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Indian Economy 2023: Predictions and Challenges

Last updated on September 13, 2023 by ClearIAS Team

The Indian economy in 2023 is predicted to be hopeful yet challenging. The world bank has predicted economic growth at 6.6% in FY24 as well. Hence India’s march to become the third-largest economy by 2047 seems to be on track. Read here to know about the predictions and challenges for 2023.

The World Bank projected the Indian economy to grow at 6.6 percent in 2023-24 (FY24), slowing down from an estimated 6.9 percent in 2022-23 (FY23), citing “limited spillovers” to Asia’s third-largest economy from a projected global slowdown.

The global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies.

Forecasts by the IMF suggest that global growth is projected to slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023 – the weakest growth profile since 2001, except for the global financial crisis and the acute pandemic phase.

Table of Contents

Indian economy 2022

As pandemic worries subsided, 2022 was ushered in with expectations of a recovery in the world economy.

• However, the euphoria was short-lived as the greatest land conflict in Europe since World War II resulted from Russia’s invasion of Ukraine.
• The conflict’s lingering effects continue to cast a shadow over 2023, as rising food and fuel costs pose a danger to the war on inflation.
• A worldwide recession appears to be coming as a result of China’s hazy post-pandemic path and the potential for a central bank-engineered collapse.
• Even if it was grouped with the economies that were performing well in 2022, India might not be completely divorced from all of this.

The Reserve Bank of India stated that the balance of risks is shifting in favor of “a gloomy global outlook” and that emerging market economies “appear to be more susceptible” in its December “State of the Economy” assessment.

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But new data point to a potential peak in global inflation.

The year saw the strongest US dollar in 20 years, the highest global inflation in 50 years, the most aggressive monetary tightening cycle in almost 40 years, and the slowest Chinese GDP in more than 45 years.

Indian economy 2023

One of the many affirmations Indian policies and reforms have received recently is the World Bank’s modification of the country’s GDP growth predictions from 6.4% to 6.9% for the current fiscal year.

According to predictions made by the Indian government, the country will develop by 7% in the fiscal year 2022–2023.

The country’s nominal GDP is also estimated to grow by 15.4 percent, according to the Ministry of Statistics & Programme Implementation.

According to economists, the government’s policy reforms like the Production-Linked Incentive Scheme (PLI) and the PM Gati Shakti being the two most successful ones, have been crucial in attaining favorable outcomes for the Indian economy.

• Exports of manufactured goods can be significantly increased by using production-linked incentives.
• There is little doubt that India will benefit greatly from the transfer of manufacturing from a concentrated area of the world to other locations.

In the next five years, India wants to cut its logistics expenses by 6 percentage points, from 14% to 8%.

• According to the National Logistics Policy , this will guarantee that logistics play the role of a growth engine in the Indian economy.
• Due to attempts to relax regulations for foreign direct investment, improved logistics will contribute to India’s enhanced reputation as a destination for investments (FDI).
• This fiscal year, India is anticipated to acquire 100 billion USD in FDI for the first time.

Positive implications on the economy of India

Several indications will support the growth of the Indian economy in 2023:

• The twin balance sheet issue , which involved banks with large amounts of bad loans on their books and corporations with significant levels of debt, appears to be improving.
• The PLI program is boosting production, but the benefits are disproportionately favorable to bigger businesses.
• New investments are anticipated in battery technology, electric vehicles, and renewable energy.
• Due in part to a rise in investment zeal, bank credit has been expanding by double digits.
• The majority of international corporations are using China plus One strategy , which may present an opportunity.
• This is because India has the potential to occupy some of the space that Beijing is vacating in low-skilled, unskilled labor-intensive manufacturing sectors including textiles, shoes, leather, and ceramics.
• According to the RBI, term lending to non-corporates is increasing after a two-year lull. This is a good indicator that suggests smaller businesses may be looking for funding beyond their immediate working capital needs.
• The corporate sector has been recovering steadily, as seen by the Center’s strong direct tax and GST revenues.
• The states’ combined deficits and net market borrowings have also slightly decreased.
• The total GDP growth has been driven by the agricultural sector.

