ECONOMIC SURVEY-CHAPTER 5: INDIA’S MEDIUM TERM ECONOMIC OUTLOOK
The Elephant and the Dragon in the Room
Global Economic Shifts:
- Trade Restrictions: Between 2020 and 2024, over 24,000 new trade and investment restrictions have been introduced globally, marking a fundamental shift in global economic engagement.
- Impact: These shifts are reflected in slower global trade growth and signs of secular stagnation in the global economy, impacting long-term economic prospects.
Re-evaluating Long-held Economic Practices:
- China’s Role: China has become a dominant force in global manufacturing and energy transition, leveraging its competitiveness and economic policies.
- Uncertainty: The global economy is at a crossroads where traditional economic principles are being reconsidered and losing relevance. Countries are now operating in a new environment, where uncertainty about the future rules prevails.
China’s Dominance in Manufacturing and Energy Transition:
- Manufacturing: In 2000, China accounted for just 6% of global industrial production. By 2030, it is expected to account for 45%, outpacing the US and its allies in manufacturing.
- Strategic Advantage: China controls key resources essential for global supply chains, giving it a significant strategic advantage.
- Impact: China’s rise has disrupted economies like Germany and Japan, especially in the auto market, and dominates the global distribution of critical minerals and other resources, creating potential future dependencies.
RESET OF GLOBAL MANUFACTURING PRACTICES
- Outsourcing: The outsourcing of manufacturing to China during the globalization era is set to undergo a reset.
- Turning Point: China’s resurgence marks a significant turning point in global economic practices, as countries re-evaluate their manufacturing strategies and supply chain dependencies.
CLIMATE TRANSITION, CHINA & GLOBAL GEOPOLITICS
Climate as a Global Public Good:
- Impact: Climate change is a global public good that affects everyone, with consequences that are still being understood. For instance, a 1°C warming can reduce global GDP by 12%.
- Correlation: There is a strong correlation between global temperature and extreme climatic events, highlighting the urgent need for climate action.
Global Greenhouse Gas Emissions:
- Major Emitters: China, the US, the EU, and other G7 economies produce more than 50% of global greenhouse gas emissions.
- Net-Zero Targets: These economies have set 2050 targets to reach net-zero emissions, but trade conflicts between these economies could significantly disrupt the green energy transition, imposing high costs on the global economy.
INDIA’S CLIMATE ACTION
- Panchamrit: India has committed to climate action through the Panchamrit (five nectar elements), which will impact how India meets its energy requirements and shift its energy mix.
- Renewable Energy: By 2030, the share of renewable energy (especially solar and wind) in India’s installed capacity is expected to increase, while coal and lignite will decrease.
CHINA’S ROLE IN ENERGY TRANSITION
- Solar PV: China dominates the solar photovoltaic (PV) industry, accounting for 80% of the manufacturing stages, more than double its share of global PV demand.
- Wind Energy: 60% of the world’s wind installed capacity comes from China.
- Battery Manufacturing: China holds 80% of global battery manufacturing capacity, a critical component for the energy transition.
- Investment: In 2022, China allocated USD 546 billion for investments in solar, wind energy, electric vehicles, and battery technologies, surpassing the investments made by the US and EU.
INDIA’S STRATEGY FOR E MOBILITY
- Investment: India is investing in metro rail networks to reduce dependence on overseas supply chains for e-mobility.
- Public Transport: Currently, only 37% of India’s urban population has easy access to public transportation. To meet Net Zero goals, India must focus on developing integrated transport systems that connect buses, metro rails, and other modes of transit.
- Benefits: Investing in efficient and accessible public transport will promote clean mobility, reduce traffic congestion, and support a more resilient and equitable energy transition.
INDIA’S RENEWABLE ENERGY MANUFACTURING EFFORTS
- PLI Scheme: India is making progress in promoting renewable energy and domestic manufacturing of renewable energy equipment through the Production-Linked Incentive (PLI) scheme.
- Dependence: Currently, India sources 75% of lithium-ion batteries from China and has negligible production capacity for critical components like polysilicon, ingots, and wafers.
- Challenge: If trade disruptions occur between blocs regarding critical minerals, investment in renewable energy and electric vehicles could be 30% lower by 2030 compared to a non-fragmented world, hindering the transition and affecting growth opportunities.
IMPLICATIONS FOR INDIA’S GROWTH PROSPECTS
Vision for Viksit Bharat@2047:
- Goal: India aims to become a developed nation by 2047, the centenary of its independence.
- Growth Rate: To achieve this, India needs to maintain a sustained growth rate of 8% per year for at least a decade.
- Investment Rate: The investment rate needs to rise from 31% of GDP to 35% to support this growth.
- Key Areas: Focus areas include manufacturing, emerging technologies like AI, robotics, and biotechnology, as well as creating 78.5 lakh new non-farm jobs annually until 2030.
- Education and Infrastructure: Achieving 100% literacy, improving education quality, and developing future-ready infrastructure at scale will also be essential.
POLICY ACTIONS TO SUPPORT GROWTH
- Digitization: India has taken steps toward digitization, decriminalization, and divestment of functions to streamline processes and reduce regulatory burdens.
- PAN 2.0: The PAN 2.0 project aims to streamline paperless processes and unify digital systems.
- Jan Vishwas Act 2023: This act decriminalized provisions across central acts to reduce unnecessary regulations.
- Regulatory Modernization: Further regulatory modernization is needed to maintain flexibility as the economy grows, addressing new constraints and challenges.
FOCUS ON MEDIUM TERM STRUCTURAL REFORMS
- Manufacturing: Upgrading capacity and technological know-how of manufacturers is crucial.
- Human Resources: Improving human resource availability and addressing resource bottlenecks to accelerate capital formation.
- Agriculture: Unlocking the potential of the agriculture sector by addressing challenges and promoting growth.
- Green Capital: Leveraging global green capital for funding the green transition.
- Education and Employment: Bridging the education-employment gap and enhancing state capabilities to support growth.
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