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India’s Economic Policy Agenda

Why is it in the news?

  • The Chairman of the 16th Finance Commission emphasized the need for a reform agenda to achieve 10% growth for the Indian Economy.

About the Status of India’s Economy

GDP Growth:

  • India’s GDP growth rate has been on a declining trend since 2016-17, reaching below 3.5% in the fourth quarter of 2019-20.
  • However, projections indicate a potential recovery, with GDP growth forecasted to be in the range of 6-6.8% for FY24.

Fiscal Deficit:

  • To address pandemic-induced challenges, fiscal measures expanded the fiscal deficit to 9.2% of GDP in 2020-21.
  • The government aims to reduce it to 5.8% by the end of the current financial year and 5.1% by the next, ultimately targeting 4.5% by 2025-26.

Economic Ranking:

  • Despite challenges, recent IMF data rank India as the 4th largest economy globally in 2024, following the USA, China, and Germany.

Current Policies to Boost India’s Economy

Evolving Policy Framework:

  • India’s policy framework is designed to facilitate foreign direct investment (FDI), streamline financial systems, and enhance transparency in business processes.
  • The country ranks 63 among 190 economies in the World Bank’s Ease of Doing Business index.

Diversification:

  • Policy initiatives span sustainable development, infrastructure enhancement, banking and financial services reform, job creation, digital transformation, and support for manufacturing and services industries.
  • These efforts aim to position India as one of the world’s fastest-growing economies, with a target of becoming the second-largest economy by 2050.

Formalisation:

  • Efforts are underway to expand the formal economy, improve efficiencies in the informal sector, and broaden the tax base.
  • Strategies include increased spending in rural sectors, infrastructure development, and attracting foreign investments.

Inclusive Growth:

  • India’s policy agenda places a strong emphasis on inclusive growth and financial empowerment.
  • The goal is to address disparities and ensure broad-based economic development across various segments of society.

Climate-related Policy:

  • India aims to achieve net-zero emissions by 2070, which could potentially boost the economy by up to 4.7% above projected baseline GDP growth by 2036.

 

Emerging Challenges

  • Pandemic Disruption: The prolonged disruption caused by the COVID-19 pandemic has slowed India’s potential growth to around 6%, down from the estimated 7.1% YoY growth in 2017.
  • Regulatory Issues: Challenges persist in trade policy, implementation of labour laws, and addressing long-standing issues in land markets.
  • Geopolitical Conflicts: Ongoing geopolitical crises impact global supply chains, affecting emerging economies like India. Additionally, the end of hyper-globalization in global manufacturing, energy transition challenges, and the advent of artificial intelligence present additional complexities.

 

Future Outlook

  • Addressing the multifaceted challenges requires a combination of policy interventions, institutional reforms, and private sector initiatives.
  • Political stability and policy consistency are critical for India’s ascent to becoming the third-largest economy amid geopolitical uncertainties and risks to economic growth.
  • Despite the complexities, India’s economic potential remains strong, and concerted efforts are essential to harnessing this potential for sustainable and inclusive growth in the years ahead.

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