Also read: China Plus One Strategy: Opportunity for India

Negative Implications on the Indian Economy 2023

Most of the global environment is the major source of negative effects on the economic growth of developing countries.

• As the conflict in Ukraine continues, the European Union , India’s largest export market, is at risk of an energy-related slowdown.
• A pause in the rate hikes is not likely to occur until well into the second half of 2023, as the US continues to struggle with declining inflation pressure.
• The World Bank reduced its growth prediction for China from 4.3% in June 2022 to 2.7% this year.
• The second-largest economy in the world (China) entering a prolonged downturn will cause a significant slowdown in the global economy in 2019.
• Global protectionism will increase, as will support for de-globalization and economic fragmentation in 2023.
• Manufacturing in India is still unsteady as indicated by the Index of Industrial Production (IIP), a gauge of factory output, which fell to a 26-month low in October 2022.
• As a result, economists have quickly revised their estimates of India’s growth for the upcoming fiscal year downward.
• It is concerning that private consumption is increasing at a rate of over 9% while manufacturing has decreased by more than 4%.
• Although there has been a slight increase, capacity utilization is still stuck around the 75% level. Private investments are unlikely to noticeably increase unless this rises steadily.
• The Micro, Small, and Medium Enterprises (MSME) businesses are still in crisis. This demonstrates the stark differences in the performance of larger and smaller businesses during the industrial recovery.
• Given that MSMEs employ a substantial portion of the labor force, their ongoing financial stress is indicative of the labor market’s suffering and has a domino effect on the recovery of demand.
• The states’ capital spending has remained low. State investments often have a greater multiplier effect.
• Despite having increased its benchmark lending rate by 225 basis points since May 2022, managing inflation expectations in 2023 may prove difficult in the future.
• At 4% of its GDP, India’s reliance on imported energy presents a problem for the country’s balance of payments .
• For FY23, a current account deficit of substantially over 3% is anticipated.
• Rural communities’ substantially greater inflation is further reducing expenditure there.

Way forward

The government, private parties, organized and unorganized sectors, and large and small businesses have all worked together consistently to advance India. The Indian economy has defied expectations following the covid outbreak.

The country’s young workforce’s potential can be unlocked by giving the system a boost as the Skill India Mission is already in place. The economy could benefit greatly from this action for a very long period.

China is already becoming a less desirable location for manufacturing due to geopolitics. Global corporations aiming to relocate their centers outside of the East Asian economic superpower could be advantageous for India.

India should look at creating special investment zones and approval windows for companies to deploy infrastructure, talent, and research.

To accommodate the tens of thousands of students who will soon enter the workforce, India must update its regulations. According to analysts, the budget for 2023 has to reflect this with a focus on developing finishing school programs and industry institution alliances so that the upcoming class of freshmen can get started quickly.

-Article written by Swathi Satish

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Is India the World’s Next Great Economic Power?

by Bhaskar Chakravorti and Gaurav Dalmia

Summary .   

Is India’s economic rise inevitable? There’s good reason to think that this latest round of Indo-optimism might be different than previous iterations, but the country still has major challenges to address to make good on this promise. In terms of drivers, demand — in the form of a consumer boom, context appropriate innovation, and a green transition — and supply — in the form of a demographic dividend, access to finance, and major infrastructure upgrades — are helping to push the country forward. This is facilitated by policy reforms, geopolitical positioning, and a diaspora dividend. Even so, the country faces barriers to success, including unbalanced growth, unrealized demographic potential, and unrealized ease-of-business and innovation potential.

In 2002, India’s government launched a ubiquitous international tourism campaign known as “Incredible India.” Were it to launch a similar campaign today, it might as well be called “Inevitable India.” Not just enthusiasts within the country, but a chorus of global analysts, have declared India as the next great economic power: Goldman Sachs has predicted it will become the world’s second-largest economy by 2075, and the FT’s Martin Wolf suggests that by 2050, its purchasing power will be 30% larger than that of the U.S.

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Economic Survey 2024: Here are the key takeaways

Syllabus: indian economy,  source: pib.

Context: Economic Survey 2023-24 was tabled in Parliament by Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman.

  What is the Economic Survey?

