India’s Economic Growth : Mirage Or Miracle

While India’s economic growth paints a picture of hope and potential, but, it also comes with a set of challenges that demand attention and concerted efforts. The country is at a critical juncture, with the opportunity to leverage its strengths and potential to become a global economic powerhouse
By Arun Bhatnagar
  • Current policies prioritize low direct taxes, high indirect taxes, and infrastructure investment, neglecting allocations for education & healthcare
  • May 2023 estimate projects a 35.12% rise in India’s per capita Net National Income, reaching Rs. 98,374/- from Rs. 72,805/- in 2014-15 at constant (2011-12) prices
  • Red Sea threats escalate, causing a surge in container shipping rates. India anticipates export challenges, prompting a delay in shipments
  • IMF data reveals Bangladesh consistently surpasses India and Pakistan in per capita GDP for four years. Bangladesh: $2621, India: $2612, Pakistan: $1471

THIS Year has started on a fairly optimistic note for the Indian economy, given that real GDP growth in 2023-24 is foreseen at 7.30 percent, compared to 7.20 percent in 2022-23, according to the first advance estimates of National Income, lately released at New Delhi by the National Statistical Organization (NSO).

This would mean that the economy may outperform the 7.0 percent earlier projected by the Reserve Bank of India (RBI).

With GDP growth in the first half of the current year reaching around 7.70 percent, the NSO’s advance estimates (that rely on data for the initial six months or so and are of help in formulating the Union Budget) indicate that the second-half growth would be about 6.9 – 7.0 percent.
Several economists look upon the ‘weak consumption growth’ at 4.40 percent as a major aspect of concern in the GDP data. This may be the lowest consumption growth in the past two decades, barring the pandemic year of 2020-21.

The NSO has said that the share of private final consumption expenditure in GDP could drop to 56.90 percent this year, from 58.50 percent in 2022-23. While the investment rate is expected to pick up to around 30 percent of GDP – driven by government capital expenditure (CAPEX) – higher consumption growth is crucial for the private sector to spur the economy.

CHALLENGES AMIDST OPPORTUNITIES

At the Vibrant Gujarat Summit held at Gandhinagar in January 2024, the Union Finance Minister said that India is poised to become the world’s third-largest economy, with a GDP of over US$ 5 trillion by 2027-28 on the back of the strong foundation laid by the Narendra Modi government through measures such as direct benefit transfer, financial inclusion and digital payments.
Critics also argue that India’s economic regression began after the launch of China’s strategically critical Belt and Road Initiative (BRI).

This body of opinion contends that the ‘golden period of growth’ was the three UPA years between 2005-08 when GDP grew by 9.50, 9.60 and 9.30 percent a year and that, since 2014 (under the NDA), the economy has grown by an average rate of 5.70 percent. Taking into account the estimated growth of 7.30 percent in 2023-24, the average rate would still be 5.90 percent which is just about ‘satisfactory’ – not exceptional – growth.

The NSO has said that the share of private final consumption expenditure in GDP could drop to 56.90 percent this year, from 58.50 percent in 2022-23. While the investment rate is expected to pick up to around 30 percent of GDP – driven by government capital expenditure (CAPEX) – higher consumption growth is crucial for the private sector to spur the economy

The collapse of South Asian economies was more severe than expected, worst of all for small businesses and workers in the informal sector. Even so, India can take advantage of the demographic dividend if its centres of higher education are energised to help build human capital. The youth have to be nurtured and better equipped so that they are able to contribute to the creation of wealth.
In general terms, the existing economic policies focus on low direct taxes, high indirect taxes and capital investment in infrastructure like roads, ports, railways and airports, with insufficient allocations for education and healthcare. A satisfactory growth rate pleases certain classes, including big and medium corporates and those comfortably ensconced in the ‘affluent society’.
A provisional estimate published in May 2023 projects that India’s per capita Net National Income (NNI) at constant (2011-12) prices increased by 35.12 percent from Rs. 72,805/- in 2014-15 to Rs. 98,374/- in 2022-23.
According to the International Monetary Fund (IMF), Bangladesh has been ahead of India for four years at a stretch in terms of per capita GDP and has also been ahead of Pakistan. The per capita GDP of Bangladesh was US$ 2621 while India was US$2612 and Pakistan was US$ 1471.
The dark side of the scenario is that many sections of the people are being left behind. This category comprises about 82 crore Indians who have to be given free rations – a sign of hunger and malnourishment.
Another section that faces acute distress is of people without jobs, not to mention those hit by inflation, which affects everyone except the top 10 percent that owns over 60 percent of the nation’s wealth and earns almost 58 percent of the National Income. The youth unemployment rate is said to be 10.0 percent and among graduates under the age of 25 years, the rate is 42 percent.
The modest growth between 2014-2023 has not been shared by large numbers of people because the decision-makers’ approach has failed to address unemployment and inflation; even among the rich, the policies are tilted towards the concentration of wealth and in favour of oligopolies and monopolies.

