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State of the Indian Economy

By Spotlight - 26-03-2019

nd has become one of the most open global economies by ushering in liberalisation measures.
•    The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19.
•    The Niti Aayog has predicted that rapid adoption of green mobility solutions like public transport, electric vehicles and car-pooling could likely help India save around Rs 3.9 trillion (US$ 60 billion) in 2030.
•    Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4 billion by 2025.
•    The Union Cabinet, Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation Bill.
•    Indian merchandise exports in dollar terms registered a growth of 30.55 per cent year-on-year in November 2017 at US$ 26.19 billion.

Government Initiatives
In the Union Budget 2017-18, the Finance Minister, Mr Arun Jaitley, verified that the major push of the budget proposals is on growth stimulation, providing relief to the middle class, providing affordable housing, curbing black money, digitalisation of the economy, enhancing transparency in political funding and simplifying the tax administration in the country.
India's unemployment rate has declined to 4.8 per cent in February 2017 compared to 9.5 per cent in August 2016, as a result of the Government's increased focus towards rural jobs and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme.
Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India. Mr. Narendra Modi, Prime Minister of India, has launched the Make in India initiative with an aim to boost the manufacturing sector of Indian economy, to increase the purchasing power of an average Indian consumer, which would further boost demand, and hence spur development, in addition to benefiting investors. The Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy.

Some of the recent initiatives and developments undertaken by the government are listed below:
•    The Government of India has succeeded in providing road connectivity to 85 per cent of the 178,184 eligible rural habitations in the country.
•    All villages have been electrified in India by May 2018.
•    The Government of India has decided to invest Rs 2.11 trillion (US$ 32.9 billion) to recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 109.31billion) for construction of new roads and highways over the next five years.
•    The mid-term review of India's Foreign Trade Policy (FTP) 2015-20 has been released by Ministry of Commerce & Industry, Government of India, under which annual incentives for labour intensive MSME sectors have been increased by 2 per cent.
•    The India-Japan Act East Forum, under which India and Japan will work on development projects in the North-East Region of India will be a milestone for bilateral relations between the two countries.
•    The Government of India will spend around Rs 1 lakh crore (US$ 15.62 billion) during FY 18-20 to build roads in the country.
•    The Government of India plans to facilitate partnerships between gram panchayats, private companies and other social organisations, to push for rural development under its 'Mission Antyodaya' and has already selected 50,000 panchayats across the country for the same.
•    The fiscal deficit of the Government of India, which was 4.5 per cent of the gross domestic product (GDP) in 2013-14, has steadily reduced to 3.5 per cent in 2016-17 and is expected to further decrease to 3.2 per cent of the GDP in 2017-18.
•    The Government of India plans to implement a new scheme, named 'Sasti Bijli Har Ghar Yojana' with an outlay of Rs 17,000 crore (US$ 2.64 billion), to provide electricity to around 40 million un-electrified households in the country.
•    India's revenue receipts are estimated to touch Rs 28-30 trillion (US$ 436- 467 billion) by 2019, owing to Government of India's measures to strengthen infrastructure and reforms like demonetisation and Goods and Services Tax (GST).

Road Ahead
India's gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and achieve upper-middle income status on the back of digitisation, globalisation, favourable demographics, and reforms.
India is also focusing on renewable sources to generate energy. It is planning to achieve 40 per cent of its energy from non-fossil sources by 2030 which is currently 30 per cent and also have plans to increase its renewable energy capacity from 57 GW to 175 GW by 2022.
India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040.

India tops list of fastest growing economies for coming decade

India tops the list of the fastest growing economies in the world for the coming decade and is projected to grow at 7.9 per cent annually, ahead of China and the US, according to a Harvard University report. 

The Centre for International Development (CID) at Harvard University said that countries that have diversified their economies into more complex sectors, like India and Vietnam, are those that will grow the fastest in the coming decade. "India tops the list as the fastest growing country for the coming decade, at 7.9 per cent annually, in the economic complexity growth projections. India has made inroads in diversifying its export base to include more complex sectors, such as chemicals, vehicles, and certain electronics," the report said. 

It said that India's productive capabilities far exceed expectations for its current income level, which contributes to the projection of rapid growth for the coming decade. The researchers also find India ranks the best on the criteria termed the Complexity Opportunity Index (COI), which measures how easy it is to redeploy existing knowhow to enter new complex products. 
India's existing capabilities have not only diversified its exports, but also allow for easy redeployment into related products that depend on those capabilities, making further diversification relatively easy. China is projected to grow at 4.9 per cent annually to 2026, the US three per cent and France 3.5 per cent. 

