India’s Economic Churn: Path to Growth Power

INDIA’S ECONOMIC CHURN AND THE NECTAR OF GROWTH

Why in the news?

  • The economy of India is being described as a “fact-rich story” of resilience, growth, and energy security, countering global sceptics who label it a “dead economy.” This positive narrative is supported by the latest economic survey 2024 and reflects the current Indian economy growth trajectory.
  • Rooted in the civilisational belief that trial precedes triumph, India’s economic journey mirrors the Samudra Manthan — turbulence yielding renewal. This metaphor aptly describes the economic reforms and India development over the past decades, shaping the economic landscape and strengthening economic fundamentals.
  • The 1991 crisis led to liberalisation, creating a turning point in India’s growth trajectory and setting the stage for significant economic reforms, including changes in policy rates and government spending patterns.
  • The COVID-19 pandemic triggered a digital surge, accelerating structural transformation and digital transformation across various sectors of the economy, including artificial intelligence and intellectual property, while also impacting capital markets.
  • Despite present-day global doubts, the Indian economy demonstrates faster growth, stronger financial buffers, and broader opportunities, showcasing its economic resilience in the face of geopolitical uncertainties and fluctuating currency exchange rates.

India's Economic Churn: Path to Growth Power

Economic Growth Momentum

  • Real GDP growth rate: 7.8% in Q1 FY 2025-26 (five-quarter high), indicating robust Indian economic growth and a positive India economic outlook, despite challenges in managing inflation rates.
  • Gross Value Added (GVA): 7.6% overall; ○ Manufacturing: 7.7% ○ Construction: 7.6% ○ Services: ~9.3%
  • Nominal GDP: Expanded 8.8%, reflecting the overall growth of India’s economy and improved tax compliance.
  • Growth drivers: Rising domestic demand, robust investment, steady public capex, logistics reforms lowering costs, and improvements in per capita income and purchasing power, particularly boosting urban consumption.

Global Economic Standing

  • India has: 4th-largest economy globally; fastest-growing major economy.
  • Outpaces U.S. (1st) and China (2nd) in GDP growth rate, showcasing India’s position in economic rankings and attracting foreign direct investment.
  • On track to overtake Germany (3rd) by decade-end, reshaping the global economic outlook and potentially impacting the current account deficit.
  • Contribution to global growth: 15%+ currently, with ambition to reach 20%, solidifying India’s position among emerging markets and improving its trade balance and export performance.

Global Recognition & Market Confidence

  • S&P Global upgrade: First sovereign rating upgrade in 18 years, boosting India’s economic outlook and attracting domestic investors, reflecting improved investment climate.
  • Reasons: Robust growth, monetary policy credibility, fiscal deficit management, and macroeconomic stability, all contributing to a favorable investment climate.
  • Impacts: ○ Lowers borrowing costs. ○ Expands investor base and attracts foreign portfolio investment. ○ Counters “dead economy” narrative and stimulates investment flows.

Inclusive Growth & Poverty Reduction

  • 24.82 crore people moved out of multidimensional poverty (2013-14 to 2022-23), showcasing significant development in India and addressing income inequality while leveraging the demographic dividend.
  • Driven by: ○ Bank accounts access. ○ Clean cooking fuel. ○ Health insurance. ○ Tap water supply. ○ Direct benefit transfers.
  • Growth model highlights: ○ Consensus-building & competitive federalism. ○ Digital rails for last-mile delivery, enhancing digital transformation and establishing global capability centers. ○ “Marathoner’s economy”: Slow to announce, fast to implement, durable outcomes, focusing on long-term employment generation.

Energy Security & Growth Link

  • India’s energy position: ○ 3rd-largest energy consumer. ○ 4th-largest refiner. ○ 4th-largest LNG importer. ○ Refining capacity: >5.2 million barrels/day; roadmap to expand beyond 400 MTPA by decade-end, impacting import dynamics.
  • Future demand: ○ Energy demand to double by 2047. ○ India to account for ~25% of global incremental demand.

Reforms in Energy Sector

  • Exploration acreage: ○ 2021: 8% of sedimentary basins. ○ 2025: 16%. ○ Target: 1 million sq. km by 2030.
  • ‘No-Go’ areas: Reduced by 99%, unlocking vast potential for sustainable development and infrastructure development, benefiting both public sector and private sector entities.
  • Policy measures: ○ Open Acreage Licensing Policy (OALP): Transparent, competitive bidding. ○ New gas pricing reforms: ■ Prices linked to Indian crude basket. ■ 20% premium for deepwater & new wells → spurred investment and capital expenditure.

