Indian Economy—Problems@!#

In comparison to the 7.2% estimate made by the RBI in April, several organizations, including the IMF and the World Bank, have projected lower growth rates for the Indian economy in FY23. The central bank has now revised its prediction downward to 6.8%. Given the current circumstances, Q2 of FY 2023

Current economic growth estimation

  • Economy is expected to grow at 6.5–7.0%: Based on the current state of affairs and the fact that the Q2 FY 2023 GDP growth came in at 6.3%, this fiscal year’s economy is probably going to grow at 6.5–7.0%.
  • Considering that it is challenging to estimate with precision under economic uncertainty: With extraordinary economic uncertainty occurring globally this year, including high global inflation, synchronised monetary tightening, and the effects of the Ukraine crisis, it is challenging to estimate growth precisely.

Positives of Indian Economy

  • Positive medium-term development prospects: Stronger bank and company balance sheets, greater loan growth, and higher capacity utilisation all portend well for the investment market.
  • The decline of COVID-19 should, ideally, have a good effect on travel, transportation, and tourism. With fewer homes on the market and nearly stable prices over the past ten years, construction activity should increase even more.
  • India is performing better than many advanced nations and emerging markets when it comes to inflation.

What is Indian economy’s pressing problems specifically in terms of Labour-intensive growth?

  • The largest worry is employment, which has been a problem for the past 20 years. In short, especially in the organised sector, we have not created enough good employment to match the rate of economic growth. We have a high rate of underemployment and low-quality employment as a result, which has slowed down the much-needed transition away from agriculture.
  • Lack of accurate information on the number of individuals living in poverty: Since there hasn’t been a household consumption survey since 2011–12 and the 2017–18 survey was abandoned owing to technical difficulties, we don’t have a clear estimate of the present levels of poverty. However, there is general agreement that the proportion of the population living in poverty may be as high as 140 million. This number is lower than in the past and may be as high as 10% of the total population.
  • Lack of jobs outside of agriculture: The importance of food distribution programmes and other welfare programmes for the poor, as well as the rising demand for the MGNREGA, are signs that there aren’t enough non-agricultural jobs being created.
  • Lowest rate of women participating in the labour force: The low participation rate of women in the workforce, which is among the lowest in the world, is a concerning aspect of India’s employment crisis. This brings up the significance of labor-intensive production once again. For instance, the prevalence of women working in their factories contributes significantly to Bangladesh’s and Southeast Asian nations’ success in exports and manufacturing.
  • Women’s literacy is improving, however more and more educated women are not finding employment: The increase in girls attending schools and colleges over the past 20 years has been a positive trend in India, but it also means that more educated women are not finding employment.
  • Despite the 1991 reforms, there is still room for improvement: With the LPG reforms, it was anticipated that as India’s economy became more open to international competition, its low wage levels would draw private investment into labor-intensive industries, creating jobs. The East Asian economies, which saw strong growth and quick development, took this route. However, India has not yet taken advantage of this chance.
  • Manufacturing is relocating outside of India: Manufacturing is moving to nations other than India, despite rising wages in China. To promote manufacturing, the PLI (production-linked incentives) scheme has been implemented. As China makes room in this market, it might need some adjustments to be tilted towards labor-intensive manufacturing. This may appear to be at odds with the more prevalent belief that small and medium-sized businesses are responsible for promoting employment.
  • The real exchange rate of the nation is unhealthy: The export of labor-intensive manufactured goods, which are highly price-sensitive on international markets, has been discouraged by an overvalued rupee. The fact that our currency has declined at a slower rate than those of other emerging economies like China and Indonesia has also dampened domestic production.
  • Impact of the depreciated rupee on indigenous producers due to the entry of cheaper imports: The entry of cheaper imports has an effect on domestic producers of items that compete with imports into our marketplaces. This has made them less motivated to increase production and create jobs.
  • Multiple micro, small, and medium-sized businesses (MSMEs) are affected: One issue that has surfaced since the epidemic is the state of micro, small, and medium-sized businesses (MSMEs). Although there isn’t much reliable information on this, anecdotal data suggests that they’ve been struck harder than the official sector.

Way forward

  • Since the rupee has long been overvalued, it must be allowed to decline while maintaining external and financial stability.
  • In order to lower the nation’s still-high levels of poverty, job creation is essential.
  • Providing incentives to domestic producers helps them compete with cheaper imports and expands their manufacturing, creating jobs.
  • The better health of banks and corporations, among other data that point to the formal sector’s ongoing recovery, could help lift MSMEs up through connections in supply chains, among other strategies.
  • The real interest rate is still negative (it is the gap between inflation and the policy rate set by the RBI). As a result, the policy rate must increase further to encourage financial savings, which are necessary to spur more investment for growth.
  • Supply-side controls on inflation are also necessary, such as an increase in the availability of food products.


A much-needed transition away from agriculture has been hampered by high underemployment and low-quality employment. It is essential to concentrate on formal manufacturing that requires a lot of labor.

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