A WALK THROUGH THE INDIAN ECONOMY
On 15th August,1947 , Independence bought dreams of not just individual but social, political and economic freedom. From a mere 3.8% percent share in the world income (a GDP of just 2.7 Lakh Crores) to a plan of entering the 5 Trillion Dollar Club today, India leads the way, being the world’s fifth largest economy by Nominal GDP and the third largest by Purchasing Power Parity (PPP).
As we currently stand at a GDP of 3.202 Trillion Dollars today, here’s a glimpse into what went into the making of a billion dreams and aspirations.
INDIA’S ECONOMIC MODEL
Do you know what nearly led to the collapse of India’s economy in 1991? It was the first economic model drafted under the political leadership of Mr. Nehru. Although great industrialists like JRD Tata and GD Birla advised against the same, the govt stood adamant on its belief that the state was the sole financier and entrepreneur of private enterprises. Ironically, they believed that planning was not possible in a free market economy, something which actually lead to a 700% increase in our GDP post liberalisation.
The LPG Model opened up our economy to new avenues and the results can be clearly seen in the way India's GDP has increased over the years. However, the question still persists, “Is India pursuing the correct economic model that can deliver prosperity to 17.7 percent of the world population?” Our successive models have ensured that 73 percent of the country’s wealth lie in the hands of the top one percent, while a substantial section of the population oscillated between penury and subsistence. The world has entered a phase of Zombie Capitalism where cheap or interest free finance is sustaining the neo liberal economic order, where printing more money has become the new normal, where new startups and ventures are running just surviving bankruptcy and the Govt ignoring the fact that country’s economy is falling. Are we living in a bubble that is just about to burst?
Five Year Plans- A Thing of the Past?
Sixty Nine Years ago, on 9th July,1951, the then Prime Minister, Mr Nehru presented the first Five Year Plan to the Parliament. These plans formulated by the Planning Commission were centralised economic and social growth plans to plan public expenditure for equitable growth rather than leaving it to the market forces. For the record, we have had 12 Five Year plans , out of which only 3 were approved by the Cabinet. Although these plans helped the country to revive its economy, The Modi Govt discarded the Five year plans in 2014 which gave way to the formation of NITI Aayog (National Institution for Transforming India), the think tank of the Govt of India.
Here are some of the reasons for the replacement of Planning Commission-
Planning Commission followed the path of centralized planning and often ended up using the” one size fits all approach”. For a country as big and diverse as India, this approach of top down planning often led to wastage of resources. On the other hand, the Niti Aayog includes leaders from all the 29 states and representatives from educational institutions to better formulate the plans.
Since the Planning Commission was controlled by the Central Govt, it often ended up as a tool to punish the states governed by the opposition partied by not allocating them enough funds. On a Contrary, the Niti Aayog cannot allocate funds , it is just a advisory body of the Govt of India.
The Planning Commission forced the plans upon the states who had no say in planning their expenditure. This needed to be done away with as the states knew better as to what they need and how much do they need.
Although the Niti Aayog has undertaken various innovative measures during the past three years such as Atal Incubation Centres, Aayushman Bharat, water conservation measures, approach towards artificial intelligence etc; its inability to influence private or public investment, uncritical praise of the Govt’s schemes, with its inability to influence policy making for long term, no participation in the public policy or economic involvement, will it have the same faith as the Planning Commission once the Govt changes or will it actually do something substantial for the economy? Economic Growth GDP which stand for Gross Domestic Product, is the total market value of all finished goods and services produced within a country’s borders in a specific time period. Over the years, our GDP has grown from a mere 2.7 lakh crores to 3.2020 trillion dollars in the past 73 years. Earlier the country used to depend on agriculture , but with the success of LPG model, India has witnessed the advent of rapid industrialisation and growth in the service sector ,making it the 5th largest economy in the world by Nominal GDP
But what does it mean to be the 5th largest by Nominal GDP? Nominal GDP is the current market value of all goods and services produced by the country. It doesn’t strip out inflation or the pace of rising prices which can inflate growth rate. This means that the production of goods and services in India are soaring newer heights, generating employment opportunities for millions of people each year.
Although the GDP is said to be falling during the pandemic , the country’s economy has planted its roots so deep that 12 out of its 36 sectors such as pharmaceuticals, iron ores and fruits and vegetables have increasing exports even during the lockdown , while our imports have dipped 46%. For the first time in 18 years and only thrice in Indian history, we have had a positive balance of trade of 790 Million Rupees. We have recorded the highest ever Forex reserves the country has even seen, a whopping amount of 534.568 dollars. In 2010, we ranked 9th as the largest economy by Nominal GDP but within just 10 years, our GDP has surpassed the GDP of countries like France and UK.
We have the money, but do we have the purchasing power?
Purchasing Power Parity is a term used by the economists to compare different countries currencies using “A basket of Good Approach". India has the third largest economy by PPP, surpassed only by USA and China. We control 6.7 percent of the world’s economy in terms of PPP. Although our budget has grown by 19 times, economy 9 times , your income 5 times, per capita income 5.6 times and inflation down by 4% , Is India’s GDP Growth real?
Measures like loan moratorium, an estimation of sharp contraction of our GDP by the World Bank, shortage of monetary manevoures , increasing financial scams and companies filing for bankruptcy can in no time reverse our progress and show us the path of economic slowdown. While some economists argue that we are living in a bubble , others say that the country may hit a recession in the near future. Will the Indian Govt be able to survive this and enter the 5 Trillion Dollar Club by 2024 will be interesting to watch!