In its review of the Indian economy published in the run-up to the interim budget to be presented on February 1, the office of the Chief Economic Advisor (CEA) V. Anantha Nageswaran reiterated its upbeat stance on the prospects of overall economic growth.
The CEA expects the GDP (Gross Domestic Product) growth rate for FY24 to surpass RBI’s estimate of 7 percent. While the growth rate for FY24 is pegged at 7.2 percent, it expects the same for FY25 to be close to 7 percent.
It also estimates India to become the world’s third largest economy in the next three years with a GDP of USD 5 trillion and USD 7 trillion by 2030.
“Strong domestic demand, a steady increase in private consumption and investments accompanied by consistent structural reforms will keep the economy buoyant,” it said.
Potential to surpass the 7 percent growth rate by 2030
Referring to the projections of the International Monetary Fund (IMF) it said, “While the world economy is expected to grow at 3.1 percent between 2023-2028, India will not only be a USD 7 trillion economy by 2030 but might also surpass the projected 7 percent growth target for the same period.”
Here are the key growth drivers that are expected to aid the economy hit the 7 per cent plus growth rate target:
1. Infra-push to help private investments materialise
The review forecasts a decline in the incremental capital to output ratio (ICOR), a key development indicator. In an ideal situation, a low ICOR indicates productive use of capital and greater efficiency. To achieve this goal, a country’s overall GDP and its rate of growth should consistently continue to be on the higher side in proportion to the capital invested.
As per the recent numbers available, India’s ICOR has gradually declined for good from 7.5 in FY12 to 3.5 in FY22. The CEA expects that the increased speed of public infrastructure building activity will not only help improve logistics but will also enable optimum utilisation of the capital employed through private investments.
2. Insolvency and Bankruptcy Code (IBC) as a game changer
The insolvency law introduced in 2016 by the union government paved the way for transition from the debtor-in-control model to the creditor-in-control model. The law not only provides comprehensive guidelines for resolution of stressed assets but has reduced the time taken for its recovery.
As per the recent numbers, the law has enabled recovery of Rs 3.16 lakh crore from the time it was enforced. The review observes that this has ‘freed up the much needed economic capital that was otherwise rendered unproductive.’
3. Digital Transformation
The review notes that a consistent push towards upgrading the digital infrastructure in India has played a significant role in enhancing institutional efficiency in public as well as private sector.
In the public domain, the Aadhaar-based authentication and linking of the same with the permanent account number has enabled effective implementation of Direct Benefit Transfer (DBT) in several schemes. Introduction of facilities like DigiLocker and development of several dashboards at the level of centre as well as state governments has improved governance with constant monitoring of real time data.
This apart, development of the United Payments Interface (UPI) by the National Payments Corporation of India (NPCIL) and the recently introduced E-Rupee, a digital token currency by the Reserve Bank of India (RBI) have provided for seamless transactions within the reach of common man.
As per the recent numbers released by NPCIL for December 2023, the UPI transactions increased 54 percent year-on-year to Rs 18.23 lakh crore along with a 42 percent yearly increase in the number of transactions at 12.02 billion.
4. Increased Human Capital Formation
Increased availability of skilled labour is essential for improved efficiency and increase in the overall output. The review notes that initiatives taken by the union government such as the National Skill Development Mission combined with the separate initiatives of the state government will help increase the human capital formation vis a vis better productivity.
5. Tech progress through international collaborations
The most prominent example of this part the explanation is the Production Linked Incentive scheme of the government. This scheme is seeing active participation of global giants, especially in the sectors of telecom and automobile.
Launched in March 2020 only for three industries, mobile and allied component manufacturing, electrical component manufacturing, and medical devices, the PLI programme was later extended to cover 14 sectors in all.
In this, the government offers financial incentives, for a limited period, to domestic and foreign companies for manufacturing their products in India. These incentives are determined as a proportion of their manufacturing output.
As per the review of the CEA, the PLI schemes have led to production/sales worth Rs 8.7 lakh crore and generated employment for close to 7 lakh people.
PLI-linked exports have been in excess of Rs 3.4 lakh crore and 176 MSMEs have directly benefited from the scheme.
6. Increased Ease of Doing Business
The review observes that a gradual improvement in the ease of doing business in India has increasingly made the investment climate favourable.
As per the World Bank’s ease of doing business ranking declared last in 2019, India had jumped 79 positions from 142nd in 2014 to 63rd in 2019.
According to experts, persistent emphasis of the government on undoing redundant laws that hindered business activity, push for single window clearances and the global China+1 strategy that favours India will go a long way in keeping the India growth story moving.
Highlighting the relevance of making India a USD 7 trillion economy by 2030, the review said, "This will be a significant milestone in the journey to delivering a quality of life and ensuring a standard of living that not only matches but exceeds the aspirations of the Indian people."
Staff Writer at Swarajya
An appeal from Swarajya
At Swarajya, we rely on our readers' support through subscriptions to sustain our media platform. Unlike larger conglomerates, we are unable to relentlessly chase advertising money — our model is largely built on your patronage.
Your support has never been more crucial. We work tirelessly to deliver 10-15 high-quality articles daily, ensuring you receive insightful content from 7 AM to 10 PM.
If you believe India's story has to be articulated in a way it has never been done before without shrugging it off, become a patron (or) subscribe now for ₹̶2̶4̶0̶0̶ ₹1999 and get 12 print issues, unlimited digital access for 1 year, a special India that is Bharat T-shirt (Offer ends soon).
We are counting on you!