Page 1
CHAPTER
05
MEDIUM TERM OUTLOOK:
A GROWTH VISION FOR
NEW INDIA
The direct benefit of a ‘Viksit Bharat’ is the dignity of our citizens and the improvement
in their quality of life.”
- Extracted from Hon’ble Prime Minister’s reply to the Motion of Thanks on the
President's Address in the Lok Sabha on July 2, 2024
The Indian growth story over the last decade has been one of resilience. The structural
reforms undertaken by the Government of India since 2014 have put the economy
firmly on a growth path, and India is soon set to become the third-largest economy in
the world. In the medium term, the Indian economy can grow at a rate of 7 per cent
plus on a sustained basis if we can build on the structural reforms undertaken over the
last decade. Against this backdrop, the chapter identifies the areas of key policy focus
as well as presents a six-pronged growth strategy to achieve this goal. The strategy
elucidated in the chapter is premised on the understanding that the structural reforms
of the last decade, focused on the supply side of the economy, have to give way to next-
gen reforms that are bottom-up in nature to yield strong, sustainable, balanced, and
inclusive growth.
SETTING THE CONTEXT
5.1. In 1993, the Indian economy was valued at less than USD300 billion in dollar terms at
current prices. Fast forward to 2024, and it is estimated to have reached a staggering USD 3.6
trillion. This represents a remarkable 12-fold increase despite the Indian rupee depreciating by
around 3 per cent annually between 1993 and 2024. Moreover, this has been achieved without
a big rise in the country’s overall indebtedness, indicating an efficient utilisation of capital.
India’s per capita current dollar GDP has increased from 301.5 in 1993 to 2,484.8 in 2023,
1
which indicates a substantial improvement in the standard of living.
5.2. India is a historical and long civilisation. It provided answers to many questions that
humankind faced and still faces. It is a country with a big land mass and a huge population. It
rightly aspires to be reckoned with as a great power in economic and other terms. China, India’s
neighbour to the Northeast and a nation of comparable size and population and antiquity of
civilisation as India, has grown to become a major global economic and political power in less
than a generation. India, too, has now set for itself the goal of becoming a developed nation
within a generation by 2047, the hundredth year of independence.
1 World Bank, 2023 (https://tinyurl.com/yeksmbde)
Page 2
CHAPTER
05
MEDIUM TERM OUTLOOK:
A GROWTH VISION FOR
NEW INDIA
The direct benefit of a ‘Viksit Bharat’ is the dignity of our citizens and the improvement
in their quality of life.”
- Extracted from Hon’ble Prime Minister’s reply to the Motion of Thanks on the
President's Address in the Lok Sabha on July 2, 2024
The Indian growth story over the last decade has been one of resilience. The structural
reforms undertaken by the Government of India since 2014 have put the economy
firmly on a growth path, and India is soon set to become the third-largest economy in
the world. In the medium term, the Indian economy can grow at a rate of 7 per cent
plus on a sustained basis if we can build on the structural reforms undertaken over the
last decade. Against this backdrop, the chapter identifies the areas of key policy focus
as well as presents a six-pronged growth strategy to achieve this goal. The strategy
elucidated in the chapter is premised on the understanding that the structural reforms
of the last decade, focused on the supply side of the economy, have to give way to next-
gen reforms that are bottom-up in nature to yield strong, sustainable, balanced, and
inclusive growth.
SETTING THE CONTEXT
5.1. In 1993, the Indian economy was valued at less than USD300 billion in dollar terms at
current prices. Fast forward to 2024, and it is estimated to have reached a staggering USD 3.6
trillion. This represents a remarkable 12-fold increase despite the Indian rupee depreciating by
around 3 per cent annually between 1993 and 2024. Moreover, this has been achieved without
a big rise in the country’s overall indebtedness, indicating an efficient utilisation of capital.
India’s per capita current dollar GDP has increased from 301.5 in 1993 to 2,484.8 in 2023,
1
which indicates a substantial improvement in the standard of living.
5.2. India is a historical and long civilisation. It provided answers to many questions that
humankind faced and still faces. It is a country with a big land mass and a huge population. It
rightly aspires to be reckoned with as a great power in economic and other terms. China, India’s
neighbour to the Northeast and a nation of comparable size and population and antiquity of
civilisation as India, has grown to become a major global economic and political power in less
than a generation. India, too, has now set for itself the goal of becoming a developed nation
within a generation by 2047, the hundredth year of independence.
1 World Bank, 2023 (https://tinyurl.com/yeksmbde)
Economic Survey 2023-24
156
5.3. Today, the world faces several major fault lines. We have arrived at a multipolar world.
It is more difficult than the bipolar world that we were used to for nearly five decades after
the War ended. Therefore, mini and significant geopolitical conflicts are likely in the coming
decades.