The top ranking in COI means India has many "unrealised opportunities" to diversify into related, high-value sectors to continue to drive productivity growth and job creation. Up to now, that potential remains unrealized, however, as India's complexity has not changed over the past decade. The rapid growth that is predicted is effectively capitalizing on previous gains in complexity.

It stressed that ensuring the long-run potential of India's economic growth will rely on realizing diversification into related products. The other major challenge will be to ensure the inclusive nature of this productive transformation, as the gains made in new chemical, vehicle and electronics exports are highly concentrated in specific localities of the subcontinent. "Whether that knowhow can be disseminated into new areas of India will in part determine whether rapid growth can be sustained in the long-term," it said.    

"Others like India, Turkey, and the Philippines have successfully added productive capabilities to enter new sectors and will drive growth over the coming decade," said Sebastian Bustos, a lead CID researcher in trade and economic complexity methods.  

Economic Survey 2017-18

The Economic Survey 2017-18, was tabled in the Parliament on January 29, 2018, by Arun Jaitley, Union Minister for Finance, Government of India. The Survey forecasts a growth rate of 7 to 7.5 per cent for FY19, as compared to the expected growth rate of 6.75 per cent in FY18. Focus on private investments and exports, two truly sustainable engines of economic growth, will be crucial in improving the climate for rapid economic growth.

Key Highlights:
Fiscal Deficit:
•    Central Government is confident of achieving fiscal deficit of 3.2 per cent of GDP for 2017-18.
•    The fiscal deficit during April-November 2017 has reached 112 per cent of budgeted expenditure as compared to 85.8 per cent during the corresponding period last year.
•    Revenue and fiscal deficits of states as a percentage of corresponding budget estimates is lower in the current year as compared to the previous year.

GDP Growth:
•    GDP growth expected to be between 6.5 and 6.75 per cent in 2017-18.
•    Real GDP growth expected at 6.5 per cent in 2017-18
•    GVA growth at basic prices is expected to be 6.1 per cent in 2017-18

Inflation and monetary policy:
•    Average retail inflation, measured by Consumer Price Index (CPI), in 2017-18 (April – December) seen at 3.3 per cent.
•    Average Wholesale Price Index (WPI) inflation, in 2017-18 (April – December) seen at 2.9 per cent from 1.7 per cent in 2016-17.
•    The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.0 per cent in August 2017.

External Sector:
•    The current account deficit has declined to reach about 1.8 per cent of GDP in the first half of FY2018.
•    During April-December 2017, trade deficit increased by 46.4 per cent over corresponding period of previous year.
•    During April-December 2017, exports grew 12.1 per cent to US$ 223.5 billion, while imports increased by 21.8 per cent to US$ 338.4 billion.
•    Private transfer receipts, most of which is composed of remittances from Indians working abroad, increased by 10 per cent to US$ 33.5 billion in first half of 2017-18.

Performance of key sectors:
Agriculture and food management:
•    The growth rate in Gross Value Added (GVA) by the agriculture and allied sectors is estimated to be 4.9 per cent for 2016-17, as per provisional estimates.
•    The production of Kharif food-grains during 2017-18 is estimated at 134.7 million tonnes compared to 138.5 million tonnes in 2016-17.
•    The area sown under rabi crops during 2017-18 has reached 61.78 million hectares as of January 19, 2018.
•    Around 840,000 hectares of land was brought under micro-irrigation during 2016-17.
•    Coverage of non-loanee farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY) increased 123.5 per cent in 2016-17 and the scheme is being implemented in 25 states/UTs in 2017. The scheme covers farmers from pre-sowing to post harvest against natural non-preventable risks.

Industries, corporate and infrastructure sector:
•    Growth rate in the Gross Value Added (GVA) by the industrial sector was 5.6 per cent in 2016-17 and 5.8 per cent in the second quarter of 2017-18.
•    During April-November 2017, the Index of Industrial Production (IIP) grew 3.2 per cent, while registering a growth rate of 8.4 per cent in November 2017, the highest in 25 months.
•    The eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 per cent in the IIP, registered a cumulative growth of 3.9 per cent during April-November 2017.
•    The performance of corporate sector highlighted that the growth in sales of more than 1700 non-government non-financial (NGNF) listed manufacturing companies was 9.5 per cent in Q2 2017-18 compared to 3.7 per cent in Q2 2016-17.
•    As of September 2017, India had 115,530 km of national highways, 176,166 km of state highways and 53,26,166 km of other roads. Under the new umbrella program ‘Bharatmala Pariyojana’ the government is aiming holistic development of highways in the country.
Services sector:
•    The services sector is projected to grow at 8.3 per cent in 2017-18, as against 7.7 per cent in 2016-17.
•    As per World Trade Organisation (WTO) data, India’s share in the exports of commercial services in the world increased to 3.4 per cent in 2016 from 3.3 per cent in 2015.
•    In terms of growth in tourism sector, between January-December 2017, Foreign Tourist Arrivals (FTAs) were 10.2 million with a growth of 15.6 per cent and foreign exchange earnings (FEE) were at US$ 27.7 billion with a growth of 20.8 per cent.

