India’s Economic Policy Agenda

General Studies Paper-3

Context: The Chairman of the 16th Finance Commission recently stressed on the reform agenda to 10% growth for the Indian Economy.

Status of India’s Economy at Present

• GDP Growth:India’s GDP growth rate declined annually from 2016-17, and fell below 3.5% in the fourth quarter of 2019-20.
• The GDP growth rate has been declining since 2016.
• However, the Indian economy is expected to recover with a GDP growth forecast for FY24 to be in the range of 6-6.8%.
• The IMF has projected India’s real GDP growth as 6.7% for 2023-24 and 6.5% for 2024-25.
• Fiscal Deficit:The interim Budget signals significant cutbacks in public expenditures, slashing effective capital expenditure by ₹1 lakh crore and reducing welfare and subsidy allocations.
• The fiscal deficit, which was expanded to 9.2% of GDP in 2020-21 to deal with the pandemic-induced recession, would be brought down to 5.8% by the end of the current financial year and 5.1% by next year to reach the targeted 4.5% of GDP by 2025-26.
• Economic Ranking:Recent IMF data show that India is ranked 4th in world’s GDP rankings in 2024, just after the USA, China and Germany.
• India’s economy boasts diversity and swift growth, fuelled by key sectors such as information technology, services, agriculture, and manufacturing.
• Economic Performance: India aims to become a$5 trillion economy by 2024 has been questioned due to the lack of a coherent policy structure.

Current Policies to Boost India’s Economy

• India’s Evolving and Dynamic Policy Framework:It is designed to ease the entry of foreign direct investment, streamline the financial system, dismantle redundant procedures and add transparency to the process of doing business.
• As per the World Bank’s Ease of Doing Business, India is ranked 63 among 190 economies.
• Diversification: India has implemented a range of policy initiatives in the areas of sustainable development, infrastructural improvements, banking and financial services, job creation, digital transformation, manufacturing and services industries in an effort to build a strong base for the Indian economy.
• Priority: It is keeping India on track as one of the world’s fastest growing economies so it can become the second largest economy in the world by 2050.
• Formalisation: India aims to expand the reach of the formal economy, thereby improving the informal sector’s efficiencies and increasing the country’s tax base.
• It has taken measures to improve capacity to spend in the rural sector, infrastructure creation, and inviting foreign investments.
• Inclusive Growth:India has the twin objectives of inclusive growth and financial empowerment as the centrepiece of its policy agenda for the country’s growth.
• Climate related Policy:Achieving net-zero emissions by 2070 could boost India’s economy by as much as 7% above the projected baseline growth in GDP terms by 2036.

Emerging Challenges

• Disruption caused by the pandemic:India’s potential growth may have slowed to 6% (from 7.1% YoY estimated in 2017) due to longer-than-expected disruption caused by the pandemic, balance-sheet concerns and a modest policy response by the government.
• Regulatory Issues: These are related to trade policy, labour law implementation, and the long standing, very long-term issue of the land markets.
• India’s economic growth is facing potential risks due to reform and policy barriers, according to research by Moody’s Investors Service.
• Geopolitical conflicts:There are many ongoing crises in the world that are impacting the global supply chain that affects the emerging economy and market like India.
• End of hyper globalisationin global manufacturing, energy transition challenge, and advent of Artificial Intelligence.

Future Outlook:

• Challenges before the economy are complex and multifaceted, and it requires a combination of policy interventions, institutional reforms, and private sector initiatives.
• Political stability and policy consistency can pave the way for India’s ascent to becoming the third-largest economy at a time of geopolitical uncertainties and risks to economic growth.