From UPSC perspective, the following things are important :
Prelims level: Key Facts and Data, Incremental Capital-Output Ratio (ICOR)
Mains level: India's growth prospects amidst global challenges
Central idea
The passage discusses India’s growth prospects amidst global challenges, emphasizing the need for a recalibrated growth strategy due to deglobalization trends. It highlights the shift from an export-led approach, focusing on domestic drivers and the importance of sustaining domestic savings and investment rates for a 7% plus real growth.
Key Highlights:
- Growth Projections: India’s growth for 2023-24 projected by RBI at 7%, IMF and World Bank at 6.3%. Strong performance in the first two quarters supports the likelihood of meeting the RBI’s projection.
- Deglobalization Impact: Geopolitical conflicts and deglobalization trends pose challenges, affecting supply chains, international settlements, and global demand for exports.
- Export-led Growth Shift: India’s export-led growth strategy faces challenges as the share of GDP from exports fluctuates, prompting a need for a recalibrated growth strategy.
Key Challenges:
- Dependence on Global Exports: Challenges arise from reduced global demand, disruptions in supply chains, and geopolitical conflicts impacting international settlements.
- Domestic Savings Concerns: A decline in household sector savings poses a risk to India’s growth potential, potentially affecting resources available for government and corporate investment.
Key Terms and Phrases:
- Deglobalization: Movement away from global interconnectedness.
- Incremental Capital-Output Ratio (ICOR): The amount of capital required for an additional unit of output, influencing achievable growth.
- Periodic Labour Force Survey (PLFS): Source of data on employment trends and ratios.
Key Quotes:
- “Many ongoing geopolitical conflicts… have created a climate of sanctions.”
- “India will have to rely relatively more on domestic growth drivers.”
- “Facilitating absorption of productivity-enhancing technologies… would add to overall growth.”
Key Examples and References:
- Export Growth: Fluctuations in export share from 2003-04 to 2022-23 highlight the challenges of sustaining an export-led growth strategy.
- Labour Force Trends: PLFS data indicates an increase in the worker population ratio but emphasizes the need for high non-agricultural growth to absorb released labor from agriculture.
Key Facts and Data:
- Nominal Saving Rate: Estimated at 29% in 2022-23, highlighting the critical role of domestic savings.
- Nominal Investment Rate: Around 29% in 2022-23, with a need to increase to 35% for sustained growth.
Critical Analysis:
- Dependency on Global Conditions: The passage stresses the impact of changing global conditions on India’s growth strategy, urging a shift towards domestic drivers.
- Savings and Investment Link: Emphasizes the importance of domestic savings in supporting a 7% plus real growth, highlighting concerns about a fall in household sector savings.
Way Forward:
- Enhanced Employment Strategies: Allocation of resources for training and skilling India’s growing working-age population is crucial.
- Climate-Friendly Growth: Mitigate adverse impacts on potential growth by emphasizing service sector growth, known for being relatively climate-friendly.
- Fiscal Responsibility: Adherence to fiscal responsibility targets is critical for sustaining growth, reducing the fiscal deficit, and managing debt-to-GDP ratios.
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