Energy Transition in India

  • Ethanol blending: ○ Increased from 1.5% (2014) → 20% (2025). ○ Saved ₹1.25 lakh crore in foreign exchange reserves. ○ Paid ₹1 lakh+ crore directly to farmers.
  • Compressed Biogas (CBG): 300+ plants being set up under SATAT (Sustainable Alternative Towards Affordable Transportation). ○ 5% blending mandate targeted by 2028.
  • Green Hydrogen: Oil PSUs leading large-scale adoption and projects, contributing to renewable energy growth and research and development, aligning with union budget priorities.

Russian Oil Purchases – Fact vs Noise

  • Russian oil not under sanctions like Iranian or Venezuelan crude.
  • Subject to G-7/EU price cap system (keeps oil flowing, caps revenues).
  • India’s compliance: ○ All 18 sanction packages respected. ○ Transactions via legal shipping, insurance, audited channels.
  • Market stabilisation: Prevented global price spiral, ensured steady supply, impacting global economic trends and trade dynamics.

Refining & Export Dynamics

  • India: 4th-largest petroleum product exporter globally, long before Ukraine conflict.
  • Refineries process diverse crude basket.
  • Exports essential for global supply chains; Europe itself imported Indian fuels post-ban on Russian crude.
  • No profiteering: Export volumes and Gross Refining Margins (GRMs) broadly unchanged.

Shielding Citizens from Price Shock

  • Measures after Ukraine conflict: ○ Oil PSUs absorbed losses up to ₹10/litre on diesel. ○ Tax cuts (Centre + States). ○ Export rules: Refiners must sell 50% petrol and 30% diesel domestically.
  • Result: ○ Stable retail prices. ○ No fuel shortages at outlets.
  • Larger global role: Prevented catastrophic $200/barrel oil shock.
  • Alignment with India’s civilisational values — Vasudhaiva Kutumbakam.

Made in India for the World – Industrial Push

  • New industrial revolution: Semiconductors, electronics, renewables, defence, speciality chemicals, boosting the manufacturing sector and industrial production.
  • Powered by: Production Linked Incentives (PLI) + PM Gati Shakti logistics backbone.
  • Semiconductors: ○ 4 new projects approved under India Semiconductor Mission. ○ PM’s visit to Japan (Aug 30, 2025) → fresh Japanese investment commitments for resilient tech supply chains, enhancing bilateral trade agreements and market access.

Digital Economy Momentum

  • Global leader in real-time payments; UPI widely adopted, showcasing technological advancements and boosting services exports.
  • Boosts SME productivity and financial inclusion.
  • Startup ecosystem → exports of digital services and solutions.
  • Synergy effect: Digital rails + physical infrastructure = ○ Lower friction. ○ Higher formalisation. ○ Virtuous cycle of investment, productivity, and consumption.

India’s Economic Performance

  • Promising Economic Arc: By 2038, India is projected (EY) to become the world’s second-largest economy in PPP terms, with GDP of $34 trillion, according to baseline forecast and growth projections.
  • Drivers of Growth: This economic trajectory relies on steady economic reforms, strong human capital development, and abundant, clean, reliable energy for enterprises and households, enhancing workforce productivity and capitalizing on the demographic dividend.
  • Historical Resilience: In the past, India has responded to doubts with the Green Revolution, the IT Revolution, and millions uplifting themselves through education and enterprise.
  • Present Moment: Today is another such crucible moment where India must stay focused, with relentless reforms and rapid, democratic, and inclusive growth.
  • Inclusivity Goal: The benefits of growth are intended to reach the most underserved communities, addressing income inequality and boosting rural economies while stimulating urban consumption.
  • Scoreboard as Proof: To critics and skeptics, India’s progress and economic indicators speak for themselves, reflecting strong economic fundamentals.
  • Leadership Vision: Under Prime Minister Narendra Modi, Viksit Bharat is not just an aspiration but a deliverable — the data from the economic survey 2022-23 is only the latest chapter in this journey of Indian economic growth.

Source: https://www.thehindu.com/opinion/lead/indias-economic-churn-and-the-nectar-of-growth/article69997332.ece

Mains question

Discuss India’s energy transition journey. Critically analyze India’s approach to Russian crude imports amidst global sanctions and its implications for energy security.