It provides a detailed report of the state of the national economy (from agriculture to unemployment to infrastructure) for the year that is coming to a close (2023-24) with forecasts of the upcoming financial year (2024-25).

It is prepared by the Economic Division of the Department of Economic Affairs (DEA), Ministry of Finance, under the guidance of the chief economic adviser (CEA).

Once prepared, the Survey is approved by the Finance Minister  and the comments or policy solutions contained in the Survey are  not binding on the government . The first Economic Survey was presented for 1950-51 and until 1964 , it was presented along with the budget.

The main highlights of the Economic Survey are as follows:

Mains Links:

Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (UPSC 2019)

Prelims Links: UPSC 2015

With reference to the Indian economy, consider the following statements:

• The rate of growth of the Real Gross Domestic Product has steadily increased in the last decade.
• The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.

Which of the statements given above is/are correct?

• Both 1 and 2
• Neither 1 nor 2

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ExplainSpeaking | Growth up, unemployment down, inflation contained: Did India score hattrick in 2023?

If one sees the indian economy in the context of the global economy, 2023 has the makings of the year when india started its ascent towards becoming a developed country. but any close inquiry of india’s achievements reveals a far more complex picture..

Dear Readers,

This is the last edition of ExplainSpeaking in 2023 and, as such, it is devoted to looking at some of the main stories of the past 12 months. It offers a good opportunity for readers to revisit some of the key explainers.

In any given year, there are three main concerns for the Indian economy: Pushing up the GDP growth, maintaining price stability (read containing inflation ), and reducing unemployment.

An iffy start

The year 2023 started on a rather nervous note on all three counts.

High inflation, in particular, was the biggest story of 2022. By the time 2023 started, inflation had started inching downwards. Although there were concerns — that higher prices had seeped through the broader economy, implying that Indian consumers will have to pay higher prices even if food and fuel prices were to come down — the focus was increasingly shifting to sustaining India’s GDP growth momentum as there was a growing realisation that high interest rates will start to drag down economic activity and worsen the already poor state of unemployment in the country.

At the global level, too, the mood was sombre. By the time 2022 ended, there was a consensus that much of the developed world will likely sink into recession. A recession is said to happen when the economic output of an economy shrinks (instead of growing) for two successive quarters (or a total of 6 months).

To be sure, while nowhere near recessionary conditions , India was facing its own challenges.

This piece explained the contents and discontents of India’s GDP growth as it stood at the start of 2023. Simply put, private consumption expenditures, the biggest engine for India’s GDP growth (contributing almost 55% to 60% of India’s annual output), had barely grown in the three preceding years. Investment expenditures (the money spent towards creating productive capacity, and the second biggest engine of GDP growth) had grown slightly better, but most of it was just to replace the old investment. Government expenditures, the third engine, had been even more stagnant than the private first.

On unemployment, the situation had remained worrisome. Centre for Monitoring Indian Economy (CMIE) data revealed that the total number of employed people in India at the end of December 2022 was lower than the total number of employed people at the start of 2016.

While these may be the macro-concerns, other parameters too suggested a subdued sentiment. In the initial months of 2023, the Indian stock markets lagged most of its peers — a situation not helped by the Hindenburg Research’s report on the Adani group of companies. The general consumer sentiment, too, had been mostly negative going all the way back to 2015.

A stunning end

In sharp contrast, the Indian economy ends the calendar year on a high note. India seems to have scored a (macroeconomic) hattrick of sorts.

Consider the following:

1. Inflation has broadly continued to trend downwards and has now come within the RBI’s comfort zone (2% to 6%). Talks of interest rate hikes and “hawkish pauses” have given way to murmurs of a sooner-than-expected cut in lending rates. This price stability has been achieved despite geopolitical tensions in West Asia.

2. Contrary to apprehensions, India’s GDP growth, instead of decelerating, has surprised on the upside . There is hardly any forecaster in town, and this includes the RBI, that has not had to hurriedly revise upwards India’s GDP estimates.

3. Official unemployment data — provided by the Periodic Labour Force Survey (PLFS) — showed that not only has India managed to reduce the unemployment rate, it has also witnessed more and more women joining the workforce.