5.4. At a cultural level, the rise of what is called the ‘Far Right’ by mainstream media in
advanced nations is, in effect, a clash of priorities between globalist elites and others whose
fortunes are bound by and tied to their national geographies. This clash of priorities transcends
economics. It includes cultural and social preferences and values. Therefore, along with
economic stagnation and geopolitical conflicts, societies in advanced nations are fracturing
from within, too. The literature analysing long political, social, and civilisational cycles has
warned us of a fairly to severely turbulent three decades until the middle of the century.
5.5. The idea of economic globalisation has run its course. It may not be reversed fully, but
it has peaked. It will continue to face obstacles as economic policies worldwide pivot to the
promotion of national champions for reasons too well-known to bear repetition here. Along
with the peaking of globalisation, there is also a rethinking of the role of government in national
economic strategy as inequality, poverty, and indebtedness have become pressing issues
in the aftermath of the Covid pandemic. The clamour for easy answers to these global and
generational challenges has provided an excuse for interventionist policies despite their poor
empirical record in achieving prosperous or more equal societies.
5.6. Lastly, there is the crisis posed by climate change and global warming. Developed
countries are pushing for a reduction in the emission of greenhouse gases into the atmosphere.
With their policies having questionable effectiveness in achieving emission reduction in their
own countries, they are ramping up pressure on developing nations. Developing nations are
struggling to restore economic growth and reduce poverty and debt in their countries, all of
which have been amplified by the COVID-19 pandemic. They lack both technology and financial
resources to undertake the necessary transition to cleaner fuels. Developed nations are generous
with pledges and parsimonious in delivering on them. Further, there are huge uncertainties as
to the efficacy of drastic measures to combat climate change and their economic impact over
the next half to a full decade. Slower growth, stagnation, or outright contraction might trigger
social unrest and exodus of people to the West.
5.7. This is the global backdrop to India’s growth, prosperity, and superpower aspirations for
the next quarter century. In contrast, during its rise, China did not face many of these challenges,
and even the ones they faced were fairly milder, in comparison. For realising India’s aspirations,
despite the changed circumstances, a good place to start is to acknowledge and recognise that
the terrain has changed to be able to traverse through it and reach the destination.
5.8. India has to sustain its economic growth rate over a quarter century and do it sustainably,
keeping the environment and climate in mind. Water stress looms large, as does air pollution.
Life expectancy, much higher now than in the past, has stagnated in recent years. It has to
educate and skill its youth to stay ahead of the curve so that they can work with emerging
technologies while overcoming the accumulated education and skill deficits, accentuated by the
pandemic, that make it harder to raise productivity even with the current state of technological
Page 3
CHAPTER
05
MEDIUM TERM OUTLOOK:
A GROWTH VISION FOR
NEW INDIA
The direct benefit of a ‘Viksit Bharat’ is the dignity of our citizens and the improvement
in their quality of life.”
- Extracted from Hon’ble Prime Minister’s reply to the Motion of Thanks on the
President's Address in the Lok Sabha on July 2, 2024
The Indian growth story over the last decade has been one of resilience. The structural
reforms undertaken by the Government of India since 2014 have put the economy
firmly on a growth path, and India is soon set to become the third-largest economy in
the world. In the medium term, the Indian economy can grow at a rate of 7 per cent
plus on a sustained basis if we can build on the structural reforms undertaken over the
last decade. Against this backdrop, the chapter identifies the areas of key policy focus
as well as presents a six-pronged growth strategy to achieve this goal. The strategy
elucidated in the chapter is premised on the understanding that the structural reforms
of the last decade, focused on the supply side of the economy, have to give way to next-
gen reforms that are bottom-up in nature to yield strong, sustainable, balanced, and
inclusive growth.
SETTING THE CONTEXT
5.1. In 1993, the Indian economy was valued at less than USD300 billion in dollar terms at
current prices. Fast forward to 2024, and it is estimated to have reached a staggering USD 3.6
trillion. This represents a remarkable 12-fold increase despite the Indian rupee depreciating by
around 3 per cent annually between 1993 and 2024. Moreover, this has been achieved without
a big rise in the country’s overall indebtedness, indicating an efficient utilisation of capital.
India’s per capita current dollar GDP has increased from 301.5 in 1993 to 2,484.8 in 2023,
1
which indicates a substantial improvement in the standard of living.
5.2. India is a historical and long civilisation. It provided answers to many questions that
humankind faced and still faces. It is a country with a big land mass and a huge population. It
rightly aspires to be reckoned with as a great power in economic and other terms. China, India’s
neighbour to the Northeast and a nation of comparable size and population and antiquity of
civilisation as India, has grown to become a major global economic and political power in less
than a generation. India, too, has now set for itself the goal of becoming a developed nation
within a generation by 2047, the hundredth year of independence.
1 World Bank, 2023 (https://tinyurl.com/yeksmbde)
Economic Survey 2023-24
156
5.3. Today, the world faces several major fault lines. We have arrived at a multipolar world.
It is more difficult than the bipolar world that we were used to for nearly five decades after
the War ended. Therefore, mini and significant geopolitical conflicts are likely in the coming
decades.
