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Public spending must pivot to building human capital
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Context
On Comparing India's economic growth strategy with China's, there is a need for India to focus on human capital development alongside infrastructure investment to achieve sustainable and inclusive growth.
Macroeconomic Differences between India and China:
- Trade Balance: India has a consistent trade deficit, while China enjoyed an 8% net export surplus, accumulating massive foreign exchange reserves.
- Government Spending: India's state preempts large domestic savings for revenue spending, while China's state-owned enterprises generate additional fiscal resources.
- Private Sector Role: India's industrial expansion is primarily driven by the private sector, unlike China's state-led model.
Importance of Human Capital Investment:
- Skill Gap: India's skill gap is widening, exacerbated by AI and automation, with co-existing skill shortages and job scarcity.
- Education Challenges: ASER surveys reveal issues in school education quality, while higher education faces scale and affordability challenges.
- Public Spending: India needs to achieve 6% of GDP spending on education, pivoting public capital outlay from physical infrastructure to human capital development.
Opportunities for Economic Growth:
- Manufacturing Expansion: India's manufacturing sector accounts for only 17% of GDP, with potential for growth through policy reforms and ease of doing business initiatives.
- Unique Growth Model: India may pioneer growth through agro-based industries, green economy, digitalization, and large-scale service exports.
- Education Investment: Focused efforts to create world-class universities and develop a sizeable student-loans market can address higher education challenges.
UPSC Mains Questions:
Q. Compare and contrast India's economic growth strategy with China's. How can India leverage its unique strengths while addressing its challenges in human capital development?
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