Mentors Comment:
The question wants us to write in detail about the steps needed to be taken/ reforms needed to be made etc in order to make India a 5 trillion dollar economy. Also we have to discuss what are the present challenges that Indian economy is facing.
In your intro, write a few introductory lines about the size of Indian economy and the present trends of growth.
Then discuss what are the challenges that Indian economy is facing.
Discuss in points, what needs to be done to make India a 5 trillion dollar economy. E.g Need for strong institutions and regulators especially in the fields of environment and finance; need for environmentally sustainable growth; need to improve the Child nutrition and learning outcomes; Need for creating employment opportunities for the vast youth of India etc.
Based on your discussion, form a fair and a balanced conclusion on the given issue.
Answer:
India registered a growth rate of over 6.7 per cent last year and is being pegged as the fastest-growing economy by the International Monetary Fund (IMF),
Current Status of Indian Economy:
Though there were disturbances on account of demonetisation and the goods and services tax (GST) for a short term, the recent indicators like Index of Industrial Production and GDP growth rates shows that our economy is back on track.
Exports which accounts for 15% of GDP started picking up due to revival of India’s major markets such as the U.S., Eurozone and Japan since September 2017.
Though there are protests by the youth, farmers and traders because of the hardships they face, employment-generating sectors like construction have gradually started reviving.
The latest quarterly growth data suggest that the economy is growing at more than 7% per annum. For 2016-17, the Central Statistics Office revised the fixed capital formation growth to 10.1%.
What are the major challenges to Indian economy?
A major challenge is the worsening rural crisis. The rural economy’s contribution to GDP may not be significant. But in terms of aggregate demand, the rural population impacts more than 50% of the market base. Solving rural crisis is very crucial for the growth we are looking for.
On the agricultural front, farmers do not have direct access to the market. They are deprived of the benefit of increasing market prices of agriculture produce which mostly goes to middlemen. This is the fundamental problems that need to be addressed and corrective steps need to be initiated.
Similarly, farmers should be enabled to play their role as an effective supply force in the market and be in a position to sell their produce at a competitive price. That is possible only when adequate infrastructure support is built for them rather on repeatedly depending on traditional approaches like MSP or farm loan waivers.
On the external front, the government faces several major challenges: the Federal Reserve’s hike, rising crude oil prices, and the move towards protectionism by India’s major export market, the U.S.
Withdrawal by foreign institutional investors in response to federal hikes may weaken the Indian currency and end up in a higher import bill, especially on the crude oil front, if exports do not pick up.
Protectionism is growing, the U.S. has lowered the corporate tax rate sharply so capital inflows may slow down.
So, the government has to bring about strong reform measures. Domestic institutional investors such as LIC, UTI, or public sector banks can be encouraged to invest in the market.
What India needs to do to become a trillion dollar economy :-
Focus on equity and employment :-
India actually need more equitable growth than today. Reports of 25 million people applying for 90,000 railway jobs is something that suggests there is not enough supply of jobs in the market.
Need for creating employment opportunities for the vast youth of India
Institutional strength:-
The factor that helps India grow in a healthy way is strong institutions, whether it is the pollution regulator, the emissions regulator or whether it is the financial regulator. They have to stand as independent bodies to ensure India’s growth is healthy and stable.
Infrastructure:-
Key to stronger growth will have to be areas like construction where building the infrastructure that India needs, will employ a lot more people and create jobs for people leaving agriculture as well as for modestly educated people from urban areas.
There is a very strong need for oil hedging mechanism for India which is so dependent on oil.
India needs to diversify its oil import basket.
Many countries like Saudi Arabia and UAE are willing to step in if Iranian imports stop. India needs to negotiate this further and also deal with the US on the issue of sanctions waiver.
Quality of education:-
There is a need to shift towards improving the quality of education and that means a lot of remedial education to ensure that children are not left
Research:-
Focus on improving the quality of research or the quality of our universities and as a by-product our companies will also get better.
Have a robust and reliable data so that economic decision makers can take decisions on that basis.
Healthcare:-
Need to improve the Child nutrition and learning outcomes
Long-term systemic reform of agriculture needs to continue by making procurement system stronger
Strengthening Banking sector:-
There is a need to creation of bad bank ,asset management company, asset reconstruction company to take care of huge NPA.
We may see reasonably strong recovery in terms of growth rates of 7%, but the problem is that the smaller units are suffering which is bad news for employment. Hence the government needed to sharply increase public investment for the growth of this sector. The corporate India is well on its way to recovery. It’s time to shift the focus to non-corporate India.