As far as sentiments go, the stock markets have been scaling all-time highs for the past two months even as a the voters resoundingly backed PM Modi’s leadership in the recently concluded state Assembly elections.

A hattrick: How’s That?

There are two ways to look at the Indian economy’s achievements in 2023.

If one sees the Indian economy in the context of the global economy, 2023 has the makings of the year when India started its ascent towards becoming a developed country.

While most of the developed countries are just happy to have dodged recession in 2023, India easily claimed the mantle of the world’s fastest-growing economy. In fact, a World Bank report stated that the decade between 2020 and 2030 has the makings of a lost decade for the global economy. While deceleration elsewhere makes it relatively easier for India to overtake others, it also shows that India is one of the very few countries that is expected to grow handsomely despite subdued global growth.

India’s higher inflation rate in the recent past can be summarily discounted not only for the fact that it is a growing economy and like most fast growing economies India, too, should be allowed slightly elevated inflation but also because the shocks of the past three years have spared from the ills of high (indeed, historic) inflation.

On unemployment, too, India has shown improvement. Moreover, considering its youth bulge, the same labour force, if skilled, could easily turn out to be India’s biggest strength.

However, there is a flip side as well.

If one closely examined each of the three macroeconomic achievements, one found many points of concerns. Each of these got highlighted right through the year in different editions of ExplainSpeaking.

Let’s start with GDP growth (as it was undoubtedly the biggest achievement)

While addressing the US Congress, Indian Prime Minister Narendra Modi stated that when he first visited the US as the PM, India was the world’s 10th largest economy and eight years later it is the fifth-largest economy of the world. Further, he said that soon India will be the world’s third-largest economy .

Obviously this is a great achievement for India and no economic growth should ever be taken for granted. Still, it is important to understand what the label of fifth-largest economy means for an average Indian .

Similarly, see the TABLE below (originally carried here ) to understand how far behind India is from most of its peers, and why India has no choice but to grow faster than the rest of the world.

Moreover, despite impressive headline growth, poor growth of private consumption continued to be the fly in India’s GDP ointment. An analysis of the Indian economy under the first 9 years of Modi government showed how income growth of average Indians has moderated when compared with the 10 years of UPA.

In fact, it isn’t just the average Indian who is struggling. Even the ultra rich have been leaving India in droves .

The other problem with India’s growth is that private sector is not getting adequately enthused even now to start fresh investments across the board. Researchers at the Bank of Baroda closely followed up this issue and found some sobering findings in July. As of December, Bank of Baroda found that the K-shaped recovery in private consumption was resulting in a similar K-shaped recovery in private investments as well.

However, notwithstanding India’s growth surprise, GDP calculations have continued to attract controversy. Read this analysis of the quarterly GDP data to understand why many question the GDP data.

Lastly, there’s the introduction of a new term: The Hindutva rate of economic growth .

On unemployment

For one, even though the official PLFS data shows a better picture than the CMIE data, this is true only until one doesn’t scratch beneath the surface. As this piece explained that even though India’s official employment data shows improvement, the quality of jobs getting created is getting worse even as monthly earnings have remained largely stagnant since 2017.

The fact is the relationship between India’s GDP growth and the generation of employment for its people has become weaker over time .

In fact, if one looks at CMIE data — which comes out each week as against PLFS which comes out with a lag of anywhere between a quarter and a year — several disconcerting trends emerge.

For instance, India is becoming a young country but with an ageing workforce . India’s workforce is becoming increasingly male-dominated. Contrary to the popular notion, the only category where Indian entrepreneurship is rising is the ‘self-employed’ one, which refers to jobs like taxi drivers, astrologers, etc., and reflects poorly on the broader economic conditions in India.

Even though the incumbent government has largely dismissed the unemployment concerns for most of its tenure, over the past year or so, one can see none other than the Prime Minister organising “Rozgar Melas”. But are these the solution to India’s labour woes? Read this .

A related topic is poverty reduction.

In his speech on Independence Day this year, PM Modi stated that in the first five-year term of his government, 13.5 crore Indians had been rescued from poverty and that they were on their way to become the middle class. But since there has been no official update to India’s poverty numbers since 2011, how was this calculated? Moreover, has the pace of poverty reduction improved over time? Read this piece to know more .