5.4. At a cultural level, the rise of what is called the ‘Far Right’ by mainstream media in
advanced nations is, in effect, a clash of priorities between globalist elites and others whose
fortunes are bound by and tied to their national geographies. This clash of priorities transcends
economics. It includes cultural and social preferences and values. Therefore, along with
economic stagnation and geopolitical conflicts, societies in advanced nations are fracturing
from within, too. The literature analysing long political, social, and civilisational cycles has
warned us of a fairly to severely turbulent three decades until the middle of the century.
5.5. The idea of economic globalisation has run its course. It may not be reversed fully, but
it has peaked. It will continue to face obstacles as economic policies worldwide pivot to the
promotion of national champions for reasons too well-known to bear repetition here. Along
with the peaking of globalisation, there is also a rethinking of the role of government in national
economic strategy as inequality, poverty, and indebtedness have become pressing issues
in the aftermath of the Covid pandemic. The clamour for easy answers to these global and
generational challenges has provided an excuse for interventionist policies despite their poor
empirical record in achieving prosperous or more equal societies.
5.6. Lastly, there is the crisis posed by climate change and global warming. Developed
countries are pushing for a reduction in the emission of greenhouse gases into the atmosphere.
With their policies having questionable effectiveness in achieving emission reduction in their
own countries, they are ramping up pressure on developing nations. Developing nations are
struggling to restore economic growth and reduce poverty and debt in their countries, all of
which have been amplified by the COVID-19 pandemic. They lack both technology and financial
resources to undertake the necessary transition to cleaner fuels. Developed nations are generous
with pledges and parsimonious in delivering on them. Further, there are huge uncertainties as
to the efficacy of drastic measures to combat climate change and their economic impact over
the next half to a full decade. Slower growth, stagnation, or outright contraction might trigger
social unrest and exodus of people to the West.
5.7. This is the global backdrop to India’s growth, prosperity, and superpower aspirations for
the next quarter century. In contrast, during its rise, China did not face many of these challenges,
and even the ones they faced were fairly milder, in comparison. For realising India’s aspirations,
despite the changed circumstances, a good place to start is to acknowledge and recognise that
the terrain has changed to be able to traverse through it and reach the destination.
5.8. India has to sustain its economic growth rate over a quarter century and do it sustainably,
keeping the environment and climate in mind. Water stress looms large, as does air pollution.
Life expectancy, much higher now than in the past, has stagnated in recent years. It has to
educate and skill its youth to stay ahead of the curve so that they can work with emerging
technologies while overcoming the accumulated education and skill deficits, accentuated by the
pandemic, that make it harder to raise productivity even with the current state of technological
Medium Term Outlook
157
progress. It is required to maintain a constant vigil on its borders both in the Northwest and
in the Northeast. With the digitalisation of the Indian economy, cybersecurity assumes a much
higher degree of importance and urgency. Therefore, providing financial resources for national
security is imperative. Fiscal resources have to increase without compromising on economic
growth.
5.9. The capacity in terms of numbers and the capability of the State in terms of competence,
skills, and attitude are additional factors that would determine the outcomes of India’s
economic and social goals. Economic policies have to be crafted in such a manner that they
do not address issues narrowly or incompletely while rendering problems in other areas more
intractable. Goals for a higher share of renewable power with its implications for land usage
and dependence on inimical powers for resources are one example. The impact of farm sector
policies on water security is another example.
5.10. With the global backdrop described earlier likely to come in the way of India boosting its
exports at the same pace and level as East Asian countries and national security considerations
likely to make foreign direct investment flows volatile year-to-year, India has to generate
domestic resources mostly for its own investment and growth priorities. Geopolitics imposes
its ceiling on external deficit and, consequently, external financing.
5.11. Against this background, the medium-term growth outlook for the Indian economy,
which will be detailed in this chapter, is premised on the following key tenets:
? First, increasing geoeconomic fragmentation and the consequent resource
nationalism have significant growth-limiting impacts on countries. It has given
rise to a trade-off between efficiency and resilience that did not exist a decade earlier.
Ensuring the security of supply through building buffers and slack has replaced the ability
to operate at the frontiers of efficiency. ‘Just in case’ has replaced ‘Just in time’.
? Second, a global trust deficit is driving countries to pursue policies focused
on enabling them to become self-reliant and protect them from external shocks,
especially in sectors of strategic importance. Therefore, the balance between inward-looking
policies versus outward-looking policies needs to become more nuanced going forward;
? Third, the integration of climate change strategies into national development
policy and planning is not merely an environmental imperative but more, as
it impacts socio-economic stability, public health, banking, and public finances. Climate
change imposes costs and requires policymakers to balance adaptation to climate change
and emission mitigation. It also necessitates a trade-off between energy security and
economic development on the one hand and energy transition on the other.
? Fourth, for better and worse, technology is emerging as the biggest strategic
differentiator determining the economic prosperity of nations. Its productivity-
enhancing potential is beyond doubt, but the social impact of emerging technologies such
as Artificial Intelligence (AI) via labour market disruptions and labour displacement is
barely understood. It also has the potential to skew the capital and labour shares of income
in favour of the former.