Public Finance:
•    The growth in non-debt receipts at 4.58 per cent during April-November 2017 as against the growth rate of 25.8 per cent in the previous year.
•    The realisation of the gross tax revenue during April-November 2017 as ratio of the budget estimates for 2017-18 was 56.9 per cent compared to 57.2 per cent in the corresponding period of the previous year.

Ease of Doing Business in India:
•    Various reforms taken by the Government of India have led to increase in India’s ranking in the World Bank’s Ease of Doing Business Index from 130 in 2017 to 100 in 2018.
•    India’s ranking in the taxation and insolvency parameters improved by 53 and 33 spots, respectively, on the back of administrative reforms undertaken by the Government of India in the areas of taxation and passage of Insolvency and Bankruptcy Code (IBC), 2016.
•    To improve the ease of doing business in the country, the government has taken various initiatives to improve contract enforcement. Over 1,000 redundant legislations have been scrapped.
•    The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 have been passed while intra-government litigation has been reduced.
•    The National Judicial Data Grid (NJDG) is being expanded under which every high court in the country will be digitized very soon. The same was recognized in the rankings by the World Bank.

GST data and the Indian Economy:
•    The number of indirect taxpayers in the country witnessed growth of 50 per cent to 9.8 million unique GST registrants, as of December 2017.
•    India’s internal trade in goods and services (excluding non-GST goods and services) at 60 per cent is even higher than that estimated in last year’s economic survey.
•    The current GST tax base (excluding exports) is around 6.5 to 7 million, broadly similar to the estimates of Revenue Neutral Rate Committee and GST Council.
•    Based on the average collections from GST, the implied weighted average collection rate (incidence) is 15.6 per cent. This is similar to the estimate of 15-16 per cent made by the RNR committee.
•    Non-agricultural workforce in the formal sector in India is considerably greater than previously held beliefs about the size of formal sector non-farm payroll. Estimates, on the basis of enterprise-based definition of employment, imply that nearly 53 per cent of non-agricultural workforce is in the formal sector.

Changing face of Science, Research and Technology in India
•    Public expenditure on R&D as a percentage of GDP has remained constant between 0.6-0.7 per cent over the past two decades; however in value terms, the gross expenditure on R&D has increased at a CAGR of 13.03 per cent from Rs 24,117 crore (US$ 3.8 billion) in 2004-05 to Rs 104,864 crore (US$ 16.5 billion) in 2016-17.
•    The number of students enrolled in PhD programs in India has increased over the years, with 126,451 PhD enrolments in 2015-16, backed by concerted efforts by the Government of India such as increase in the number and quantum of fellowships like the Prime Minister Research Fellowships at the IITs.
•    The number of annual publications in India grew 14 per cent between 2009-14, which increased India’s share in global publications from 3.1 per cent in 2009 to 4.4 per cent in 2014.
•    India was ranked 13 in 2017 by Nature Index, which publishes tables based on counts of high-quality research outputs based on natural sciences in the previous year.
•    As per WIPO, India’s Patent Filing Office is the 7th largest in the world with 45,658 registered patents as of 2015.
•    About 200,000 patents were pending for examination as there were only 132 patent examiners as of 2016-17; however the government has hired 450 patent examiners and created an expedited filing system for Indian residents in 2017, which will improve the existing patent system.
•    In order to encourage investigator-led research, the Science and Engineering research Board (SERB) was established in 2008, which has sanctioned nearly 3,500 new R&D projects to individual scientists so far.
•    India can become a global leader outright in various areas with willingness to invest and focus on key areas. For this purpose, the government has chosen few missions for their strategic importance and potential for societal impact such as National Mission on Dark Matter, National Mission on Genomics, National Mission on Energy Storage Systems, National Mission on Mathematics, National Mission on Cyber Physical Systems, and National Mission on Agriculture.


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