On containing inflation

The CHART below shows the extent of India’s success in attaining price stability. The red line corresponds to the 6% upper limit of RBI’s comfort zone while the blue line corresponds to 4% — the target rate for RBI.

While inflation has come below 6% on several occasions in 2023, the fact is that consumer inflation has not once fallen to the 4%-mark since September 2019 — that’s four straight years or 48 months on the trot.

Such high levels of inflation in the preceding years resulted in some bizarre situations. For instance, in June and July this year, Tomato prices were sky-high, and yet, the inflation rate of tomatoes was negative .

Moreover, such sustained high levels of inflation not only eroded people’s purchasing power but also made many to question desirability of the inflation-targeting regime for a country like India or indeed, the efficacy of RBI itself. Interestingly, if one follows this thread, one can justifiably argue that RBI’s actions might actually be worsening inequality .

Clearly, it is easy (and to a great extent, true) to say that 2023 has been a remarkable year for the Indian economy from the point of view of macroeconomic stability. But even a gentle probe of the data throws up a far more complex picture.

There were many pieces which were either about some of the less-discussed aspects of the Indian economy or about developments in other economies or indeed about some economists or some economic concept. For instance,

👉 India’s loss at the ICC Cricket World Cup led to this explanatory piece on the (non-existent) law of averages.

👉 We also asked whether Thakur should have killed Gabbar, and how that might have affected the rule of law.

👉 There was a piece on the economics of climate change in India.

👉 One on Argentina’s new president Javier Milei and dollarisation — his radical policy to save Argentina’s economy.

👉 Lastly, one on this year’s Economics Nobel to Claudia Goldin , who explained how marriage, parenthood, and the pill impact women in the workforce.

With the hope that 2024 will be an even better year than 2023, here’s wishing all readers a very happy new year!

See you in 2024, and don’t forget to grab that mask!

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India to become third largest economy with GDP of $5 trillion in three years: Finance Ministry

Ten years ago, India was the 10th largest economy in the world, with a GDP of $1.9 trillion at current market prices.

January 29, 2024 04:04 pm | Updated 04:39 pm IST - New Delhi

Photo used for representation purpose only.

India is expected to become the third-largest economy in the world with a GDP of $5 trillion in the next three years and touch $7 trillion by 2030 on the back of continued reforms, the Finance Ministry said on January 29.

Today, it is the 5th largest with a GDP of $3.7 trillion (estimate FY24), despite the pandemic and despite inheriting an economy with macro imbalances and a broken financial sector, said the ministry's January 2024 review of the economy.

"This ten-year journey is marked by several reforms, both substantive and incremental, which have significantly contributed to the country's economic progress," it said.

These reforms, it added, have also delivered an economic resilience that the country will need to deal with unanticipated global shocks in the future.

The ministry said that in the next three years, India is expected to become the third-largest economy in the world, with a GDP of $5 trillion.

"The government has, however, set a higher goal of becoming a 'developed country' by 2047. With the journey of reforms continuing, this goal is achievable," it said.

The Nirmala Sitharaman-headed ministry stressed that the reforms will be more purposeful and fruitful with full participation of state governments.

The participation of states will be fuller when reforms encompass changes in governance at the district, block, and village levels, making them citizen-friendly and small business-friendly and in areas such as health, education, land and labour, in which states have a big role to play, it said.

"The strength of the domestic demand has driven the economy to a 7% plus growth rate in the last three years...in FY25, real GDP growth will likely be closer to 7%," said the review report, and added there is, however, considerable scope for the growth rate to rise well above 7% by 2030.

The review observed that it is eminently possible for the Indian economy to grow in the coming years at a rate above 7% on the strength of the financial sector and other recent and future structural reforms. Only the elevated risk of geopolitical conflicts is an area of concern.

"Furthermore, under a reasonable set of assumptions with respect to the inflation differentials and the exchange rate, India can aspire to become a $7 trillion economy in the next six to seven years (by 2030)," it said.

In the preface of the review report, Chief Economic Adviser V Anantha Nageswaran said the Union government has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from ₹5.6 lakh crore in FY15 to ₹18.6 lakh crore in FY24, as per budget estimates.

