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Declining Growth Rate of Indian Economy
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"Declining Growth Rate of Indian Economy"
India's economic growth rate this fiscal is estimated to be sharply lower at 5 percent, lowest in a decade, on account of poor performance of manufacturing, agriculture and services sector.
In 2002-03, the GDP had grown at 4 percent. Since then the Indian economy has been expanding at over 6 percent, the highest rate being 9.6 percent in 2006-07. The Central Statistical Organisation estimated agriculture and allied activities to grow at 1.8 percent in current fiscal as compared to previous fiscal. Manufacturing growth is also expected to drop to 1.9 percent in this fiscal, from 2.7 percent last year.
According to the advance estimates, the services sector including finance, insurance, real estate and business services sectors are likely to grow by 8.6 percent this fiscal, against 11.7 percent last fiscal. Of all the sectors, only community social and personal services growth are estimated to be slightly better at 6.8 percent, compared to 6 percent in previous fiscal.
Major factors responsible for the declining growth can be enumerated as under –
• Two important objectives of monetary policy are to fuel the growth rate of the economy and keep the rate on inflation under control. It has been found that in order to control the inflation, RBI is keener to increase the rate of interest to curb the money supply. This has resulted in increasing the cost of investment, thus hampering the growth.
• When a government’s expenditures exceed the revenue that it generates, it is a case of fiscal deficit. High fiscal deficit for long time misbalances the macroeconomic fundamentals of the economy. Due to increased borrowing by the government from market to meet its expenditure, private sector is crowded out.
• Ever since the India story has bloomed, it finds itself more and more attached to the global economy. Global downturns now severely affect the economy. Moreover, this can be sensed from the fact that even with a slightest of positive data from the US economy, the hot money has deserted from the Indian shores to seek safety in undervalued American stocks. The European economy is still in doldrums. Sluggish demand from European market has also resulted in the falling growth of Indian export oriented industries.
• Bureaucratic delays, licenses and other issues like environment clearance, land acquisition also hampering the fresh investment. India still lags far behind the major developing economies in the freedom of business index.
Many analysts have been arguing that the best way for policy makers to respond to slowing growth is further liberalization of India's economy, large parts of which are still heavily regulated. The government could, for instance, make it easier for foreigners to invest in industries like retail, aviation and insurance that needs more capital.
A key element in the improvement in aggregate performance was improved performance in agriculture. This not only contributed directly to faster growth of GDP but also stimulated industrial growth through well-known linkages between the two sectors. Agriculture productivity in Punjab, Haryana and Western Uttar Pradesh is much higher than the other parts of the country. Now there is a need to emulate the green revolution of Punjab, Haryana to the rest of the country.
Rapid industrialization has long been viewed as the key to sustained growth and modernization of the economy. However, industrial policies were not framed solely by the immediate requirements of growth maximization.
Industries must be developed in synergy with the other sectors of the economy. For instance, it must have a link with the agriculture so that both the sectors generate demand for each other and also provide the supply. Industrial developmet should also be able to attract the surplus labour from the agriculture.
This will not only increase the productivity of agriculture but also improve per capita income of labour in both sectors. Labour intensive sectors must be given impetus. Same thing applies for the service sector also where sectors like tourism which are employment elastic must be adequately developed.
Corruption is also an issue which off-late has started affecting the growth rate of the economy. This has resulted in the policy paralysis in the administration affecting the decision making adversely.
Apart from this, most of the countries labour laws are archaic in nature and doesn’t exhibit the current global economic and social needs. These laws also need reforms which is not meant to introduce the hire and fire policy but to change the laws in such a manner that the share of organized labour is increased in the total pool of labour.The advance GDP estimates are released by the CSO before the end of a financial year to enable the government to formulate various estimates for inclusion in the Budget.
Growth is the most important prerequisite for the development of the economy. If economy is not growing at the desired pace, all other credentials of development like equality, human development index will have little value.
Thus in the upcoming budget, government must give a fresh start to unleash the new wave of growth and development which was once witnessed after globalization in early nineties.