Growth needs steps beyond reforms (GS-3, Economics)

Context:- The Indian economy has travelled through a Balance of payment in 1991 and carried through the last three decades. In 1991, That year was the year in which the economy was faced with a severe balance of payments crisis. To tackle that crisis, the Indian government has launched a wide-ranging economic programme, not just to reform, restructure and modernise the economy but to restore the balance of payments. Thus let us analyse the Trajectory of the Indian economy till the date. What the government has done at that time to mitigate the crises:-
  • Dismantled the vast network of licences, controls and permits that dominated the economic system
  • Redesigned the role of the state and allowed the private sector a larger space to operate.
  • India abandoned the inward looking foreign trade policy and got integrated with the world economy and trade. 
  • The objective of these reforms was to improve the productivity and efficiency of the system by creating a competitive environment.
Lets analyse based on the statistics:-
  • India’s GDP grew annually at factor cost by 6.20%. 
  • Between 2001­-02 and 2010­11,India’s GDP grew by 7.69% and the growth rate between 2011-­12 and 2019-­20, was 6.51%.
  • The best performance was between 2005­-06 and 2010-­11,  when the GDP grew by 8.7% which has shown the highest growth experienced by India over a sustained period of five to six years.
  • The balance of payments situation has been comfortable since then. 
  • Though, there were only three years in which the current account showed a small surplus but the best thing is that most of the years showed a small deficit.
  •  The current account deficit exceeded 4% which was in between 2011­-12 and 2012-­13.
  • We have opened up the external sector, which includes liberal trade policy, market determined exchange rate and a liberal flow of external resources, this further greatly strengthened the external sector.
  • But it is not about that happiness,the Indian economy still runs a high merchandise trade deficit.
Now let’s talk about the poverty reduction:-
  • According to the erstwhile Planning Commission which used the Tendulkar expert group methodology:-
    • Says that the overall poverty ratio came down from 45.3% in 1993­-94 to 37.2% in 2004-­05.
    • This poverty further came down to 21.9% in 2011­-12. 
    • The goodness about the data is that there is a per year reduction in percentage points in poverty ratio between 2004­05 and 2011­12 was 2.18.
  • The schemes such as Rural Employment Guarantee Scheme and the Extended Food Security Scheme paid a high dividend.
Why and how we have reached to this point:-
  • Growth requires more than reforms and these Reforms are the only necessary condition in the words of economists. 
    • It is not at all sufficient. 
  • In a developing economy the growth is driven by investment.
  • And in the Indian economy investment has declined at a rate of nearly five percentage points since 2010-­11.
  • Reforms normally create a natural climate for investment which is a necessary condition for growth.
  • But ‘animal spirits’ i.e. market , are also influenced by non­economic factors such as social cohesion.
  • Reforms must be supplemented by a careful investment climate which will spur growth again.
Way forward:-
  • Policymakers should be clear about the directions in which they should move. 
  • There is a need to move in the same direction in which we have been moving in the past three decades. 
    • Policymakers should identify the sectors which need reforms. 
  • We must relook at the financial system, power sector and governance. 
  • The Centre and States must be joint partners in this effort. 
  • There should be increased focus on social sectors such as health and education in terms of government performance. 
  • The emphasis must be not just on quantitative expansion but also quality when we take the provision of services into consideration. 
  • Reforms are necessary to improve the productivity of the economy and achieve higher growth. 
  • We must also look at equity considerations along with the reforms. 
  • Growth and equity must go hand in hand. 
    • So we must provide an  environment of high growth which will push equity aggressively. 
Source:- PIB, The Hindu, Indian Express.

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