Page 4
CHAPTER
05
MEDIUM TERM OUTLOOK:
A GROWTH VISION FOR
NEW INDIA
The direct benefit of a ‘Viksit Bharat’ is the dignity of our citizens and the improvement
in their quality of life.”
- Extracted from Hon’ble Prime Minister’s reply to the Motion of Thanks on the
President's Address in the Lok Sabha on July 2, 2024
The Indian growth story over the last decade has been one of resilience. The structural
reforms undertaken by the Government of India since 2014 have put the economy
firmly on a growth path, and India is soon set to become the third-largest economy in
the world. In the medium term, the Indian economy can grow at a rate of 7 per cent
plus on a sustained basis if we can build on the structural reforms undertaken over the
last decade. Against this backdrop, the chapter identifies the areas of key policy focus
as well as presents a six-pronged growth strategy to achieve this goal. The strategy
elucidated in the chapter is premised on the understanding that the structural reforms
of the last decade, focused on the supply side of the economy, have to give way to next-
gen reforms that are bottom-up in nature to yield strong, sustainable, balanced, and
inclusive growth.
SETTING THE CONTEXT
5.1. In 1993, the Indian economy was valued at less than USD300 billion in dollar terms at
current prices. Fast forward to 2024, and it is estimated to have reached a staggering USD 3.6
trillion. This represents a remarkable 12-fold increase despite the Indian rupee depreciating by
around 3 per cent annually between 1993 and 2024. Moreover, this has been achieved without
a big rise in the country’s overall indebtedness, indicating an efficient utilisation of capital.
India’s per capita current dollar GDP has increased from 301.5 in 1993 to 2,484.8 in 2023,
1
which indicates a substantial improvement in the standard of living.
5.2. India is a historical and long civilisation. It provided answers to many questions that
humankind faced and still faces. It is a country with a big land mass and a huge population. It
rightly aspires to be reckoned with as a great power in economic and other terms. China, India’s
neighbour to the Northeast and a nation of comparable size and population and antiquity of
civilisation as India, has grown to become a major global economic and political power in less
than a generation. India, too, has now set for itself the goal of becoming a developed nation
within a generation by 2047, the hundredth year of independence.
1 World Bank, 2023 (https://tinyurl.com/yeksmbde)
Economic Survey 2023-24
156
5.3. Today, the world faces several major fault lines. We have arrived at a multipolar world.
It is more difficult than the bipolar world that we were used to for nearly five decades after
the War ended. Therefore, mini and significant geopolitical conflicts are likely in the coming
decades.
5.4. At a cultural level, the rise of what is called the ‘Far Right’ by mainstream media in
advanced nations is, in effect, a clash of priorities between globalist elites and others whose
fortunes are bound by and tied to their national geographies. This clash of priorities transcends
economics. It includes cultural and social preferences and values. Therefore, along with
economic stagnation and geopolitical conflicts, societies in advanced nations are fracturing
from within, too. The literature analysing long political, social, and civilisational cycles has
warned us of a fairly to severely turbulent three decades until the middle of the century.
5.5. The idea of economic globalisation has run its course. It may not be reversed fully, but
it has peaked. It will continue to face obstacles as economic policies worldwide pivot to the
promotion of national champions for reasons too well-known to bear repetition here. Along
with the peaking of globalisation, there is also a rethinking of the role of government in national
economic strategy as inequality, poverty, and indebtedness have become pressing issues
in the aftermath of the Covid pandemic. The clamour for easy answers to these global and
generational challenges has provided an excuse for interventionist policies despite their poor
empirical record in achieving prosperous or more equal societies.
5.6. Lastly, there is the crisis posed by climate change and global warming. Developed
countries are pushing for a reduction in the emission of greenhouse gases into the atmosphere.
With their policies having questionable effectiveness in achieving emission reduction in their
own countries, they are ramping up pressure on developing nations. Developing nations are
struggling to restore economic growth and reduce poverty and debt in their countries, all of
which have been amplified by the COVID-19 pandemic. They lack both technology and financial
resources to undertake the necessary transition to cleaner fuels. Developed nations are generous
with pledges and parsimonious in delivering on them. Further, there are huge uncertainties as
to the efficacy of drastic measures to combat climate change and their economic impact over
the next half to a full decade. Slower growth, stagnation, or outright contraction might trigger
social unrest and exodus of people to the West.
5.7. This is the global backdrop to India’s growth, prosperity, and superpower aspirations for
the next quarter century. In contrast, during its rise, China did not face many of these challenges,
and even the ones they faced were fairly milder, in comparison. For realising India’s aspirations,
despite the changed circumstances, a good place to start is to acknowledge and recognise that
the terrain has changed to be able to traverse through it and reach the destination.
5.8. India has to sustain its economic growth rate over a quarter century and do it sustainably,
keeping the environment and climate in mind. Water stress looms large, as does air pollution.
