There are two things that stand out. The Indian economy began to revive in March 2013 more than a year before the current government took office after a period of contraction following the Global Financial Crisis.
But, more importantly, since the third quarter of 2016-17 (October to December), this recovery has transformed into a secular slowing of growth. While the RBI did not declare so, many experts believe the government’s move to demonetise 86 percent of India’s currency overnight on November 8, 2016, was the catalyst that sent the country’s GDP into a tailspin.
The GDP growth rate steadily fell from over 8% in FY17 to around 4% in FY20, just before Covid-19 hit the country, as the ripples of demonetisation and a poorly designed and hastily implemented Goods and Services Tax (GST) spread through an economy already struggling with massive bad loans in the banking system.
PM Modi voiced hope in January 2020, when GDP growth fell to a 42-year low (in terms of nominal GDP), saying: “The Indian economy’s high absorbent capacity demonstrates the strength of the country’s foundations and its ability to recover.”
The foundations of the Indian economy were already weak in January last year well before the outbreak as an examination of key factors shows. For example, in the recent past (Chart 2), India’s GDP growth trend mirrored an exponential development pattern “Even before Covid-19 came the market, there was a “inverted V.”
What factors contribute to low GDP?
Shifts in demand, rising interest rates, government expenditure cuts, and other factors can cause a country’s real GDP to fall. It’s critical for you to understand how this figure changes over time as a business owner so you can alter your sales methods accordingly.
Is India’s GDP set to rise in 2021?
Former CEA predicts 9.5 percent growth in India’s economy in 2021-22. GDP Growth Rate in India in 2021: According to government figures, the economy will grow at a rate of 9.2% in 2021. The RBI, on the other hand, forecasts a GDP growth rate of 9.5 percent.
What can we do to boost GDP?
- AD stands for aggregate demand (consumer spending, investment levels, government spending, exports-imports)
- AS stands for aggregate supply (Productive capacity, the efficiency of economy, labour productivity)
To increase economic growth
1. An increase in total demand
- Lower interest rates lower borrowing costs and boost consumer spending and investment.
- Increased real wages when nominal salaries rise faster than inflation, consumers have more money to spend.
- Depreciation reduces the cost of exports while raising the cost of imports, increasing domestic demand.
- Growing wealth, such as rising house values, encourages people to spend more (since they are more confident and can refinance their home).
This represents a rise in total supply (productive capacity). This can happen as a result of:
- In the nineteenth century, new technologies such as steam power and telegrams aided productivity. In the twenty-first century, the internet, artificial intelligence, and computers are all helping to boost productivity.
- Workers become more productive when new management approaches, such as better industrial relations, are introduced.
- Increased net migration, with a particular emphasis on workers with in-demand skills (e.g. builders, fruit pickers)
- Infrastructure improvements, greater education spending, and other public-sector investments are examples of public-sector investment.
To what extent can the government increase economic growth?
A government can use demand-side and supply-side policies to try to influence the rate of economic growth.
- Cutting taxes to raise disposable income and encourage spending is known as expansionary fiscal policy. Lower taxes, on the other hand, will increase the budget deficit and lead to more borrowing. When there is a drop in consumer expenditure, an expansionary fiscal policy is most appropriate.
- Cutting interest rates can promote domestic demand. Expansionary monetary policy (currently usually set by an independent Central Bank).
- Stability. The government’s primary job is to maintain economic and political stability, which allows for normal economic activity to occur. Uncertainty and political polarization can deter investment and growth.
- Infrastructure investment, such as new roads, railway lines, and broadband internet, boosts productivity and lowers traffic congestion.
Factors beyond the government’s influence
- It is difficult for the government to influence the rate of technical innovation because it tends to come from the private sector.
- The private sector is in charge of labor relations and employee motivation. At best, the government has a minimal impact on employee morale and motivation.
- Entrepreneurs are primarily self-motivated when it comes to starting a firm. Government restrictions and tax rates can have an impact on a business owner’s willingness to take risks.
- The amount of money saved has an impact on growth (e.g. see Harrod-Domar model) Higher savings enable higher investment, yet influencing savings might be difficult for the government.
- Willingness to put forth the effort. The vanquished countries of Germany and Japan had fast economic development in the postwar period, indicating a desire to rebuild after the war. The UK economy was less dynamic, which could be due to different views toward employment and a willingness to try new things.
- Any economy is influenced significantly by global growth. It is extremely difficult for a single economy to avoid the costs of a global recession. The credit crunch of 2009, for example, had a detrimental impact on economic development in OECD countries.
In 2009, the United States, France, and the United Kingdom all went into recession. The greater recovery in the United States, on the other hand, could be attributed to different governmental measures. 2009/10 fiscal policy was expansionary, and monetary policy was looser.
Governments frequently overestimate their ability to boost productivity growth. Without government intervention, the private sector drives the majority of technological advancement. Supply-side measures can help boost efficiency to some level, but how much they can boost growth rates is questionable.
For example, after the 1980s supply-side measures, the government looked for a supply-side miracle that would allow for a significantly quicker pace of economic growth. The Lawson boom of the 1980s, however, proved unsustainable, and the UK’s growth rate stayed relatively constant at roughly 2.5 percent. Supply-side initiatives, at the very least, will take a long time to implement; for example, improving labor productivity through education and training will take many years.
There is far more scope for the government to increase growth rates in developing economies with significant infrastructure failures and a lack of basic amenities.
The potential for higher growth rates is greatly increased by providing basic levels of education and infrastructure.
