ExplainSpeaking: Indian economy after 9 years of Modi govt

ExplainSpeaking: Indian economy after 9 years of Modi govt

Context- The BJP government has completed nine years in office. How has the Indian economy performed in these years? This is a complicated question. No one data point can give the complete picture.

One has to look at a broad set of variables that provide an understanding of what happened in the economy.

GDP — absolute level and growth rate

• According to the last official estimates of GDP released on February 28, the absolute level of India’s GDP at the end of March 2023 was pegged at Rs 159.7 lakh crore. India’s GDP at the end of March 2014, just before this government took charge, was Rs 98 lakh crore.
• That means India’s GDP has grown by 63% over the past nine years since the new government took office. To see this growth in historical context, in the immediately preceding nine years (2005 to 2014), India’s absolute GDP grew by 97%.
• India’s GDP grew at around 8% every year for the initial three years (FY15 to FY17). But after that its growth rate decelerated sharply over the next three years (FY18 to FY20), falling to below 4% in FY20. In the past three years (FY21 to FY23), the GDP growth rate first contracted by over 6% thanks to the Covid pandemic in FY21 and then, thanks in part to a much lower base, grew by almost 9% and 7%, respectively, in FY22 and FY23.

Income level of an average Indian

• In 2013-14, per capita GDP (read average incomes) was Rs 78,348, and at the end of 2022-23, it had risen to Rs 1,15,490. This means that as against a growth of 63% in the overall GDP, income of an average Indian went up by 47% in the past 9 years.
• As CHART 1 below shows, India’s estimated per capita income in 2023 is around $2,600. Crucially India has just overtaken Bangladesh, thanks to a dip in the fortunes of that economy in the wake of the war in Ukraine. Bangladesh had overtaken India in this crucial metric in 2019. However, it is also important to note that the IMF projects Bangladesh to retake the lead and be considerably ahead in the next five years.

• China at $13,720, United Kingdom at $46,370, Brazil at $9,670 and Indonesia at $5,020 provide some context of where India stands at present.

Inflation

• India had been facing persistently high (double-digit) inflation months and years leading up to the BJP taking over in 2014. A big part of the problem was the high price of crude oil. As crude oil prices crashed — from over $90 a barrel to less than $30 a barrel — between mid-2013 to early-2016, domestic inflation also subsided.
• As CHART 2 shows, barring the last four years — when retail inflation has been uncomfortably high even by RBI’s standards — inflation has been well controlled. Crucially, for the current financial year, inflation is expected to fall close to the RBI’s target of 4%.

Employment & structural transformation of the economy

• The government has been trying its best to bring about the structural transformation — be it in the form of the now repealed farm laws or the policies like Make in India and Production-Linked Incentives (PLI) that aim to increase India’s manufacturing capacity while using this chance to soak up excess labour from the farm sector.
• However, India continues to face considerable employment-related stress. In 2017-18, according to the government’s own data, unemployment levels had risen to a 45-year high. Further, even elevated levels of unemployment do not adequately capture India’s unemployment woes because the proportion of people seeking (or demanding) work itself has been coming down.

Poverty and Inequality

• The last official estimates of poverty go all the way back to 2011. There have been several attempts by individual researchers to assess poverty levels in India. Depending on the methodology, these estimates vary and are not comparable.
• However, according to the World Bank’s latest poverty report, published in October last year, two things stand out:

1. As a country, India has the most number of people still living in abject poverty. According to World Bank’s data, as of 2019, as many as 137 million Indians were living at Rs 46 per day and as many as 612 million were living at Rs 78 per day
2. Covid made matters worse; poverty numbers went up from anywhere between 23 million to 56 million in 2020.

• On inequality, the World Inequality Report 2022 pegs India as one of the most unequal countries in the world. It states that the incomes of the top 10% of India’s population are 22 times that of the incomes of the bottom 50%.

Financial Stability

• When the BJP government took office, there were two main stumbling blocks facing the economy.
• One, Indian companies were over-leveraged (means heavily indebted) and two, Indian banks were saddled with a growing pile of non-performing assets (NPAs or loans that were not getting paid back). Together, these two factors held back new investments in the economy.
• In both these matters, the government has succeeded remarkably. Corporate leverage is at a 15-year low, banks have reduced their NPAs and their capital adequacy ratio (a key measure of their financial health) is close to an all-time high.

Economic reforms

The government has unleashed a whole host of economic reforms in these nine years.

1. The Goods and Services Tax
2. The Insolvency and Bankruptcy Code
3. Aadhar
4. Digital transformation: the government has led the charge on making India a vibrant and robust digital economy.
5. Disinvestment of public sector undertakings: the successful sale of loss-making Air India
6. Corporate tax cut: it had long been argued that India needs to cut tax on firms in order to boost private sector investments and in 2019, the government brought about a historic cut
7. Capital expenditure: In the past, governments focussed more on revenue (read daily like salaries) expenditures and very little on capital expenditure (one that boosts the productive capacity of an economy, like roads). In the last three Budgets, the government has successively ramped up its capital expenditure — Rs 10 lakh crore for the current year

Conclusion- After nine years, and in a global context where many big economies are struggling to grow, India’s growth rate has made it a bright spot. However, challenges like poverty , inequality and unemployment need to be addressed.

Syllabus- GS-3; Economy

Source- Indian Express