WHERE ARE WE HEADED?

Based on official data, India’s economic difficulties, post-2016, have been traced not only to CORONA but also to other factors pertaining to various government actions.
The terms-of trade advantage that corporates have enjoyed in 2023 from a sharp correction in commodity prices is likely to be missing in 2024.

A financial services and global investment Bank, based in Tokyo – Nomura – is of the opinion that India’s GDP growth may moderate to 5.6 percent in FY 2025 should government investment and consumption taper; headline inflation may converge with lower core inflation in 2024
(second quarter)

A financial services and global investment Bank, based in Tokyo – Nomura – is of the opinion that India’s GDP growth may moderate to 5.6 percent in FY 2025 should government investment and consumption taper; headline inflation may converge with lower core inflation in 2024 (second quarter).
Barclays Plc and Citigroup Inc have reworked their forecast for the Indian economy in FY 2024, with the forecast now being 6.70 percent, up from previous forecasts of 6.30 percent and 6.20 percent respectively.
While India maintains its status as a fast-growing major economy, displaying resilience amid a global economic downturn, the rural demand continues to lag and private CAPEX recovery has not been broad-based. Private players may well wait until the elections in mid-2024, before they commit to a fresh CAPEX.
The country’s trade deficit showed a considerable decline in April-June, 2023. However, an announcement of India’s merchandise trade deficit for July 2023 revealed that the deficit reached US$ 20.67 billion, a slight uptick from the previous month’s US$ 20.13 billion.

INDIA’S EXPORT WOES

The decline in merchandise exports was primarily led by industries, such as petroleum recording a significant drop of 43.7 percent. The services sector played a pivotal role in the trade scenario, with services exports reaching US$ 27.17 billion and imports totalling US$ 14.85 billion in July 2023.
As it happens, India is bracing for a potential blow to its exports in the current fiscal year as threats in the Red Sea lead to a surge in container shipping rates, prompting exporters to hold back shipments.
To proactively confront the trade challenges, India needs to chart a strategic course that covers diversification of the export base, strengthens the domestic manufacturing capabilities and explores the scope of finding new trading partners. Government support, including streamlined credit access for small businesses, as well as tax exemptions, could mitigate some of the difficulties encountered by exporters.
The results of early-bird companies (that is, those in which high net-worth individuals or venture capital firms invest in exchange for equity hint at a slowdown in corporate profit growth for the October-December 2023 quarter and a further deceleration in India Inc.’s revenues. The combined net profit of over 200 early-bird companies that have declared their quarterly results appears to have grown at the slowest pace in the last 14 quarters.

GROWING GAP BETWEEN THE RICH AND THE POOR

This is a time to remind ourselves to emerge out of being a country only for the ultra-rich; the political class, who depend on the votes of the poor, must realize (sooner rather than later, hopefully) that economic and social inequalities cannot be perpetuated.
According to an estimate made a few years back, India’s 25 Richest People had a combined net worth that was about as much as Ukraine’s GDP.
At the other extreme is the plight of newborns in India who have had a lesser chance of survival than babies born in, say, Somalia and Afghanistan. An economy that is growing and has access to advanced medical technology alone cannot guarantee good health care to the people at large.
Opening up of Foreign Direct Investment (FDI) does not represent the totality of economic reforms. Despite all the reforms under the NDA and the UPA, the poor of India have remained very poor and deprived of basic amenities.

SCIENCE, SOCIETY & POLITICS

The issue at hand is not only about continuing to liberalize; it is also imperative to recognize that there has been a steep fall in the quality of people manning institutions: legislative, judicial and administrative. The heart of the matter is that we need to have the best people and we need to have institutional reforms.
India’s ranking on the Corruption Perception Index – 2022 (released by Transparency International) was 85th among 180 countries. The country was stuck at a rank of 142 (out of 180) in the ‘Reporters without Borders’ Annual Report, 2021, which categorized India ‘as one of the world’s most dangerous nations for journalists trying to do their job properly’.

