THE CONTEXT: The Economic Survey 2023-24 presents a realistic assessment of India’s economic landscape, highlighting both progress and challenges. It offers a candid view of the paradoxes in the economy and outlines the hurdles India faces on its path to becoming a developed nation.
THE ISSUES:
Subdued private sector investment: Despite high corporate profits and bank margins, private sector investment remains low, particularly in machinery, equipment, and intellectual property.
Employment challenges: To absorb new entrants and those exiting agriculture, the economy needs to generate 78.5 lakh jobs annually in the non-farm sector. Existing schemes like PLI and Mudra are insufficient to meet this demand.
Skill gap: Approximately half of college graduates are deemed unemployable, highlighting a significant skill challenge in the workforce.
External headwinds: India’s path to becoming Viksit Bharat by 2047 faces more challenges than China did due to a less favorable geopolitical environment and the end of globalization’s peak.
Climate change and AI threats: These emerging forces are expected to create barriers and hurdles for India to sustain high growth rates in the coming years and decades.
Limited growth in productive employment and slow private consumption: While corporate profits are high, the economy is experiencing subdued growth in more productive employment opportunities, and private consumption is growing at just 4%.
THE WAY FORWARD:
Boost private sector investment in productive assets: There is a need for increased private sector investment, particularly in machinery, equipment, and intellectual property, rather than just buildings and structures. Implement targeted tax incentives for capital investments, like Singapore’s Productivity and Innovation Credit scheme, which provides up to 400% tax deductions on qualifying expenditures.
Address the employment challenge: Expand and reform apprenticeship programs, taking inspiration from Germany’s dual vocational training system, which has helped maintain youth unemployment at 5.8% compared to the EU average of 16.8%. Develop sector-specific skilling programs in partnership with industry, like Australia’s Industry Skill Funds, which trained over 180,000 workers in two years.
Enhance skill development and employability: Integrate industry-relevant skills into higher education curricula, following the UK’s degree apprenticeship model, which combines academic study with on-the-job training. Incentivize corporate investment in employee training through tax credits, as seen in France’s training tax credit system.
To overcome geopolitical and economic hurdles: Diversify trade partnerships through strategic free trade agreements, like Vietnam’s network of 15 FTAs covering 60 countries. Establish special economic zones focused on high-tech manufacturing and services inspired by China’s successful SEZ model in Shenzhen. Develop a comprehensive economic diplomacy strategy, similar to South Korea’s approach, which helped it become a significant exporter despite limited natural resources.
Address climate change while maintaining growth: To balance environmental sustainability with economic development, a carbon pricing mechanism with revenue recycling should be implemented, following Canada’s federal carbon pricing system, which has reduced emissions while supporting economic growth. Establish a green finance taxonomy and incentives for sustainable investments inspired by the EU’s Sustainable Finance Action Plan. Develop a national circular economy strategy, like the Netherlands’ goal to become fully circular by 2050, which could create 54,000 jobs and save 7.3 billion euros annually.
THE CONCLUSION:
The Survey’s comprehensive analysis sets the stage for policy discussions, but its impact on the upcoming Union Budget remains to be seen. The government’s response to the challenges identified and its adoption of suggested strategies will be crucial in shaping India’s economic trajectory.
UPSC PAST YEAR QUESTIONS:
Q.1 Most of the unemployment in India is structural. Examine the methodology adopted to compute unemployment in the country and suggest improvements. 2023
Q.2 Economic growth in the recent past has been led by increased labour productivity. Explain this statement. Suggest a growth pattern that will create more jobs without compromising labor productivity. 2022
Q.3 The nature of economic growth in India is described as jobless growth. Do you agree with this view? Give arguments in favor of your answer. 2015
Q.4 “‘Earn while you learn’ scheme needs to be strengthened to make vocational education and skill training meaningful.” Comment. 2021
MAINS PRACTICE QUESTION:
Q.1 There is a paradox of corporate profits versus subdued private investments and the employment crisis. Discuss the impact of these challenges on India’s economic growth trajectory.
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