P Chidambaram writes: To grow at 7.5 per cent or not 

The Reserve Bank of India’s Mandate and the Path to Sustainable Growth

The Reserve Bank of India (RBI) is mandated with ensuring price stability, but it has also recognized the importance of sustainable growth. In its efforts to promote economic growth, the RBI plays a crucial role that is often overlooked by the government, which tends to prioritize political goals.

The State of the Global and Indian Economy

Currently, both the global economy and the Indian economy are experiencing a period of slow growth. The RBI’s Bulletin in July 2023 acknowledges the stalling global growth momentum, particularly in manufacturing and investment. The re-engineering of supply chains through industrial and trade policies has also had knock-on effects on international trade. As a result, the world’s constituents are diverging in their paths.

While the Bulletin highlights the progress and achievements of the Indian economy, such as upgraded infrastructure, digitalization, and solar generating capacity, it also acknowledges several challenges. These challenges include a sequential moderation in economic activity, high unemployment rates, contraction in manufacturing exports, decline in net tax collections, and an increase in inflation. The Bulletin emphasizes the ongoing fight against inflation and the need for sustainable economic measures.

The Slump in Average Growth Rate

The average growth rate of India’s GDP at constant prices was 8.5% per year during the five-year period of 2004-2009 and 7.5% per year during the ten-year period of 2004-2014. However, the average growth rate has slumped to 5.7% per year during the nine-year period of 2014-2023.

This decline in average growth rate can be attributed to various factors. In the initial years of liberalization and market-oriented policies, growth rates are boosted. However, sustained high economic growth requires addressing structural deficiencies and implementing measures to overcome them. While unconventional monetary policies adopted by developed nations have provided temporary stimulus, long-term growth depends on addressing fundamental weaknesses.

Fundamental Weaknesses of the Indian Economy

The present government has neglected some fundamental weaknesses of the Indian economy. The following are four key weaknesses:

1. Low Labour Participation Rate and High Unemployment

   The Labour Participation Rate (LPR) in India is below 40%, with female LPR even worse at 32.8%. This is significantly lower than China’s LPR of 67%. Additionally, the unemployment rate for the age group of 15 to 24 is 24%. These statistics highlight the underutilization of human resources in India and the need to address this issue for sustained economic growth.

2. Quality of Education

   The Annual Status of Education Report (ASER) reveals concerning learning outcomes among children in rural India. The average years of schooling in India are 7-8 years, and the learning outcomes in reading, arithmetic, and English are subpar. This raises concerns about preparing the future workforce for jobs that require higher levels of learning and technology.

3. Low Productivity in Agriculture

   India’s agricultural productivity, particularly in rice and wheat, lags behind countries like China. Climate change, urbanization, and rising input costs further threaten agricultural productivity. To ensure farming remains a profitable activity, there is a need to increase productivity per hectare.

4. Inflation and Interest Rates

   Indian industries face challenges due to high inflation, high interest rates, and high tariffs. These factors need to be addressed to support the competitiveness and survival of Indian industries.

The government has not adequately addressed these structural deficiencies, as there has been little focus or discussion on these issues by the Hon’ble Prime Minister or the concerned Ministers.

Achieving Sustainable Economic Growth

The choice is clear – India can aim for a growth rate of 7.5% or higher to become a middle-income country, or settle for a growth rate of 5-6% and boast about being the fastest-growing large economy in the world. However, the latter option is akin to being “the one-eyed monarch of the blind.” To achieve sustainable economic growth, it is imperative to address the fundamental weaknesses of the Indian economy and prioritize the United Nations’ Sustainable Development Goals (SDGs).

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 4: Quality Education
• SDG 8: Decent Work and Economic Growth
• SDG 12: Responsible Consumption and Production

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 1.2: By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions
• Target 4.1: By 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education leading to relevant and effective learning outcomes
• Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value
• Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator mentioned: Annual Status of Education Report (ASER) for capturing learning outcomes (related to Target 4.1)
• Indicator mentioned: Labour Participation Rate (LPR) and unemployment rate (related to Target 8.5)

4. SDGs, Targets, and Indicators

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Source: indianexpress.com

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