To proactively confront the trade challenges, India needs to chart a strategic course that covers diversification of the export base, strengthens the domestic manufacturing capabilities and explores the scope of finding new trading partners. Government support, including streamlined credit access for small businesses, as well as tax exemptions, could mitigate some of the difficulties encountered by exporters

It is, therefore, important to bear in mind that while doctors, engineers, administrators and qualified professionals are all required, we also need a society based on honesty, justice and equity. It is not enough to ‘Make in India’; we must also ‘Make good people in India’.
At a stage when the Science and Technology (S&T) sector has been facing critical commentary in view of a perceived stagnation in Science Education and Scientific Innovation (which are both crucial to progress), have arrived the tidings of the imminent collapse of the 109-year-old Indian Science Congress Association (ISCA), possibly as a fallout of efforts to promote an alternative Science Convention linked to Vijnana Bharati, which describes itself as a ‘science movement with a swadeshi spirit, interlinking traditional and modern sciences and natural and spiritual sciences’.

The government budget for a parallel event – the India International Science Festival (IISF) – is reported to be between Rs.20-25 crores, compared with Rs.5 crores for the ISCA.

The collapse of South Asian economies was more severe than expected, worst of all for small businesses and workers in the informal sector. Even so, India can take advantage of the demographic dividend if its centres of higher education are energised to help build human capital. The youth have to be nurtured and better equipped so that they are able to contribute to the creation of wealth

Lord Rutherford (1871-1937), considered to be in the league of the world’s leading scientists, the ‘greatest experimentalist since Michael Faraday’ and Nobel Laureate in Chemistry for 1908, was to have presided over the 1938 Indian Science Congress at Calcutta. In the event of his death, the opening Session was addressed in his place by the renowned physicist Sir James Jean (1877-1946). Justice Sir Ashutosh Mukherjee (1864-1924) was the first President of the Science Congress in 1914.
The second Indian Vice-Chancellor of the University of Calcutta and a mathematical genius in his own right, he recognized (and secured for the University) the talent of Sir Sarvepalli Radhakrishnan (1888-1975) and Sir CV Raman (1888-1970); the redoubtable Syama Prasad Mookerjee (1901-53), his son, founded the Bharatiya Jana Sangh, direct precursor of the Bharatiya Janata Party (BJP), in the early 1950s. No less than Rabindranath Tagore (1861-1941) wrote about him: Ashutosh had the courage to dream because he had the power to fight and the confidence to win – his will itself was that path to the goal.’

The ISCA had planned to organise its Annual Session at Jalandhar in the beginning of January 2024, but, a decision of the Union Ministry of Science & Technology to ‘disassociate’ itself and deny government funds made it impractical to proceed with the Conference.
The cancellation might have been even more painful had the Science Congress maintained its exemplary standards, over the years. An astronomer at the Homi Bhabha Centre for Science Education, Mumbai said: ‘I am not worried that the Science Congress is dead. I agree that it had mostly lost its meaning, but I am concerned about the cause of its death. It was sacrificed to help the IISF get all the glory’.
Time was when the first Prime Minister, along with Maulana Azad, Minister of Natural Resources and Scientific Research and Education was present to inaugurate the National Laboratories being set up by the Council of Scientific & Industrial Research (CSIR) and events connected with the Atomic Energy Commission (AEC). One can appreciate the sense of Nehru’s personal involvement with the enterprise of science when he spoke at the opening of the National Physical Laboratory (NPL) at New Delhi in January 1950.
He said: ‘When I think of this tremendous adventure, that is, science in the past and the tremendous adventure that I hope it is going to be in the future, I am fascinated by this prospect and I feel how much better it would have been for me to be a Director of this Institute if I had the competence than to be the Prime Minister’.
For Jawaharlal Nehru, science was a romance, a dream and a constructive way of ‘imagining’ the nation, which he wanted everyone to experience; he dreamt about an India that was robust and self-reliant. While he sought to salvage what was precious in India’s tradition and culture, he battled against the hegemony of religious dogma and orthodoxy which were obstructing the country’s modernization.
Many of his successors in the high office have tried to keep the flag flying. What needs to be ensured are positive interactions between the political, scientific and civil services leadership and wide-ranging economic and social reform in order to facilitate emphatic trends in India’s development graph.

Arun Bhatnagar

Arun Bhatnagar was formerly in the IAS and retired as Secretary, GOI. He attended St. Stephen’s College, Delhi in the early sixties. After retiring as Secretary (Personnel & Training) in the Union Government in 2004, he worked with the National Advisory Council (NAC) and, later, as Chairman, Prasar Bharati, New Delhi. He has had postings in the President of India’s Secretariat and in the Indian High Commission,
London. Bhatnagar’s earlier Book, ‘India: Shedding the Past, Embracing the Future, 1906-2017’, was well received as a historical narrative.

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