TOPIC: GS PAPER III Inclusive growth and issues arising from it.
Recently, data released by the Central Statistics Office (CSO) showed the economy grew 5.7% in April-June, the first quarter of the current fiscal year, slower than the previous quarters 6.1% and much lower than the 7.9% growth registered in the first quarter of 2016-17.
The real growth of GDP, i.e. after removing the impact of inflation, was only 5.7%, much lower than expected. This steady declining trend in the growth rate is a matter of concern.
KEY FINDINGS AT A GLANCE
But, despite these favorablefindings, the economy has not managed to convert them into a higher growth rate. Even the Economic Survey revealed that there can be an overall loss of 1% growth.In other words, one percentage less of growth translates into a loss of 1.5 lakh crore of national income.
Slowdown steepest in manufacturing,
The manufacturing growth at 1.2% is the lowest in the past five years. It’s the lowest since we switched to a new methodology (based on Gross Value Added).
OTHER SECTORS: AT A GLANCE
The GDP is measured in at least two different ways. The first is by looking at the production side while the second is by looking at the aggregate of all spending, whether on consumption, or by foreigners buying our exports, or on investments into new factories and projects and government spending.
Declining Private Investment:
Investment, which is between 30 and 35% of the total pie, needs to grow at least in double digits. Investment in future capacity creates GDP growth of the future. It needs to be led by the private sector. Currently, that component is barely growing at 1.5%.. As a result, capital formation is steadily declining for several years. Private sector investment has practically come to a standstill. Despite the push for ‘Make in India’, reforms for improving ‘Ease of Doing Business’, increased access to electricity, improvement in infrastructure and private investment are not picking up.Initiatives such as Housing for All, Smart Cities and Digital India give room for huge opportunities for private entrepreneurs.
The corporate sector and banks have been affected by the twin balance sheet squeeze wherein corporates are over-leveraged, and banks have mounting bad loans.The new insolvency code and regulator and the Reserve Bank of India’s aggressive intervention may resolve this puzzle.
Another significant challenge to the domestic industry is the ever-strengthening rupee. Since January the rupee is 7% stronger compared to the American dollar. It is stronger than its Asian peer currencies too, including China, the Philippines, Indonesia and Thailand.
The need of the hour is to take measures for safeguarding domestic manufacturing industry from strengthening of rupee.
The first half of the last fiscal year, that is the period prior to demonetization, recorded a real growth of 7.7%. The present April to June quarter’s growth at 5.7% certainly includes the negative impact of demonetization on the informal and rural economy.
Investment and consumption spending which were postponed due to cash shortage might recover. But jobs that are lost are lost forever.
The Economic Survey warns about the deflationary impact of low agricultural prices. The agriculture sector GDP shows nominal GDP growth to be lower than real GDP (values are adjusted for inflation), which is very unusual. It means that farmers’ incomes will be depressed, and doubling of farm incomes in five years becomes that much more of a distant dream.
Measures needed to spur economic growth:
The way ahead
Perhaps in the coming quarters we may see a rebound. That will crucially depend on a big pick-up in manufacturing and private investment spending. The big structural reforms of GST, the new insolvency code, the new monetary framework and Aadhaar linkage are measures which will show results in the medium to long term.What we need is an immediate stimulus to re-inject the momentum to get us to 8% growth.
QUESTION ARISING FROM THE NEWS:
Q1) What are the major issues being faced by the Indian economy as revealed by the recently released economic survey? Also, suggest measures to resolve these issues.
source: The Hindu 01.Dec
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