The private sector is responsible for the majority of productivity increases. With a few exceptions, private companies are responsible for the majority of technical advancements. The great majority of productivity gains in the UK is due to new technologies developed by the private sector. I doubt the government’s ability to invest in new technologies to enhance productivity growth at this rate. (Though it is possible especially in times of conflict)
Economic growth in the UK
The UK economy has risen at a rate of 2.5 percent each year on average since 1945. Most economists believe that the UK’s productive capacity can grow at a rate of roughly 2.5 percent per year on average. This is known as the ‘trend rate of growth’ or ‘underlying trend rate’.
Even when the government pursued supply-side reforms, they were largely ineffective in changing the long-run trend rate. (For example, in the 1980s, supply-side policies had minimal effect on the long-run trend rate.)
The graph below demonstrates how, since 2008, actual GDP has fallen below the trend rate. Because of the recession and a considerable drop in aggregate demand, this happened.
- Improved private-sector technology that allows for increased labor productivity (e.g. development of computers enables greater productivity)
- Infrastructure investment, such as the construction of new roads and train lines. The government is mostly responsible for this.
Is Pakistan poorer than India?
With a GDP of $2,709 billion dollars in 2020, India’s GDP will be about ten times that of Pakistan’s $263 billion dollars. The disparity is larger in nominal terms (almost ten times) than in ppp terms (8.3 times). In nominal terms, India is the world’s fifth largest economy, while in ppp terms, it is the third largest. Pakistan has a nominal ranking of 48 and a PPP ranking of 24. Maharashtra, India’s most economically powerful state, has a GDP of $398 billion, far exceeding Pakistan’s. Tamil Nadu, India’s second-largest economy ($247 billion), is relatively close. The gap between these two countries was at its narrowest in 1993, when India’s nominal GDP was 5.39 times that of Pakistan, and at its widest in 1973. (13.4x).
In terms of gdp per capita, the two countries have been neck and neck. For only five years between 1960 and 2006, India was wealthier than Pakistan. In 1970, Pakistan’s GDP per capita was 1.54 times that of India. Since 2009, the margin has widened in India’s favor. On an exchange rate basis, India’s per capita income was 1.56 times more than Pakistan’s in 2020, with an all-time high of 1.63x in 2019. The previous year, Pakistan was wealthier than India. Both countries rank near the bottom of the world in terms of GDP per capita. India is ranked 147 (nominal) and 130 (absolute) (PPP). Pakistan is ranked 160 (nominal) and 144 in the world (PPP). There are 28 Indian states/UTs that are wealthier than Pakistan.
In 2020, India’s gdp growth rate (-7.97) will be lower than Pakistan’s (-0.39) after 19 years. India’s GDP growth rate reaches a high of 9.63 percent in 1988 and a low of -5.24 percent in 1979. Pakistan’s inflation rate peaked at 11.35 percent in 1970 and peaked at 0.47 percent in 1971. Pakistan expanded by more than 10% in three years from 1961 to 2017, while India never did. India’s GDP growth rate has been negative for four years, whereas Pakistan’s growth rate has never been negative.
According to the CIA Fackbook, India’s GDP composition in 2017 was as follows: agriculture (15.4%), industry (23%), and services (23%). (61.5 percent ). Agriculture (24.7 percent), Industry (19.1 percent), and Services account for the majority of Pakistan’s GDP in 2017. (56.3 percent ).
Was India wealthy prior to the British occupation?
In a chaotic and institutionally backward India, big adjustments were undoubtedly required. Recognizing the need for change in India in the mid-eighteenth century does not necessitate ignoring as many Indian super-nationalists fear the country’s past tremendous achievements in philosophy, mathematics, literature, arts, architecture, music, medicine, linguistics, and astronomy. Before the colonial period, India had also made significant progress in developing a vibrant economy with booming trade and commerce – the economic riches of India was widely acknowledged by British observers such as Adam Smith.
Why is Pakistan so impoverished?
Environmental issues in Pakistan, such as erosion, the usage of agrochemicals, and deforestation, all contribute to the country’s expanding poverty. Pollution increases the danger of toxicity, and the country’s inadequate industrial standards contribute to the rise in pollution.
In 2030, what would India’s GDP be?
India is expected to overtake Japan as Asia’s second-largest economy by 2030, when its GDP is expected to surpass that of Germany and the United Kingdom to become the world’s No. 3, according to IHS Markit. India is currently the world’s sixth-largest economy, behind the United States, China, Japan, Germany, and the United Kingdom.
“India’s nominal GDP is expected to expand from $2.7 trillion in 2021 to $8.4 trillion by 2030,” according to IHS Markit Ltd. “With this rapid economic growth, Indian GDP would surpass Japanese GDP by 2030, making India the second-largest economy in the Asia-Pacific area.” By 2030, India’s GDP will be larger than Germany, France, and the United Kingdom, the three major Western European economies.
“Overall, India is anticipated to remain one of the fastest-growing economies in the world over the next decade,” it stated. A number of significant growth drivers boost the Indian economy’s long-term prospects.
“An significant positive element for India is its big and rapidly increasing middle class, which is helping to increase consumer spending,” according to IHS Markit, which predicts that the country’s consumption expenditure would double from $1.5 trillion in 2020 to $3 trillion in 2030.
India’s real GDP growth rate is expected to be 8.2% for the whole fiscal year 2021-22 (April 2021 to March 2022), rebounding from a severe drop of 7.3 percent year-on-year in 2020-21, according to IHS Markit.
The Indian economy is expected to develop at a healthy pace of 6.7 percent in the fiscal year 2022-23. India has become an increasingly important investment destination for a wide range of multinationals in numerous areas, including manufacturing, infrastructure, and services, due to its quickly developing domestic consumer market and massive industrial sector.
India’s present digital transformation is predicted to boost the expansion of e-commerce, transforming the retail consumer market landscape over the next decade.
Is India considered developed?
India is a southern Asian emerging and developing country (EDC). It is the world’s largest democracy as well as one of the fastest growing economies.