Life expectancy, much higher now than in the past, has stagnated in recent years. It has to
educate and skill its youth to stay ahead of the curve so that they can work with emerging
technologies while overcoming the accumulated education and skill deficits, accentuated by the
pandemic, that make it harder to raise productivity even with the current state of technological
Medium Term Outlook
157
progress. It is required to maintain a constant vigil on its borders both in the Northwest and
in the Northeast. With the digitalisation of the Indian economy, cybersecurity assumes a much
higher degree of importance and urgency. Therefore, providing financial resources for national
security is imperative. Fiscal resources have to increase without compromising on economic
growth.
5.9. The capacity in terms of numbers and the capability of the State in terms of competence,
skills, and attitude are additional factors that would determine the outcomes of India’s
economic and social goals. Economic policies have to be crafted in such a manner that they
do not address issues narrowly or incompletely while rendering problems in other areas more
intractable. Goals for a higher share of renewable power with its implications for land usage
and dependence on inimical powers for resources are one example. The impact of farm sector
policies on water security is another example.
5.10. With the global backdrop described earlier likely to come in the way of India boosting its
exports at the same pace and level as East Asian countries and national security considerations
likely to make foreign direct investment flows volatile year-to-year, India has to generate
domestic resources mostly for its own investment and growth priorities. Geopolitics imposes
its ceiling on external deficit and, consequently, external financing.
5.11. Against this background, the medium-term growth outlook for the Indian economy,
which will be detailed in this chapter, is premised on the following key tenets:
? First, increasing geoeconomic fragmentation and the consequent resource
nationalism have significant growth-limiting impacts on countries. It has given
rise to a trade-off between efficiency and resilience that did not exist a decade earlier.
Ensuring the security of supply through building buffers and slack has replaced the ability
to operate at the frontiers of efficiency. ‘Just in case’ has replaced ‘Just in time’.
? Second, a global trust deficit is driving countries to pursue policies focused
on enabling them to become self-reliant and protect them from external shocks,
especially in sectors of strategic importance. Therefore, the balance between inward-looking
policies versus outward-looking policies needs to become more nuanced going forward;
? Third, the integration of climate change strategies into national development
policy and planning is not merely an environmental imperative but more, as
it impacts socio-economic stability, public health, banking, and public finances. Climate
change imposes costs and requires policymakers to balance adaptation to climate change
and emission mitigation. It also necessitates a trade-off between energy security and
economic development on the one hand and energy transition on the other.
? Fourth, for better and worse, technology is emerging as the biggest strategic
differentiator determining the economic prosperity of nations. Its productivity-
enhancing potential is beyond doubt, but the social impact of emerging technologies such
as Artificial Intelligence (AI) via labour market disruptions and labour displacement is
barely understood. It also has the potential to skew the capital and labour shares of income
in favour of the former.
Economic Survey 2023-24
158
? Fifth, countries across the board have limited policy space to manoeuvre, given
the multiple crises confronting the global economy. Therefore, recognition and acceptance
of trade-offs have become more necessary than before for policymakers.
? Sixth, in the last decade (2014-2024), the Government of India has pursued big-ticket
reforms focused on restoring the health of the economy, elevating the potential growth
by relieving supply-side constraints and strengthening its capabilities, capable of fulfilling
the growth aspirations of the people in the present and the Amrit Kaal. The next stage
is to ensure that these reforms are implemented correctly and this will require intense
engagement with state governments, the private sector, and civil society. Going forward,
the Government’s focus must turn to bottom-up reform and the strengthening
of the plumbing of governance so that the structural reforms of the last decade
yield strong, sustainable, balanced, and inclusive growth.
KEY AREAS OF POLICY FOCUS IN THE SHORT TO MEDIUM
TERM
5.12. Based on the state of the play of the Indian economy, both at a macro level and sectoral
level, that has been elaborated in the rest of the chapters of this Survey, the present section draws
out some of the key areas of policy focus to ensure that India’s growth continues unimpeded,
crossing the milestone of becoming the third largest economy of the world in short order, on its
way to scaling greater heights.
5.13. Generating productive employment: Productive jobs are vital for growth and
inclusion. India’s workforce is estimated to be nearly 56.5 Crore, of which more than 45 per
cent are employed in agriculture, 11.4 per cent in manufacturing, 28.9 per cent in services,
and 13.0 per cent in construction
2
. While the services sector remains a major job creator, the
construction sector has been rising in prominence lately, driven by the government’s push
for infrastructure. However, since construction jobs are largely informal and low-paid, there
is a need for avenues for the labour force leaving agriculture. Meanwhile, the manufacturing
sector employment creation has been subdued in the past decade due to the legacy of bad
loans and appears to have rebounded since 2021-22. According to UN population projections,
India’s working-age population (15-59 years) will continue to grow until 2044. The chapter on
Employment (chapter 8) estimates that the Indian economy needs to generate nearly 78.51 lakh
jobs annually in the non-farm sector to cater to the rising workforce. However, to create these
many jobs, there is a need to create the conditions for faster growth of productive jobs outside
of agriculture, especially in organized manufacturing and services, even while improving
productivity in agriculture.
