TEN YEARS OF MODI GOVT RULE MARKED BY UNDER ACHIEVEMENT, LOST POTENTIAL FOR INDIA’S ECONOMY

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THE CONTEXT: The upcoming budget session is an appropriate time to assess how the current government has managed the economy in the decade since 2014. There is a worrying trend of Indian economy however in the last ten years.

ISSUES:

• Data deficient: There is a constant issue regarding the government avoiding data on various occasions suppressing statistics. This started with the refusal to publish the GDP back series and instead, a new series was commissioned. For the first time since 1872, the census has been indefinitely delayed.
• Fiscal deficit: A key concern before the government is managing the fiscal deficit. Between 2004 and 2014, the fiscal deficit averaged 4.63% whereas it has averaged 5.13% after 2014. The rise in fiscal deficit was necessitated by crises like the global financial crisis of 2008 and COVID-19
• Rise in Debt to GDP ratio: There has been a sharp rise in the gross debt to GDP ratio, crossing the 80% mark and inviting concern from the International Monetary Fund that the ratio could cross 100% by 2027. The Union government is expected to respond to the debt concerns and bring down the fiscal deficit to 4.5% by 2026 (it was 5.9% in 2023-24).
• Reliance on capital expenditure: There is over reliance on capital expenditure which even the ardent supporters of trickle-down economics admit that this reliance on capital expenditure is not bearing fruits.
• Manufacturing sector: Despite multiple revisions and handsome incentives and initiatives like Production Linked Incentive (PLI) scheme the manufacturing sector has not taken off. The manufacturing growth rate has averaged 5.9% since 2013-14, the share of manufacturing has remained stagnant and was at 16.4% in 2022-23, and manufacturing jobs halved between 2016 and 2021. The decade of Make in India saw the share of manufacturing in the workforce decline from 12.6% in 2011-12 to 11.6% in 2021-22. Make in India and now PLI have failed to enthuse MSMEs.
• Disinvestment: Another failure on the part of the government is disinvestment. To make matters worse, public assets have been handed over to select groups inviting concerns from competitors and public sector employees. The proposed national monetisation pipeline has also failed to yield results.
• Employment: The job market remains depressing, especially for the youth. The Centre for Monitoring Indian Economy notes that the unemployment rate in the age group 20-24 years was 44.5% in the October-December 2023 quarter. For the age-group 25-29 years, it was at a 14 month high of 14.33%.
• Rural India: The adversity of the job market is matched by the distress in rural India where the demand for MGNREGA has reached record highs. Stagnant farmer income and falling rural wages at a time when stock markets are soaring comes as a major concern.
• Crude oil prices: Despite lower prices of crude oil in the international market, the government could not pass the benefit to consumers which could have boosted consumption, and thereby the  Instead, the government has consistently kept petrol and diesel prices at a steady higher price and could not use windfall profits which it has used to keep the fiscal deficit manageable.
• Rise in tax to GDP ratio: Tax to GDP ratio has increased by 1% but it is largely because of an increase in indirect taxes.
• Reduction in subsidies: A consistent feature of the ruling government has been sharp reduction in subsidies. In 2013-14, Union government subsidies accounted for 2.27% of the These now stand at 1.34% in 2023-24.
• Rise in capital expenditure: Between 2014 to 2024, capital expenditure has doubled from 1.67% to 3.32%. Post the COVID-19 pandemic, the government allocated increasing sums towards capital expenditure. The stated logic being that this investment will create jobs and in turn raise demand.
• Facing Hunger: On the health front, the pandemic forced the government to raise healthcare expenditure, yet there has been a rise in hunger and malnutrition. India is ranked 111th of 125 countries on the Global Hunger Index. Instead of addressing the issue, the government’s response has been to reject any such adverse findings.

THE WAY FORWARD:

• Public investment: The government should also invest in public infrastructure, health, education, and social protection, which can create jobs, improve productivity, and enhance human capital. India needs large scale public investments in education and healthcare. Such investments in our human capital have great potential to create significant jobs and will also have a direct impact on the standard of living of our citizens. A key landmark of this government was the adoption of a new National Education Policy (NEP). NEP 2020 recommends that investment in education should be 6% of the
• New economic policy: India needs to adopt a new economic policy urgently. It needs to be a policy that is based on clear objectives, priorities, have a strategy to achieve targets, and spell out an intelligent and transparent resource mobilisation plan to finance policies. As far as the Finance Ministry is concerned, we have only incoherent public announcements a hotchpotch with no accountability.
• Boosting Consumption and Investment Demand: The government should provide direct fiscal stimulus to the sectors and segments of the economythat have been hit hard by the pandemic, such as MSMEs, informal workers, rural households, and low-income groups. The stimulus should aim at increasing their income, purchasing power, and access to credit.

THE CONCLUSION:

The Indian economy is currently facing a number of challenges including high fiscal deficit, high debt to GDP ratio, reliance on capital expenditure and many more. In addition, the country faces significant infrastructure and employment needs and a growing population that is increasingly young and educated. These factors present both opportunities and challenges for the country’s economic growth in the years ahead.

UPSC PREVIOUS YEAR QUESTION

Q: How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (2016)

MAINS PRACTICE QUESTION

Q: India’s economic growth is witnessing significant downfalls in recent years. In this context, examine the existing economic challenges responsible for the decline in GDP growth and the measures that the government should undertake to rejuvenate the economy.

SOURCE: https://thewire.in/economy/india-economy-modi-government-rule