He noted that the global economy is struggling to maintain its recovery post-Covid because successive shocks have buffeted it. Some of them, such as supply chain disruptions, have returned in 2024.

If they persist, they will impact trade flows, transportation costs, economic output and inflation worldwide, he said.

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Indian Economy Overview

About indian economy growth rate & statistics, introduction.

Strong economic growth in the first quarter of FY23 helped India overcome the UK to become the fifth-largest economy after it recovered from the COVID-19 pandemic shock. Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated at Rs. 295.36 lakh crores (US$ 3.54 trillion), against the First Revised Estimates (FRE) of GDP for the year 2022-23 of Rs. 269.50 lakh crores (US$ 3.23 trillion). The growth in nominal GDP during 2023-24 is estimated at 9.6% as compared to 14.2% in 2022-23. Strong domestic demand for consumption and investment, along with Government’s continued emphasis on capital expenditure are seen as among the key driver of the GDP in the second half of FY24. During the period April-June 2025, India’s exports stood at US$ 109.11 billion, with Engineering Goods (25.35%), Petroleum Products (18.33%) and electronic goods (7.73%) being the top three exported commodity. Rising employment and increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

Future capital spending of the government in the economy is expected to be supported by factors such as tax buoyancy, the streamlined tax system with low rates, a thorough assessment and rationalisation of the tariff structure, and the digitization of tax filing. In the medium run, increased capital spending on infrastructure and asset-building projects is set to increase growth multipliers. The contact-based services sector has demonstrated promise to boost growth by unleashing the pent-up demand. The sector's success is being captured by a number of HFIs (High-Frequency Indicators) that are performing well, indicating the beginnings of a comeback.

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

India's appeal as a destination for investments has grown stronger and more sustainable because of the current period of global unpredictability and volatility, and the record amounts of money raised by India-focused funds in 2022 are evidence of investor faith in the "Invest in India" narrative.

Market size

Real GDP or GDP at Constant (2011-12) Prices in the year 2023-24 is estimated at Rs. 173.82 lakh crores (US$ 2.08 trillion), against the First Revised Estimates (FRE) of GDP for the year 2022-23 of Rs. 160.71 lakh crores (US$ 1.92 trillion). The growth in real GDP during 2023-24 is estimated at 8.2% as compared to 7.0% in 2022-23. There are 113 unicorn startups in India, with a combined valuation of over US$ 350 billion. As many as 14 tech startups are expected to list in 2024 Fintech sector poised to generate the largest number of future unicorns in India. With India presently has the third-largest unicorn base in the world. The government is also focusing on renewable sources by achieving 40% of its energy from non-fossil sources by 2030. India is committed to achieving the country's ambition of Net Zero Emissions by 2070 through a five-pronged strategy, ‘Panchamrit’. Moreover, India ranked 3rd in the renewable energy country attractive index.

According to the McKinsey Global Institute, India needs to boost its rate of employment growth and create 90 million non-farm jobs between 2023 to 2030 in order to increase productivity and economic growth. The net employment rate needs to grow by 1.5% per annum from 2023 to 2030 to achieve 8-8.5% GDP growth between same time periods. India’s current account deficit (CAD) narrowed to 0.7% of GDP in FY24. The CAD stood at US$ 23.2 billion for the 2023-24 compared to US$ 67.0 billion or 2.0% of GDP in the preceding year. This was largely due to decrease in merchandise trade deficit.

Exports fared remarkably well during the pandemic and aided recovery when all other growth engines were losing steam in terms of their contribution to GDP. Going forward, the contribution of merchandise exports may waver as several of India’s trade partners witness an economic slowdown. According to Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles Mr. Piyush Goyal, Indian exports are expected to reach US$ 1 trillion by 2030.

Recent Developments

India is primarily a domestic demand-driven economy, with consumption and investments contributing to 70% of the economic activity. With an improvement in the economic scenario and the Indian economy recovering from the Covid-19 pandemic shock, several investments and developments have been made across various sectors of the economy. According to World Bank, India must continue to prioritise lowering inequality while also putting growth-oriented policies into place to boost the economy. In view of this, there have been some developments that have taken place in the recent past. Some of them are mentioned below.