5.14. Skill gap challenge: Sixty-five per cent of India’s fast-growing population is under 35,
and many lack the skills needed by a modern economy
3
. Estimates show that about 51.25 per
cent of the youth is deemed employable. In other words, about one in two are not yet readily
employable, straight out of college. However, it must be noted that the percentage has improved
from around 34 per cent to 51.3 per cent in the last decade
4
. The 2022-23 Annual Report of
2 Ministry of Health and Family Welfare
3 Helping India build a skilled, inclusive, workforce for the future, World Bank, 2023 (https://tinyurl.com/2tp4xpab)
4 Bardhan, A and Routh, V. (2024). Tackling India’s unemployment problem: Services, skills and symmetry,
Observer Research Foundation, (https://tinyurl.com/3uudbkms)
Page 5
CHAPTER
05
MEDIUM TERM OUTLOOK:
A GROWTH VISION FOR
NEW INDIA
The direct benefit of a ‘Viksit Bharat’ is the dignity of our citizens and the improvement
in their quality of life.”
- Extracted from Hon’ble Prime Minister’s reply to the Motion of Thanks on the
President's Address in the Lok Sabha on July 2, 2024
The Indian growth story over the last decade has been one of resilience. The structural
reforms undertaken by the Government of India since 2014 have put the economy
firmly on a growth path, and India is soon set to become the third-largest economy in
the world. In the medium term, the Indian economy can grow at a rate of 7 per cent
plus on a sustained basis if we can build on the structural reforms undertaken over the
last decade. Against this backdrop, the chapter identifies the areas of key policy focus
as well as presents a six-pronged growth strategy to achieve this goal. The strategy
elucidated in the chapter is premised on the understanding that the structural reforms
of the last decade, focused on the supply side of the economy, have to give way to next-
gen reforms that are bottom-up in nature to yield strong, sustainable, balanced, and
inclusive growth.
SETTING THE CONTEXT
5.1. In 1993, the Indian economy was valued at less than USD300 billion in dollar terms at
current prices. Fast forward to 2024, and it is estimated to have reached a staggering USD 3.6
trillion. This represents a remarkable 12-fold increase despite the Indian rupee depreciating by
around 3 per cent annually between 1993 and 2024. Moreover, this has been achieved without
a big rise in the country’s overall indebtedness, indicating an efficient utilisation of capital.
India’s per capita current dollar GDP has increased from 301.5 in 1993 to 2,484.8 in 2023,
1
which indicates a substantial improvement in the standard of living.
5.2. India is a historical and long civilisation. It provided answers to many questions that
humankind faced and still faces. It is a country with a big land mass and a huge population. It
rightly aspires to be reckoned with as a great power in economic and other terms. China, India’s
neighbour to the Northeast and a nation of comparable size and population and antiquity of
civilisation as India, has grown to become a major global economic and political power in less
than a generation. India, too, has now set for itself the goal of becoming a developed nation
within a generation by 2047, the hundredth year of independence.
1 World Bank, 2023 (https://tinyurl.com/yeksmbde)
Economic Survey 2023-24
156
5.3. Today, the world faces several major fault lines. We have arrived at a multipolar world.
It is more difficult than the bipolar world that we were used to for nearly five decades after
the War ended. Therefore, mini and significant geopolitical conflicts are likely in the coming
decades.
5.4. At a cultural level, the rise of what is called the ‘Far Right’ by mainstream media in
advanced nations is, in effect, a clash of priorities between globalist elites and others whose
fortunes are bound by and tied to their national geographies. This clash of priorities transcends
economics. It includes cultural and social preferences and values. Therefore, along with
economic stagnation and geopolitical conflicts, societies in advanced nations are fracturing
from within, too. The literature analysing long political, social, and civilisational cycles has
warned us of a fairly to severely turbulent three decades until the middle of the century.
5.5. The idea of economic globalisation has run its course. It may not be reversed fully, but
it has peaked. It will continue to face obstacles as economic policies worldwide pivot to the
promotion of national champions for reasons too well-known to bear repetition here. Along
with the peaking of globalisation, there is also a rethinking of the role of government in national
economic strategy as inequality, poverty, and indebtedness have become pressing issues
in the aftermath of the Covid pandemic. The clamour for easy answers to these global and
generational challenges has provided an excuse for interventionist policies despite their poor
empirical record in achieving prosperous or more equal societies.
5.6. Lastly, there is the crisis posed by climate change and global warming. Developed
countries are pushing for a reduction in the emission of greenhouse gases into the atmosphere.
With their policies having questionable effectiveness in achieving emission reduction in their
own countries, they are ramping up pressure on developing nations. Developing nations are
struggling to restore economic growth and reduce poverty and debt in their countries, all of
which have been amplified by the COVID-19 pandemic. They lack both technology and financial
resources to undertake the necessary transition to cleaner fuels. Developed nations are generous
with pledges and parsimonious in delivering on them. Further, there are huge uncertainties as
to the efficacy of drastic measures to combat climate change and their economic impact over
the next half to a full decade. Slower growth, stagnation, or outright contraction might trigger
social unrest and exodus of people to the West.
