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General Awareness topic - Is GDP growth bottoming?
Is GDP growth bottoming?
India’s economic growth reached an all-time low of 5.3 percent in 2012-2013. This is the lowest GDP growth that India has recorded in the last ten years. Given the gradual economic slowdown in the past few years, there is a widespread fear on the plunge that the country’s GDP will take this year. Factories are producing less output and farmlands are producing less number of crops.
In addition, India’s export value is dwindling, and inflation and unemployment rate are rising uncontrollably. This is indicative of a decline in the growth of India’s GDP.
Surprisingly, not all the countries in the region are facing an economic slowdown. Last year, China’s economic growth reached 7.8 percent and Indonesia reached 6.23 percent. These statistics imply that India may not be the second largest growing economy after China. With the country going into an economic turmoil, all eyes are on P Chidambaram’s Union Budget to revive the economy.
Even though the economic scene in India may look gloomy, Raghuram Rajan, chief economic advisor to the ministry of finance, is hopeful that India’s economy will grow if the government focuses on policies that are inclusive in nature.
According to Rajan, India’s economy has the potential to grow at 11-12 percent if the government looks into the creation of jobs instead of giving financial aid to the poor. Every year, close to 12 million people enter the workforce in India, but between 2005 and 2010, less than three million jobs were created in India.
This shows that there is sufficient talent in the country but India is unable to create job opportunities that can absorb this talent. Studies have shown that once the manufacturing sector grows, jobs will automatically be created. In fact, experts predict that for every one percent of growth in the manufacturing sector, around 30 million jobs can be created. The manufacturing sector plays an important role in a country’s GDP.
In fact, it is because of the slowdown in manufacturing and agricultural sectors that India is facing an economic downfall. So, the panacea for the current economic situation is a boost and growth in the country’s manufacturing sector.
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As per Chidambaram’s Union Budget, the development of industrial corridors such as the Delhi-Mumbai, Mumbai-Bangalore and Bangalore-Chennai industrial corridors will help to enhance industrial activities, leading to the revival of the manufacturing sector.
Since India is facing current account deficit, it has to come up with the right policies that will increase foreign capital investments in the next few years. This will put less pressure on the government’s current financial reserves.
So, unless the Indian government sources for funds and investments in the manufacturing sector, India will continue to face an economic slowdown, with plunging GDP figures. Sadly, the Indian government cannot depend on the local financial reserves to fund projects.
This is because with a slow-moving economy, the government has not been able to collect the optimum level of taxes, limiting the government’s ability to spend money from its pockets for social and economic development.
Let us hope that our political leaders have the foresight to bring the economy of the country back on track this year. This is only possible if the government learns from the mistakes it made in the past few years and from the success stories of its neighbors, which are performing well and rising beyond expectations.