Slowdown in demand

• The bigger medium-term problem facing Indian economy is the slowdown of aggregate demand — private final consumption expenditure (PFCE), investment and exports.
• The largest component of GDP, PFCE, has declined as a share of GDP 68 per cent in 1990 to 56 per cent of GDP in 2019 .
• The consumption of the top socio-economic deciles (top 10%) has stagnated.
• Also the consumption demand of the rest of the demography ( 90%) — mostly in agriculture, small-scale manufacturing and self-employed — is not increasing due to low income growth.

How to increase income and productivity

• Atmanirbhar Bharat depends on improving the income and productivity of a majority of the labour force.
• First, incentivise the farming community to shift from grain-based farming to cash crops, horticulture and livestock products.
• Second, shift the labour force from agriculture to manufacturing.
• India can only become self-reliant if it uses its 900 million people in the working-age population with an average age of 27 and appropriates its demographic dividend as China did.
• That is possible if labour-intensive manufacturing takes place in a big way, creating employment opportunities for labour force with low or little skills, generating income and demand.
• India is in a unique position at a time when all other manufacturing giants are ageing sequentially — Japan, EU, the US, and even South Korea and China.
• Most of these countries have moved out of low-end labour-intensive manufacturing, and that space is being taken by countries like Bangladesh, Vietnam, Mexico, etc.
• India offers the best opportunity in terms of a huge domestic market and factor endowments.

Way forward

• We need Indian firms to be part of the global value chain by attracting multinational enterprises and foreign investors in labour-intensive manufacturing, which will facilitate R&D, branding, exports, etc.
• There is a need to aggressively reduce both tariffs and non-tariff barriers on imports of inputs and intermediate products.
• Removing these barriers create a competitive manufacturing sector for Make in India, and “Assembly in India”.
• Apart from trade reforms, further factor market reforms are required, such as rationalising punitive land acquisition clauses and rationalising labour laws, both at the Centre and state level.
• We also have to go for large-scale vocational training from the secondary-school level, like China and other east and south-east Asian countries.

Consider the question “Key to faster economic progress of India lies in income growth and productivity of its labour force. Suggest the ways to achieve these.”

Conclusion

The COVID-triggered economic crisis should lead us to create a development model that leads to opportunities for the people at the bottom of the pyramid. A competitive and open economy can ensure Atmanirbhar Bharat.

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