5.7. This is the global backdrop to India’s growth, prosperity, and superpower aspirations for
the next quarter century. In contrast, during its rise, China did not face many of these challenges,
and even the ones they faced were fairly milder, in comparison. For realising India’s aspirations,
despite the changed circumstances, a good place to start is to acknowledge and recognise that
the terrain has changed to be able to traverse through it and reach the destination.
5.8. India has to sustain its economic growth rate over a quarter century and do it sustainably,
keeping the environment and climate in mind. Water stress looms large, as does air pollution.
Life expectancy, much higher now than in the past, has stagnated in recent years. It has to
educate and skill its youth to stay ahead of the curve so that they can work with emerging
technologies while overcoming the accumulated education and skill deficits, accentuated by the
pandemic, that make it harder to raise productivity even with the current state of technological
Medium Term Outlook
157
progress. It is required to maintain a constant vigil on its borders both in the Northwest and
in the Northeast. With the digitalisation of the Indian economy, cybersecurity assumes a much
higher degree of importance and urgency. Therefore, providing financial resources for national
security is imperative. Fiscal resources have to increase without compromising on economic
growth.
5.9. The capacity in terms of numbers and the capability of the State in terms of competence,
skills, and attitude are additional factors that would determine the outcomes of India’s
economic and social goals. Economic policies have to be crafted in such a manner that they
do not address issues narrowly or incompletely while rendering problems in other areas more
intractable. Goals for a higher share of renewable power with its implications for land usage
and dependence on inimical powers for resources are one example. The impact of farm sector
policies on water security is another example.
5.10. With the global backdrop described earlier likely to come in the way of India boosting its
exports at the same pace and level as East Asian countries and national security considerations
likely to make foreign direct investment flows volatile year-to-year, India has to generate
domestic resources mostly for its own investment and growth priorities. Geopolitics imposes
its ceiling on external deficit and, consequently, external financing.
5.11. Against this background, the medium-term growth outlook for the Indian economy,
which will be detailed in this chapter, is premised on the following key tenets:
? First, increasing geoeconomic fragmentation and the consequent resource
nationalism have significant growth-limiting impacts on countries. It has given
rise to a trade-off between efficiency and resilience that did not exist a decade earlier.
Ensuring the security of supply through building buffers and slack has replaced the ability
to operate at the frontiers of efficiency. ‘Just in case’ has replaced ‘Just in time’.
? Second, a global trust deficit is driving countries to pursue policies focused
on enabling them to become self-reliant and protect them from external shocks,
especially in sectors of strategic importance. Therefore, the balance between inward-looking
policies versus outward-looking policies needs to become more nuanced going forward;
? Third, the integration of climate change strategies into national development
policy and planning is not merely an environmental imperative but more, as
it impacts socio-economic stability, public health, banking, and public finances. Climate
change imposes costs and requires policymakers to balance adaptation to climate change
and emission mitigation. It also necessitates a trade-off between energy security and
economic development on the one hand and energy transition on the other.
? Fourth, for better and worse, technology is emerging as the biggest strategic
differentiator determining the economic prosperity of nations. Its productivity-
enhancing potential is beyond doubt, but the social impact of emerging technologies such
as Artificial Intelligence (AI) via labour market disruptions and labour displacement is
barely understood. It also has the potential to skew the capital and labour shares of income
in favour of the former.
Economic Survey 2023-24
158
? Fifth, countries across the board have limited policy space to manoeuvre, given
the multiple crises confronting the global economy. Therefore, recognition and acceptance
of trade-offs have become more necessary than before for policymakers.
? Sixth, in the last decade (2014-2024), the Government of India has pursued big-ticket
reforms focused on restoring the health of the economy, elevating the potential growth
by relieving supply-side constraints and strengthening its capabilities, capable of fulfilling
the growth aspirations of the people in the present and the Amrit Kaal. The next stage
is to ensure that these reforms are implemented correctly and this will require intense
engagement with state governments, the private sector, and civil society. Going forward,
the Government’s focus must turn to bottom-up reform and the strengthening
of the plumbing of governance so that the structural reforms of the last decade
yield strong, sustainable, balanced, and inclusive growth.
KEY AREAS OF POLICY FOCUS IN THE SHORT TO MEDIUM
TERM
5.12. Based on the state of the play of the Indian economy, both at a macro level and sectoral
level, that has been elaborated in the rest of the chapters of this Survey, the present section draws
out some of the key areas of policy focus to ensure that India’s growth continues unimpeded,
crossing the milestone of becoming the third largest economy of the world in short order, on its
way to scaling greater heights.
