13-December-2023-Special Article

CALIBRATING A STRATEGY FOR INDIA’S FUTURE GROWTH

As India sets ambitious growth targets for 2023-24, concerns arise over the declining trend in the country’s exports, even amidst optimistic economic projections. This phenomenon has prompted a reevaluation of India’s growth strategy, considering the evolving global conditions that pose challenges to its export-led model.

Changing Global Conditions:

Deglobalization Trend: Ongoing geopolitical conflicts, such as the Russia-Ukraine war and the Israel-Hamas conflict, contribute to a global shift towards deglobalization.

Imposition of Sanctions: Geopolitical conflicts lead to sanctions, disrupting supply chains and international settlements. Restricted access to critical systems like SWIFT further amplifies challenges.

Declining World real GDP: The reduction in world real GDP growth results in decreased demand for global exports. Factors like political instability, trade tensions, and changing consumer behavior contribute to a global economic slowdown.

Uncertainty and Price Volatility: Supply uncertainties and price volatility drive countries, including India, to reduce dependence on imported petroleum, further diminishing global demand.

Declining Export-led Growth Strategy: Export-led growth strategy, a key component of India’s economic development, faces challenges post the global financial crisis and the Covid-19 pandemic.

Reasons behind Declining Export-led Growth Strategy:

Slowdown in Global Demand: Crisis and pandemic reduce effective demand for exports in various sectors, impacting export-oriented economies.

Rise of Protectionism: Protectionist measures and trade tensions, exemplified by the US-China trade war and Brexit, create uncertainties and barriers for exporters.

Limits of Wage Compression: Strategies reliant on suppressing wages for competitiveness lead to rising inequality, social discontent, and constraints on domestic demand.

Impact on India:

Negative Economic Performance: India’s GDP growth is adversely affected as exports contribute around 19% to the country’s GDP. Economic performance suffers due to weak global demand, rising protectionism, and reduced competitiveness.

Employment Generation: Job creation, especially in labor-intensive sectors like garments and gems, is limited, impacting employment opportunities.

Measures for India:

Boost Domestic Savings: Implement policies encouraging savings and investments to address the decline in household sector savings.

Monitor Post-COVID Trends: Continuously monitor and analyze post-Covid-19 trends in household savings to distinguish temporary responses from potentially persistent changes.

Encourage Household Sector Investments: Promote financial literacy to encourage households to invest in productive assets, ensuring stable funding for the government and corporate sector.

Optimize Investment Efficiency: Regularly assess the Incremental Capital-Output Ratio (ICOR) to enhance investment efficiency and resource utilization.

Address Employment Challenges: Allocate resources for training programs to prepare the workforce for non-agricultural and technology-intensive sectors.

Promote Non-agricultural Growth: Foster non-agricultural growth to absorb labor released from agriculture, embracing productivity-enhancing technologies.

Climate-friendly Growth: Align economic growth with environmental sustainability, emphasizing the service sector and promoting clean energy initiatives.

Fiscal Responsibility: Adhere to fiscal responsibility targets to sustain economic growth, managing interest payments and augmenting overall savings.

Conclusion:

As India navigates a shifting global landscape marked by deglobalization and economic uncertainties, recalibration becomes imperative. Diversifying trade, investing in education, and embracing fiscal responsibility are crucial for building domestic resilience and fostering innovation. By prioritizing adaptability and strategic reforms, India can not only overcome current challenges but emerge as a resilient and innovative force in the global economy.

Mains Question:

1. India’s export-led growth strategy faces challenges in the context of evolving global conditions. Discuss the impact of deglobalization trends, geopolitical conflicts, and protectionist measures on India’s economic performance. Propose comprehensive measures, including fiscal policies, investment strategies, and workforce development, to recalibrate India’s growth strategy and enhance resilience in the face of changing global dynamics. (150 WORDS)