDP
Increase tax-GDP ratio to 22% of GDP
Work with states to improve ease of business and rationalize land & labor regulations
Employment and Labour Reforms:
The necessary condition for employment generation is economic growth.
Fully codify central labor laws and enhance Female Labour Force Participation to 30%
The employability of labor needs to be enhanced by improving health, education, and skilling outcomes and a massive expansion of the apprenticeship scheme.
Technology & Innovation:
Establish an empowered body to holistically steer the management of science
Create a non-lapsable District Innovation Fund
Industry:
Develop self-sufficient clusters of manufacturing competence, with plug & play parks for MSMEs, Impetus to Labour Intensive Export firms, Launch a major initiative to push the industry to adopt Industry 4.0, Introduce a “single window” in states providing a single point of contact between investor & government
Doubling Farmer’s Income:
Modernize technology, increase productivity & agro-processing, and diversify crops
Abolish APMC -Adopt Model APLM Act, Model Contract Farming Act & Model Land Leasing Act
Create modern rural infrastructure & an integrated value chain system
Link production to the processing set up village-level procurement centers
Energy:
Bring oil, natural gas, electricity & coal under GST to enable input tax credit
Promote smart grid & smart meters
Ports, Shipping & Inland Waterways:
Double the share of freight transported by coastal shipping & inland waterways
Complete Sagarmala project. Open up India’s dredging market
Logistics:
Develop an IT-enabled platform for integrating different modes of transport
Rationalize tariffs & determine prices in an efficient manner across different modes
Create an overarching body that maintains a repository of all transport data.
Rationalising GST:
Rationalization of GST Slabs and Rates as suggested by the Kelkar Committee
Inclusion of Petroleum Products within the GST Regime
Addressing the issue of Inverted Duty Structure under the GST for a few imported products
Inclusion of all the Real Estate Transactions within the GST Regime
Faster processing of GST Refunds for Exporters.
Mudra Loans:
Raghuram Rajan suggests closer scrutiny of the loan applications while granting Mudra Loans. Prompt Corrective Action (PCA) guidelines need to be reframed in a balanced manner to address the dual objectives of growth and NPA resolution.
Economic Survey 2016-2017 suggests the setting up of a centralized Public Sector Asset Rehabilitation Agency (PARA) that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce NPAs The 4th R, which is Reform (of the 4R Strategy for NPAs resolution suggested by Dr. Aravind Subramanian) must be given prime importance if we have to prevent the NPAs Ballooning in the future.
India needs to carry out the crucial internal reforms that will allow it to be a productive international player and to take on the leadership roles that so many people across the world hope it will. Reorganization of the health system with much greater emphasis on primary medical centers or PMCs Any improvement in the life of the majority would require a re-alignment of the growth process so that it is less damaging. This would very likely require that we have slower growth but the process can be configured to channel more of it towards poorer groups. India could and should aspire to double-digit growth. Without sustained growth at all levels, it has little hope of employing the roughly one million young people who join its workforce every month.
And unless it takes advantage of its current, favorable demographics it is never likely to emerge as an upper middle-income economy with a prosperous and thriving middle class.
Frequently Asked Questions (FAQs)
1. What is the current structure of the Indian economy?
Answer: As of my last knowledge update in January 2022, the Indian economy is characterized by a diverse structure, comprising three main sectors: primary, secondary, and tertiary. The primary sector includes agriculture and allied activities, the secondary sector involves manufacturing and industry, while the tertiary sector encompasses services. India has been experiencing a shift from agrarian dominance to an increasingly service-oriented economy, with a significant contribution from industries as well.
2. What are the key challenges faced by the Indian economy?
Answer: The Indian economy faces several challenges, including unemployment, poverty, and income inequality. Other challenges include inefficient agricultural practices, inadequate infrastructure, and the need for labor market reforms. Additionally, the economy is vulnerable to global economic fluctuations, and addressing environmental concerns is becoming crucial. Policymakers are working on reforms to address these challenges and promote sustainable and inclusive economic growth.
3. How does the government influence the Indian economy?
Answer: The Indian government plays a pivotal role in shaping and managing the economy through fiscal, monetary, and regulatory measures. Fiscal policies involve government spending and taxation to control inflation and boost economic growth. The Reserve Bank of India (RBI) implements monetary policies, regulating interest rates and money supply. Additionally, the government formulates and implements various sector-specific policies, such as industrial policies and agricultural reforms, to stimulate growth and development.
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