• According to HSBC Flash India PMI report, business activity surged in April to its highest level in about 14 years as well as sustained robust demand. The composite index reached 62.2, indicating continuous expansion since August 2021, alongside positive job growth and decreased input inflation, affirming India's status as the fastest-growing major economy.
• As of July 5, 2024, India’s foreign exchange reserves stood at US$ 657.15 billion.
• In May 2024, India saw a total of US$ 6.9 billion in PE-VC investments.
• Merchandise exports in June 2024 stood at US$ 35.20 billion, with total merchandise exports of US$ 109.96 billion during the period of April 2024 to June 2024.
• India was also named as the 48th most innovative country among the top 50 countries, securing 40th position out of 132 economies in the Global Innovation Index 2023. India rose from 81st position in 2015 to 40th position in 2023. India ranks 3 rd position in the global number of scientific publications.
• In June 2024, the gross Goods and Services Tax (GST) stood at highest monthly revenue collection at Rs. 1.74 lakh crore (US$ 20.83 billion) vs Rs. 1.73 lakh crore (US$ 20.71 billion)
• Between April 2000–March 2024, cumulative FDI equity inflows to India stood at US$ 97 billion.
• In May 2024, the overall IIP (Index of Industrial Production) stood at 154.2. The Indices of Industrial Production for the mining, manufacturing and electricity sectors stood at 136.5, 149.7 and 229.3, respectively, in May 2024.
• According to data released by the Ministry of Statistics & Programme Implementation (MoSPI), India’s Consumer Price Index (CPI) based retail inflation reached 5.08% (Provisional) for June 2024.
• Foreign Institutional Investors (FII) inflows between April-July (2023-24) were close to Rs. 80,500 crore (US$ 9.67 billion), while Domestic Institutional Investors (DII) sold Rs. 4,500 crore (US$ 540.56 million) in the same period. As per depository data, Foreign Portfolio Investors (FPIs) invested (US$ 13.89 billion) in India during January- (up to 15 th July) 2024.
• The wheat procurement during Rabi Marketing Season (RMS) 2024-25 (till May) was estimated to be 266 lakh metric tonnes (LMT) and the rice procured in Kharif Marketing Season (KMS) 2024-25 was 400 LMT.

Government Initiatives

Over the years, the Indian government has introduced many initiatives to strengthen the nation's economy. The Indian government has been effective in developing policies and programmes that are not only beneficial for citizens to improve their financial stability but also for the overall growth of the economy. Over recent decades, India's rapid economic growth has led to a substantial increase in its demand for exports. Besides this, a number of the government's flagship programmes, including Make in India, Start-up India, Digital India, the Smart City Mission, and the Atal Mission for Rejuvenation and Urban Transformation, is aimed at creating immense opportunities in India. In this regard, some of the initiatives taken by the government to improve the economic condition of the country are mentioned below:

