Sept. 16, 2024
Navigating India's Path to a $30 Trillion Economy by 2047
Context: As India eyes its centenary of independence in 2047, the vision of transitioning from a developing to a developed economy is both a challenge and an opportunity.
Challenges in Achieving Developed Economy Status by 2047
• Poverty and Inequality: From Independence until 1991, India's poverty rate remained around 50%, post-liberalization (1991-2011), poverty dropped to about 20%.
• Middle-Income Trap: There are apprehensions that while moving towards a developed economy, the Indian economy may fall in the Middle Income Trap.
• Aging Population: India’s population is expected to reach its peak of 1.64 billion by 2048, As a result, India will face the challenges associated with an aging population, including increasing healthcare expenses, growing pension obligations, and potential labor shortages.
• Stagnated Agriculture: Agriculture Sector due to ineffective land reforms, unscientific practices, lack of institutional credit flows and climate vagaries, has remained stagnant.
• Poor Logistics: India ranks 38th in the Logistics Performance Index (LPI) 2023.
• Labor Force Dynamics: Female labor force participation stands at a mere 37%, though it has improved from 26% in 2019. This is low compared to other rapidly growing nations.
• Global Influence: The global economic slowdown, volatile commodity prices, geopolitical tension and tightening financial conditions are hindering India's economic investment development by dampening exports, increasing import costs, and recruitment and financing for development projects.
Key Measures Taken by the Government
• Increase in CAPEX: Increased capital expenditure by 28.2% YoY in FY24.
• Credit Growth: Credit disbursal by Scheduled Commercial Banks reached Rs 164.3 lakh crore, growing by 20.2%.
• Infrastructure Development: According to the Economic Survey 2023-24 construction pace of National Highways has increased from 11.7 km per day in FY14 to 34 km per day by FY24.
• National Monetisation Pipeline (NMP): It envisages an aggregate monetisation potential of Rs 6-lakh crore through the leasing of core assets in sectors such as roads, railways, power, oil and gas pipelines, telecom, civil aviation etc, over a four-year period (FY 2022-25).
• Digital India Initiative: It aims for national empowerment, elevating living standards and fostering transparency through digital infrastructure development.
• National Education Policy and Skill India Mission: To provide quality education and skilling the demography of the country.
• Direct Benefit Scheme: Direct Benefit Transfer (DBT) and Jan Dhan Yojana enhanced fiscal efficiency and reduced leakages, thus enhancing expenditure capacity of people.
• Promoting Sustainability and Climate Resilience: India through Panchamrit targets and several schemes like Solar Mission,and National Wind-Solar Hybrid Policy is undertaking sustainable economic development.
Way Forward
• Developing Industrial Clusters: Developing a cluster-led model where regulations are relaxed in specific areas, can create a favorable environment for manufacturing and avoiding high tariffs that could impede export competitiveness and discourage local manufacturers.
• Maintain Growth Momentum: India’s real GDP grew by an impressive 8.2% in FY24, This strong growth trajectory must be maintained to achieve developed economy status.
• Addressing the Middle-Income Trap: India needs a market-led economy that supports private enterprise with minimal government interference and focus on enhancing the ‘ease of doing business’. According to the World Bank’s World Development Report 2024, policies need to move to ‘3i’ strategy- investment, infusion, and innovation to skip middle income trap. South Korea is a standout example in all three phases of the 3i strategy and its path to development.
• Advancing Financial Sector and Monetary Stability:There is a need to continue to enhance banking sector health and financial intermediation, supported by the Insolvency and Bankruptcy Code.
• Focus on Skill Development and Employment: Address skill gaps by investing in education and vocational training, aiming for improved employment outcomes and higher workforce participation.
• Unleashing Demographic Dividend: To unlock the potential of India's working-age population, there is a need for low-skilled, employment-intensive manufacturing sector jobs similar to the strategies used by the ‘Asian Tigers’ like South Korea and Vietnam.
• Diversify and Expand: Continue to support growth in key industries such as pharmaceuticals and electronics. Leverage India's strengths in services to further expand global market share.
• Foster Innovation: Encourage the growth of start-ups and the gig economy, which are essential for driving new business models and technological advancement.
• Green Transition: Accelerate investments in clean energy and sustainable practices. Address the projected increase in energy needs by continuing to expand renewable energy sources.