5.13. Generating productive employment: Productive jobs are vital for growth and
inclusion. India’s workforce is estimated to be nearly 56.5 Crore, of which more than 45 per
cent are employed in agriculture, 11.4 per cent in manufacturing, 28.9 per cent in services,
and 13.0 per cent in construction
2
. While the services sector remains a major job creator, the
construction sector has been rising in prominence lately, driven by the government’s push
for infrastructure. However, since construction jobs are largely informal and low-paid, there
is a need for avenues for the labour force leaving agriculture. Meanwhile, the manufacturing
sector employment creation has been subdued in the past decade due to the legacy of bad
loans and appears to have rebounded since 2021-22. According to UN population projections,
India’s working-age population (15-59 years) will continue to grow until 2044. The chapter on
Employment (chapter 8) estimates that the Indian economy needs to generate nearly 78.51 lakh
jobs annually in the non-farm sector to cater to the rising workforce. However, to create these
many jobs, there is a need to create the conditions for faster growth of productive jobs outside
of agriculture, especially in organized manufacturing and services, even while improving
productivity in agriculture.
5.14. Skill gap challenge: Sixty-five per cent of India’s fast-growing population is under 35,
and many lack the skills needed by a modern economy
3
. Estimates show that about 51.25 per
cent of the youth is deemed employable. In other words, about one in two are not yet readily
employable, straight out of college. However, it must be noted that the percentage has improved
from around 34 per cent to 51.3 per cent in the last decade
4
. The 2022-23 Annual Report of
2 Ministry of Health and Family Welfare
3 Helping India build a skilled, inclusive, workforce for the future, World Bank, 2023 (https://tinyurl.com/2tp4xpab)
4 Bardhan, A and Routh, V. (2024). Tackling India’s unemployment problem: Services, skills and symmetry,
Observer Research Foundation, (https://tinyurl.com/3uudbkms)
Medium Term Outlook
159
the Ministry of Skill Development & Entrepreneurship (MSDE) highlights that “as per NSSO,
2011-12 (68th round) report on Status of Education and Vocational Training in India, among
persons of age 15-59 years, about 2.2 per cent reported to have received formal vocational
training and 8.6 per cent reported to have received non-formal vocational training”. The
Annual Report further goes on enumerate the challenges in the skilling and entrepreneurship
landscape in the country, such as “: (i) Public perception that views skilling as the last option
meant for those who have not been able to progress/have opted out of the formal academic
system. (ii) Skill development programmes of the Central Government are spread across more
than 20 Ministries/Departments without any robust coordination and monitoring mechanism
to ensure convergence. (iii) Multiplicity in assessment and certification systems that leads to
inconsistent outcomes and causes confusion among the employers. (iv) Paucity of trainers,
inability to attract practitioners from industry as faculty. (v) Mismatch between demand and
supply at the sectoral and spatial levels. (vi) Limited mobility between skill and higher education
programmes and vocational education. (vii) Very low coverage of apprenticeship programmes.
(viii) Narrow and often obsolete skill curricula. (ix) Declining labour force participation rate of
women. (x) Pre-dominant non-farm, unorganized sector employment with low productivity but
no premium for skilling. (xi) Non- inclusion of entrepreneurship in formal education system.
(xii) Lack of mentorship and adequate access to finance for start-ups. (xiii) Inadequate impetus
to innovation driven entrepreneurship. (xiv) Lack of assured wage premium for skilled people”.
The Chapter on employment (chapter 8) provides a detailed analysis of the skill gap challenge
and the efforts underway to address the same.
5.15. Tapping the full potential of the agriculture sector: Despite its centrality in
India’s growth trajectory, the agriculture sector continues to face structural issues that have
implications for India’s economic growth. The foremost concern confronting the sector pertains
to sustaining agriculture growth without letting food price inflation rise beyond acceptable limits
while incentivising farmers to raise production.
5
There is also a need to improve price discovery
mechanisms for agriculture products, increase efficiency, reduce disguised unemployment,
address the fragmentation of landholding, and increase crop diversification, among a host of
other issues. All of these call for the upgradation of agricultural technology, the application of
modern skills in farm practices, enhancing agricultural marketing avenues, price stabilisation,
the adoption of innovation in farming, lowering wastages in the use of fertiliser, water, and
other inputs, and improving the agriculture-industry linkages. The chapter on agriculture
(Chapter 9) discusses the policies being pursued by the Government to enable agriculture to
tap its full potential.
5.16. Easing the compliance requirements and financing bottlenecks confronting
MSMEs: MSMEs have played a key role in defining the economic trajectory of some of the
major economies, such as Germany, Switzerland, Canada, China, etc. In India, the Government
has been paying focused attention to enabling the MSME sector to occupy the centre stage
in India’s economic story. However, the sector continues to face extensive regulation and
compliance requirements and faces significant bottlenecks with access to affordable and timely
funding being one of the core concerns. Licensing, Inspection, and Compliance requirements
5 Chand, R. (2019). Transforming Agriculture for the challenges of the 21st Century, 102 Annual Conference Indian
Economic Association (IEA) (https://tinyurl.com/4dpu7f9e)
Read More