The finance minister presented her 4th Union Budget in Parliament on February 1. The budget mainly focused on providing monetary push to infra creation in the country with the aim to spur the pace of …Read More
With a GDP of $3.1 trillion, India is the world’s sixth-largest economy. The country has one of the highest GDP growth rates in the world. India’s GDP will likely grow by 8-8.5% in FY22, according to the 2021-22 Economic Survey.
However, there are wide disparities within the country’s economy — while 6.25%* of the total population pays income tax, it also has one of the highest numbers of billionaires in the world. The per capita income has risen rapidly in the recent past yet millions of people continue to live in extreme poverty.
Let’s look at how the Indian economy performs on various economic indicators.
*As per Income Tax Department, Government of India
Feb 10, 2022 | 10:02 IST
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India’s GDP growth has remained steady, stable and resilient
Steady: The economic growth in India has steadily accelerated in the last fifty years without any prolonged reversals. The GDP has steadily increased from 4.4% in the 1970s and 80s to 5.5% during the 1990s and early 00s, and further to 7% in the late 2010s. The country aims to become a $5 trillion economy by 2025.
Stable: Post-1991 liberalization, the growth rate has not only accelerated it has also become stable. The transition of the economy towards a stable service sector has also helped add stability to the economy.
Versatility adds to resilience: The country’s large spatially diversified economy, which is not dependent on a few products, commodities, or natural resources, has further added strength to it. India engages with different trading partners spread across the world. Thus a slowdown limited to one part of the world will not result in a large impact on India.
Covid-19 impact: In the wake of the nationwide lockdown in March 2020, the GDP growth crashed to 23.9%. In 2020-21, the overall GDP shrank 7.3% — this was the worst performance of the Indian economy since independence.
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Food and fuel govern prices in India
What causes inflation in India? Inflation in India is primarily driven by changes in the prices of food and fuel. The diversification of dietary patterns and a rise in per capita income have raised the demand for high-value food products such as meat, milk and fish in India. A change in prices of crude oil is also responsible for inflation spikes in India. In the recent past, supply-chain disruptions caused by the pandemic have also contributed to a rise in prices.
Is there an acceptable limit for inflation? The RBI’s Monetary Policy Committee was asked by the government to maintain a target of 4 per cent with a band of +/- 2 per cent for Consumer Price Index (CPI) inflation for the next five years. In other words, any inflation figure within the band of 4% to 6% is considered acceptable by the central bank.
Covid-19 impact: Even before the spread of the Covid-19 pandemic, the CPI had crossed the RBI mandated upper limit of 6%. During the pandemic, as the demand plummeted prices of commodities came down. However, as the economy recovered from the pandemic, prices of commodities surged and CPI breached the 7% mark in October and November 2020.
The numbers: India’s retail price inflation rose to 5.59% in December 2021 from 4.91% in the previous month. It was the highest rate since July, remaining within the central bank’s target range of 2-6% for a sixth consecutive period.
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Pandemic causes spike in fiscal deficit
Owing to the interruption in economic activities, following the spread of the Covid-19 pandemic, there was a considerable shortfall in the Centre’s revenue collection. At the same time, additional expenditure to mitigate the impact of the pandemic on vulnerable sections of society created immense pressure on the fiscal resources.
The Impact: The Covid-19 pandemic disrupted all the calculations. The Centre’s fiscal deficit widened to 145.5% of the full year’s Budget Estimates (BE) by December 2020, according to data released by the Controller General of Accounts.
The target: The 15th Finance Commission suggested a path for fiscal consolidation for the centre by reducing the fiscal deficit to 4% of GDP by 2025-26.
The Numbers: The government estimated fiscal deficit for 2021-22 was 6.8% of GDP. India recorded a Government Budget deficit equal to 9.40% of the country’s GDP in 2020-21, higher than the budget estimate of 3.5%. This was primarily due to higher spending, and lower revenue collection on account of Covid-19.
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10 million jobs per annum?
According to a report released by brokerage firm Motilal Oswal, India would need to create around 10 million jobs per annum till 2030 to reduce the growing unemployment in the country. The report estimated 36 million people as “underemployed”, which was around 4% of the population aged 15 and above.
The struggling states: According to CMIE, there were seven states where the unemployment figure was in double digits. In December 2021, Haryana reported an unemployment rate of 34.1%.
What causes unemployment in India? The inflexible and restrictive labour laws coupled with poor infrastructure prohibits investments in India leading to high unemployment in the country.
What has the government done to reduce unemployment? The introduction of various employment schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act 2005 and the National Career Service Scheme has helped mitigate unemployment in the country.
Covid-19 impact: Covid-19 caused record unemployment in India. The pandemic-induced lockdown spiked the unemployment rate in the country to 23.5% in April-May 2020.
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FAQs
How big is the Indian economy?
The size of the economy based on current prices in dollar terms is estimated to be $3.1 trillion. That makes it the sixth-largest economy in the world. India is also the world’s sixth-largest consumer market.
What was the impact of Covid-19 on the Indian economy?
The Covid-19 pandemic resulted in the most severe recession in the country since 1979. From April to June 2020, the GDP growth crashed by 23.9% in the wake of the nationwide lockdown imposed by the government. India’s GDP shrank 7.3% in 2020-21.
What is the state of unemployment in India?
The unemployment rate in India was 7% as of January 2022, according to the Centre for Monitoring Indian Economy. While the unemployment in urban areas was 8.4%, in rural India the rate stood at 6.4%.
What is the role of agriculture in the Indian economy?
The agricultural industry is the backbone of the Indian economy. More than 50% of India’s workforce is employed in agriculture and the sector contributes nearly 17-18% of the country’s GDP.
How has GST helped the Indian government earn more revenue?
The Goods and Services Tax was imposed in 2017. Since then it has become the major source of government’s revenue, outstripping the income tax. Nearly 50% of the total tax collected by the government was from GST. In December 2021, the government collected Rs. 1,29,780 crore from GST revenue.
CREDITS
Data Sources
Ministry of Statistics and Programme Implementation, Reserve Bank of India, Centre for Monitoring Indian Economy, International Labour Organization, Trading Economics, PRS Legislative Research, Open Budgets India, World Bank
Researched, written, and edited by
Areeba Falak, Shuja Asrar, Ritvvij Parrikh
Data and visualization by
Ritvvij Parrikh, Shuja Asrar
aniltikotekar4sme.com 