Green Shoots in Indian Economy showing signs of a rebound
By Pradeep S. Mehta & Neelanjana Sharma
The Indian economy was not in great shape before the pandemic but the sudden onset of it gave a reason for the unprecedented dip to be justified.
India’s economy, if looked at from a realistic perspective, is one of the youngest in the world. We became independent in 1947 and a republic in 1950. Furthermore, until 1991, India was a closed economy when the economic reforms, better known as Liberalisation, Privatisation and Globalisation, were introduced. So, the modern Indian Economy is essentially around 30 years old. Yet, India is one of the fastest-growing economies currently. It will also remain the fastest-growing major economy in the world during 2021-24, as per World Bank and International Monetary Fund (IMF).
India has recovered from the pandemic at a superhuman speed. However, the recovery is varied for various sections. The post-pandemic recovery in reality is a K-shaped recovery, where the people in positions of wealth have earned more because of the rise in their wealth, whereas people with little to no wealth are the ones who have suffered the wrath of the pandemic.
To move forward, India’s economy needs to be centred on a few key sectors while integrating technology in them. Agriculture, services, manufacturing, and health are the areas that should be the key focus of the government amongst others.
Agriculture has been the backbone of the Indian Economy in terms of employment. It was the least affected sector and remained robust even during the pandemic. It was possible on account of increased yield, efficiency and profitability due to technological advancement and increased market investment. The support of the government through Union Budget 2022 to the Agri-Tech and Agriculture sector is thus in line with the necessity of sustained growth. The budget has contributed to Research and Development (R&D) incentives, automation and start-ups’ support while trying to empower the farmers.
In order to achieve food security for the increasing population and incorporate sustainable practices, it is essential that agriculture becomes ‘chemical-free’ and technology-based. The use of drone technology has been highlighted in the budget which is indicative of the government’s push for technology application in the sector. However, technology infusion is not enough and there is a need to go back to natural farming, for which the government has announced a ‘natural farming corridor’ along river Ganga. In the future, this can become an epicentre of agriculture development and help the government’s ambition to double farmers’ income.
Secondly, India’s manufacturing sector saw a rise post LPG reforms; however, it was unable to compete with China’s manufacturing sector due to the poor implementation of a visionary and progressive manufacturing plan crafted in 2012. The five-year plans leading to this year’s Union Budget has always had a policy for improving manufacturing. However, it has not been successful due to government interventions, protectionism, and quota and licence system amongst others.
Pandemic has shown us our vulnerabilities. Industrial growth was in negative figures. Thus, green and sustainable industrialisation is the need of the hour. A policy map that addresses any future supply chain disruption and enhances critical infrastructure should be introduced while aiming to produce electronics, pharmaceuticals, telecom, defence equipment etc. locally. Simultaneously, in order to grow exports also need to grow. However, the competitiveness of the Indian industry being poor is an uphill task. No wonder Indian industry is shy of the government entering into free trade agreements with countries that are better placed in the system.
Thirdly, the frontrunner in the race of growth of India’s services sector as it contributes close to 50 per cent of our economy. The sector was severely hit during the pandemic and showed negative growth in 2020, however it recovered quickly. The recovery was due to the sectors’ adaptability to the latest change and technology. India’s service sector’s strongest workforce is in Information Technology (IT), Business Processing Outsourcing (BPO), and skilled workers.
At the same time, there is a need to reverse the jobless growth trend and generation of employment should be a key focus area for all economic planning. Employment has been lowest in the past 45 years as most of it is reliant on the services sector and is capital intensive. In a household survey by CMIE, the Labour Participation Rate (LPR) was at 46 per cent in 2016 and dropped to 40 per cent in 2021 which is the worst in the world. To increase the labour participation rate specific focus should be given to women. Incentives and schemes to increase LPR that would result in higher participation by women are desirable.
It would also make better sense to steer towards more manufacturing capabilities, agricultural productivity and food processing which would, in turn, result in more employment opportunities. India’s government has increased the effort in promoting labour-intensive activities involving infrastructure development, textiles and leather industry, construction, mining etc.
Initiatives like Skill India, Start-up India and MUDRA scheme have played a pivotal role in the recovery of the stated sectors. Ideally, some of the revenue generated by the government from these sectors should be invested in these very sectors. This is possible as the government has raised 58 per cent more revenue than the expected nine per cent of the total revenue in the previous year. This will help combat the impact of the pandemic which pushed over 200 million people into poverty.
There is a need to streamline schemes to reach the intended beneficiaries. Schemes like Awas Yojana, Jal Jeevan Yojana, Ujjwala Yojana, Saubhagya Yojana have facilitated Ease of Living for people by targeted approaches. These have thus enhanced demand and purchasing power.
And lastly, public spending on health has always been on the lower side. Furthermore, the pandemic has exposed the vulnerabilities of the health sector. The Budget 2022 allocation for health has matched the previous year’s estimates it still isn’t enough.
There needs to be better prioritisation of the health sector so that the vulnerabilities of the pandemic are not long term. The government can facilitate the sector by focusing on increasing infrastructure, ensuring the supply of health care professionals doctors by reforming medical education regulations and intensifying methods to make the health sector digital-friendly while maintaining privacy and security of data.
The budget had a key insight into the government’s intention towards prioritising the health sector as can be seen with schemes such as Ayushman Bharat and the National Digital Health Mission (NDHM). The journey of India’s growth story has to be inclusive and resilient moving forward. This can be achieved by keeping people, who will be actual consumers of government policy, at the centre of all actions and decisions.
One of the best ways to do so is to garner public and expert views through consultations. The state of the Indian economy is sure to be on the rise with it already being one of the fastest-growing economies outpacing its contemporaries. The pace of development should ensure that it is inclusive. By focusing on sectors that include people at their core while incorporating sustainable and technology-led measures, India can be at the forefront of global economic growth.
(Pradeep S. Mehta is Secretary-General, and Neelanjana Sharma is a policy researcher at CUTS International, global public policy research and advocacy group situated in New Delhi, Washington DC, and Geneva.)