Once a great success story, Indian growth story has hit a stumbling block in last 12-15 months. India’s economic difficulties are attributed to a combination of global influences and inadequate reform. But a comparison with other Asian economies regarding some macroeconomic underpinnings of that growth suggests that the problem could lie elsewhere. Even though the picture looks a bit gloomy right now, all is not lost and if proper steps are taken at the right time.
To return to the years of GDP growth of 7-8%, following steps need to be taken
More emphasis on Manufacturing Sector: Every economy needs a strong manufacturing sector to have a strong continued growth. India has been lucky that the Services sector has been a driving force behind the Indian growth. But it is high time that India revamps its manufacturing sector, ensuring that it becomes competitive, both technically and on cost with the other emerging countries.
A strong manufacturing sector would ensure not only stronger growth but also more employment opportunities for the individuals.
Strong Leadership and no more Policy Paralysis: One of the major reasons the outside world has lost faith in Indian Growth story has been the lack of strong leadership at the highest level. This has led to the country suffering from Policy paralysis which harms the corporate world. The bureaucratic layers and Babus working only to fill their own pockets and the dirty play of vote-bank politics have had a very negative effect on the business sector. It won’t be wrong to say that Indian has regressed under the weak leadership of Mr. Singh and the rupee has been the worst performing currency in the last one year.
Impetus to Foreign Direct Investment: India needs to convince the world that it is still an attractive avenue to invest. FDI policies and the retrospective tax policy among various other monetary policies need to be looked at with a pinch of salt and after serious thought need to be modified so that the foreign investors feel safe while investing their money here. Vodafone, Etisalat, Nokia fiascos among many other have deflated the investor confidence.
Control Inflation and Current Account Deficit: Inflation has been one of the major factors which have hampered the Indian growth. With inflation at high levels of 7-8 %, RBI governor has very little room to maneuver with the interest rates. With interest rates being high, it becomes difficult for the businesses to flourish at a rampant rate. Also widening of the Current Account and Fiscal deficits has had a cascading effect in the negative sense.
Focus on Agriculture: Food items have been a major factor in the rise of Inflation. India needs a period similar to that of the “Green Revolution” to make country self-sufficient and help boost the exports, bring in the precious foreign exchange. Although the share of agriculture in the total national income has been gradually decreasing on account of the development of the secondary and tertiary sectors, it still contributed about 18 % of nation income in 2006-07.(in 1950-51, it was 59%).
Agriculture helps in the development of tertiary (or service) sector. For example various means of transport like roadways and railways get bulk of their business from the movement of agricultural commodities and raw materials. A significant part of internal trade constitutes mainly of agricultural products. On over all view, India has always been benefited by agriculture. Though the future of India is industrialization, the contribution of agriculture would always prove to be vital for making India a powerful and stable economy in the future.
Better utilization of Resources: This is no secret that India is a resource rich country. There needs to better governance to ensure that the existing resources are optimally utilized and equitable growth is achieved.
In summary, India needs to implement these steps along with many more to put the country back on the road to recovery and achieve growth rates of 8-10% we have become used to in the previous decade.
One of the key growth drivers will be the rise of the middle class-especially in India – members of which will be the big spenders on health-care, education, household durables, and automobiles. The government policies and reforms to promote inclusive growth and drive sustainable growth in private consumption are essential.
[divider scroll_text=”Back To Top”]