What will Drive a $7 Trillion Economy | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

What are the Key Highlights?

• Factors Driving Growth: India's trajectory towards a $7 trillion economy will be propelled by various factors, including advancements in technology, reforms in the financial sector, integration of domestic markets, and a focus on inclusive growth.
• Short-Term Growth Drivers: In the short term, India's economic growth will be fueled by exports, consumption, and investment, highlighting the importance of fostering a conducive environment for these key areas.
• Quality of Growth: Emphasis will be placed on ensuring the quality of growth, with a focus on environmental sustainability, promoting inclusive growth, and achieving balanced spatial distribution across regions.
• Role of Technology: Technology, particularly Artificial Intelligence, will play a pivotal role in accelerating India's development journey, driving innovation and efficiency across various sectors.
• Financial Sector Reforms: Cautious liberalization and integration of the financial sector with global markets are deemed essential to support India's growth aspirations and foster economic resilience.
• Inclusive Growth Agenda: Further integration of inclusive growth strategies, physical connectivity enhancements, and robust infrastructure development will be imperative to ensure that growth benefits all sections of society.
• Demographic Advantages: India's GDP is projected to double over the next seven years, buoyed by its demographic dividend of a young population and a burgeoning middle class, complemented by structural reforms.
• Infrastructure Development: Investments in physical and digital infrastructure, transitioning towards clean energy sources, and the rapid financialization of the economy are laying the groundwork for sustained, high-quality growth.
• Digitization Impact: India's rapid leapfrogging to a high level of digitization is already yielding dividends in terms of enhanced productivity and efficiency across various sectors, further bolstering the country's growth trajectory.

What Does India's Medium-Term Outlook Growth Say?

• World Bank projects India's GDP growth to reach 7.5 percent in FY24 before moderating to 6.6 percent in FY25.
• The expected slowdown mainly reflects a deceleration in investment from its elevated pace in the previous year.
• Over the medium term, the Fiscal deficit and government debt in India are projected to decline, supported by robust output growth and consolidation efforts by the central government.
• India's Recent Economic Performance
• India's economic activity in 2023 Q4 exceeded expectations, with an 8.4 percent growth compared to the previous year, supported by increased investment and government consumption.
• India's composite purchasing managers index (PMI) stood at 60.6, well above the global average of 52.1, indicating expansion.
• Inflation has remained within the Reserve Bank of India's (RBI) target range, and financial conditions have remained accommodative.
• Domestic credit issuance to the commercial sector grew by 14 percent year-on-year (YoY) in 2023, with financial soundness indicators showing improvement. Foreign reserves increased by 8 percent in 2024.

Demographic dividend

• India has now overtaken China to become the most populous country in the world and is forecast to add 97mn people to its working population over the next 10 years
• As affluence has risen, India has also become home to the largest middle class in the world, now estimated at 371mn, which will continue to provide purchasing power from within.
• A number of reforms have also paved the way for women in rural areas to participate in economic activities rather than only do household-related activity – a major demographic change. Electricity, cooking gas and clean water has released many free hours in a day from the previous need to fetch firewood and water .

Policy-led transformation

• Fingerprinting and iris scanning a billion Indians for the unique national ID card (Aadhaar), linking it to the financially inclusive low-cost bank account (Jan Dhan) and connecting this to a mobile phone number for communication was only the beginning.
• This so-called JAM Trinity (Jan Dhan account, Aadhaar, Mobile) has plugged subsidy leakage and through the Direct Benefit Transfer has helped millions
• India is now fully electrified – only 20 years ago this figure was just 60%. Clean water in every house in every village is the latest initiative through the Jal Jeevan Mission. 56% coverage has already been achieved, with a 2024 target for full coverage
• The Production Linked Incentive scheme for manufacturing industry has incentivized new investments (largely export focused) across 14 sectors with an aim to create 6 million jobs

On the cusp of energy growth

• India has made remarkable progress in providing access to electricity and clean cooking methods for its citizens. Nearly 100% household access to electricity was achieved in 2019. In parallel, the share of biomass in energy mix has declined by more than half.
• In terms of renewable energy targets, India has become the only G20 nation to achieve its 2030 targets from COP21 – and no less than nine years ahead of schedule in 2021.

The digital revolution

• On UMANG, the Government’s “super app”, a massive 1,682 services across federal and state level are available to citizens.
• Converted for minimizing litigations and improving ease of transfer. The latest initiative through the Ayushman Bharat Digital Mission is to integrate digital health infrastructure including personal health records.
• The UPI (Unified Payments Interface) is probably the most successful digital payments
• The latest initiative ONDC (Open Network for Digital Commerce) aims to revolutionize e-commerce, by offering a network-centric model for connecting buyers and sellers, irrespective of the platforms they originate from, a UPI for online marketplaces. stack worldwideThe digital revolution.

Financialization

• Banking formalization, increasing compliance through digital payments and Covid-induced low interest rates has led to higher allocation into equity markets, both through mutual funds and directly.
• As per capita GDP ratchets up to the USD4,000 inflection point, financialization of assets is also expected to double

Conclusion

• India stands at a pivotal juncture in its growth trajectory, propelled by a confluence of factors that distinguish it among major economies. With a burgeoning middle class and a youthful demographic dividend, the country is poised for significant strides in economic development. Moreover, the integration of the vast informal sector into the formal economy is fostering increased financialization of assets, further bolstering India's economic prospects.
• These structural transformations lay a robust foundation for India to ascend to the ranks of the world's largest economies by the end of this decade. As the nation continues on its growth trajectory, leveraging its demographic advantages and embracing reforms, it is poised to emerge as a global economic powerhouse, shaping the dynamics of the global economy in the years to come.