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What is hurting India's growth?

  • Category
    Economy
  • Published
    9th Dec, 2022

Context

India’s continuous revising growth estimates underline that the economy continues to be vulnerable to external shocks with high inflation and rising interest rates.

The current economic situation

  • The World Economic Outlook Report 2021: As per thisIndian economy is expected to grow by 12.5% in 2021 and 6.9% in 2022.
    • Growth rate for India in 2021 is stronger than that of China.
  • Hindrance in Growth due to Pandemic: However, the economic growth rate of India (and other countries) is affected by the rise in Covid infection rate and consequent lockdown.

What shows the vulnerability of the economy?

  • The Monetary Policy Statement2022-23 has also announced the revised Bank Rate hiking by 50 basis points from 5.65 per cent to 6.15 per cent.
  • The RBI has increased Repo rates for Banksin the year 2022 several times. This shows that Indian economy is vulnerable to shocks.

Hence, there is an urgent need to boost demand through better job creation, while pumping up government spending on infrastructure projects and a strategy to boost India’s economy.

What are the factors that increased the Growth Projection?

  • Economic Sector: For India, a good run in the agriculture sector can led to an increase projection of development.
  • GST Collection: Moreover, the GST collection for FY 2020-21 was record high at the value of Rs 1.24 lac crore (Rs 1.24 trillion).
  • Export sector: It contributes to the delivery of services and to generate foreign currency for India.
  • Infrastructure sector: It plays a vital role to make an economy resilient from shocks, as it maintains flow of capital between various sectors in a country.
    • It includes the railways, freight revenue, power sectors etc.

Factors Obstructing the Growth:

  • Increasing Inflation: Due to the disruptions in supply chains globally amid Russia-Ukraine warsince a year now, has increased the pace of Inflation in the developing countries including India.
  • Fluctuation in Interest rates: The Central Bank usually increases interest rates when inflation is predicted to rise significantly above their inflation target. 
    • Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending.
  • Low Infrastructural growth: Infrastructure affects growth through several supply and demand-side channels. 
    • Investments in energy, telecommunications, and transport networks directly impact growth, as all types of infrastructure represent an essential input in any production of goods and services.
  • lack of adequate Monetary policy: Future capital spending of the government in the economy is expected to be supported by factors such as tax buoyancy, the streamlined tax system with low rates, a thorough assessment and rationalisation of the tariff structure, and the digitization of tax filing.
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