• UGI USER
  • Jun 06, 2024
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“THE SHOW MUST GO ON: ENHANCING INDIA’S ECONOMIC GROWTH”

Syllabus:

  • GS-3- Sustainable economic growth , policies and implementation ,Challenges and prospective solutions

Focus :

  • The article emphasizes the need for the new government to focus on stimulating consumer demand to sustain India’s economic growth. While public investment and premium consumption have driven recent growth, broad-based demand, particularly in the private sector, remains weak.
  • The piece suggests enhancing public sector employment and addressing fiscal constraints to boost overall demand and economic activity.
Source - TET

Current Economic Landscape

  • Strong GDP Growth: India’s GDP is estimated to grow at 8.2%, surpassing most expectations.
  • Sticky Inflation: Inflation remains moderate, not alarming, with stable global commodity prices, particularly oil.
  • Tax Revenue Growth: Strong growth in direct taxes and GST has accelerated post-Covid fiscal consolidation.

Consumption and Investment Dynamics

  • Limited Consumer Demand: Despite high public investment and luxury consumption, broad-based consumer demand remains low.
  • Wealth Effects: A small segment benefits from stock market gains and high-end service jobs, driving premium consumption.
  • Stagnant Exports: Merchandise exports struggle to gain global market share due to competitive pressures from China.
  • Private Capex Weakness: Private capital expenditure remains subdued, with public investment driving recent growth.

Challenges to Aggregate Demand

  • Fiscal Constraints: Despite a stable fiscal position, there is limited room for additional public investment due to high fiscal deficits.
  • Low Capacity Utilization: Factory capacity utilization rates are low, around 75-76%, limiting the incentive for new investments.
  • Competitive Pressures: Chinese manufacturing capacity and competitive pricing erode the market share of Indian manufacturers.

Need for Consumption Revival

  • Structural Issue: Weak consumption is a persistent issue, not merely cyclical, predating the Covid-19 pandemic.
  • Job Creation: Higher consumption requires more jobs, which can increase disposable incomes and boost demand.
  • Public Sector Employment: The state needs to create jobs in critical areas such as education, healthcare, law enforcement, and infrastructure.

Strategies for Sustainable Growth

  • Enhancing State Capacity: Investing in public sector jobs to build a larger consuming class and improve human resource capacities.
  • Fiscal Policy Adjustments: Overcoming fiscal constraints to fund public employment and capacity enhancement programs.
  • Local Funding Utilization: Leveraging local savings to fund state capacity enhancement while managing the current account deficit (CAD).

Public Investment and Infrastructure Development

  • Sectoral Focus: Public investment should target sectors like healthcare, education, and infrastructure to create jobs and improve service delivery.
  • Long-term Benefits: Enhanced public infrastructure can lead to sustained economic benefits by improving productivity and attracting private investment.

Addressing Fiscal Challenges

  • Balancing Fiscal Discipline and Growth: Strategic fiscal expansion to fund necessary public investments while maintaining long-term fiscal health.
  • Innovative Financing: Exploring innovative financing mechanisms to fund public sector initiatives without overly straining the fiscal budget.

Role of the Private Sector

  • Incentivizing Private Investment: Creating a favorable environment for private sector investments through regulatory reforms and incentives.
  • Public-Private Partnerships: Leveraging public-private partnerships to enhance infrastructure and service delivery.

Global Trade and Export Competitiveness

  • Enhancing Export Capacity: Focusing on sectors where India can gain a competitive edge in global markets.
  • Trade Policies: Implementing trade policies that support domestic manufacturers and exporters in competing globally.
Major schemes:

Pradhan Mantri Awas Yojana (PMAY)

  • Objective: Provide affordable housing to the urban poor with a target of building 20 million houses by 2022.
  • Components: In-situ slum redevelopment, credit-linked subsidy, affordable housing in partnership, and subsidy for beneficiary-led individual house construction.

2. Smart Cities Mission

  • Objective: Promote sustainable and inclusive cities that provide core infrastructure, clean and sustainable environment, and a decent quality of life.
  • Focus Areas: Urban mobility, green spaces, sustainable housing, and efficient public services.

3. Pradhan Mantri Gram Sadak Yojana (PMGSY)

  • Objective: Enhance rural connectivity by constructing all-weather roads.

4. Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

  • Objective: Ensure basic infrastructure in urban areas, focusing on water supply, sewerage, urban transport, and green spaces.
  • Key Features: Urban planning, water supply, sewage treatment, and sustainable urban transport systems.

5. Bharatmala Pariyojana

  • Objective: Develop a comprehensive road infrastructure network across the country.
  • Components: Construction of highways, border roads, and coastal roads to improve connectivity and boost economic activities.

6. Sagarmala Project

  • Objective: Enhance the performance of the country’s logistics sector by leveraging the coastline and inland waterways.
  • Focus Areas: Port modernization, new port development, connectivity enhancement, and port-linked industrialization.

7. National Infrastructure Pipeline (NIP)

  • Objective: Facilitate infrastructure projects worth INR 111 lakh crore (approximately USD 1.5 trillion) from 2020-2025.
  • Sectors Covered: Energy, roads, railways, urban development, and telecommunications.

8. Renewable Energy Schemes

  • Objective: Increase the share of renewable energy in the total energy mix to ensure sustainable and clean energy growth.
  • Key Initiatives: National Solar Mission, wind energy initiatives, and incentives for renewable energy projects.

Conclusion

  • Holistic Approach: A multi-faceted approach is required to boost demand, involving public investment, fiscal policy adjustments, and private sector engagement.
  • Sustainable Growth: Ensuring that growth is inclusive and environmentally sustainable, addressing both immediate and long-term economic challenges.
  • This detailed plan outlines the strategies the new government can adopt to address the existing economic challenges and stimulate sustainable growth.

Source:The Hindu

Associated Article :

https://universalinstitutions.com/indian-economy-growth-and-considerations/

Mains Practice Question :

GS-3

“Discuss the challenges and strategies for the new Indian government to stimulate consumer demand and ensure sustainable economic growth. What role can public sector employment and fiscal policies play in this context?”(250 words)