• In February 2024, the Finance Ministry announced the total expenditure in Interim 2024-25 estimated at Rs. 47,65,768 crore (US$ 571.64 billion) of which total capital expenditure is Rs. 11,11,111 crore (US$ 133.27 billion).
• On January 22, 2024, Prime Minister Mr. Narendra Modi announced the 'Pradhan Mantri Suryodaya Yojana'. Under this scheme, 1 crore households will receive rooftop solar installations.
• On September 17, 2023, Prime Minister Mr. Narendra Modi launched the Central Sector Scheme PM-VISHWAKARMA in New Delhi. The new scheme aims to provide recognition and comprehensive support to traditional artisans & craftsmen who work with their hands and basic tools. This initiative is designed to enhance the quality, scale, and reach of their products, as well as to integrate them with MSME value chains.
• On August 6, 2023, Amrit Bharat Station Scheme was launched to transform and revitalize 1309 railway stations across the nation. This scheme envisages development of stations on a continuous basis with a long-term vision.
• On June 28, 2023, the Ministry of Environment, Forests, and Climate Change introduced the ‘Draft Carbon Credit Trading Scheme, 2023’.
• From April 1, 2023, Foreign Trade Policy 2023 was unveiled to create an enabling ecosystem to support the philosophy of ‘Aatmanirbhar Bharat’ and ‘Local goes Global’.
• To enhance India’s manufacturing capabilities by increasing investment and production in the sector, the government of India has introduced the Production Linked Incentive Scheme (PLI) for Pharmaceuticals.
• Prime Minister’s Development Initiative for North-East Region (PM-DevINE) was announced in the Union Budget 2022-23 with a financial outlay of Rs. 1,500 crore (US$ 182.35 million).
• Prime Minister Mr Narendra Modi has inaugurated a new food security scheme for providing free food grains to Antyodaya Ann Yojna (AAY) & Primary Household (PHH) beneficiaries, called Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) from January 1, 2023.
• The Amrit Bharat Station scheme for Indian Railways envisages the development of stations on a continuous basis with a long-term vision, formulated on December 29, 2022, by the Ministry of Railways.
• On October 7, 2022, the Department for Promotion of Industry, and Internal Trade (DPIIT) launched Credit Guarantee Scheme for Start-ups (CGSS) aiming to provide credit guarantees up to a specified limit by start-ups, facilitated by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs). 
• Telecom Technology Development Fund (TTDF) Scheme was launched in October 2022 by the Universal Service Obligation Fund (USOF), a body under the Department of Telecommunications. The objective is to fund R&D in rural-specific communication technology applications and form synergies among academia, start-ups, research institutes, and the industry to build and develop the telecom ecosystem.
• Home & Cooperation Minister Mr. Amit Shah laid the foundation stone and performed Bhoomi Pujan of Tanot Mandir Complex Project under Border Tourism Development Programme in Jaisalmer in September 2022.
• In August 2022, Mr. Narendra Singh Tomar, Minister of Agriculture and Farmers Welfare inaugurated four new facilities at the Central Arid Zone Research Institute (CAZRI), which has been rendering excellent services for more than 60 years under the Indian Council of Agricultural Research (ICAR).
• In August 2022, a Special Food Processing Fund of Rs. 2,000 crore (US$ 242.72 million) was set up with National Bank for Agriculture and Rural Development (NABARD) to provide affordable credit for investments in setting up Mega Food Parks (MFP) as well as processing units in the MFPs.
• In July 2022, Deendayal Port Authority (DPA) announced plans to develop two Mega Cargo Handling Terminals on a Build-Operate-Transfer (BOT) basis under Public-Private Partnership (PPP) Mode at an estimated cost of Rs. 5,963 crore (US$ 747.64 million).
• In July 2022, the Union Cabinet chaired by Prime Minister Mr. Narendra Modi, approved the signing of the Memorandum of Understanding (MoU) between India & Maldives. This MoU will provide a platform to tap the benefits of information technology for court digitization and can be a potential growth area for IT companies and start-ups in both countries.
• India and Namibia entered a Memorandum of Understanding (MoU) on wildlife conservation and sustainable biodiversity utilization on July 20, 2022, for establishing the cheetah into the historical range in India.
• In July 2022, the Reserve Bank of India (RBI) approved international trade settlements in Indian rupees (Rs.) to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community.
• The Agnipath Scheme aims to develop a young and skilled armed force backed by an advanced warfare technology scheme by providing youth with an opportunity to serve Indian Army for a 4-year period. It is introduced by the Government of India on June 14, 2022.
• In June 2022, Prime Minister Mr. Narendra Modi inaugurated and laid the foundation stone of development projects worth Rs. 21,000 crore (US$ 2.63 billion) at Gujarat Gaurav Abhiyan at Vadodara.
• Rajnath Singh, Minister of Defence, launched 75 newly developed Artificial Intelligence (AI) products/technologies during the first-ever ‘AI in Defence’ (AIDef) symposium and exhibition organized by the Ministry of Defence in New Delhi on July 11, 2022.
• In June 2022, Prime Minister Mr. Narendra Modi laid the foundation stone of 1,406 projects worth more than Rs. 80,000 crore (US$ 10.01 billion) at the ground-breaking ceremony of the UP Investors Summit in Lucknow. The Projects encompass diverse sectors like Agriculture and Allied industries, IT and Electronics, MSME, Manufacturing, Renewable Energy, Pharma, Tourism, Defence & Aerospace, and Handloom & Textiles.
• The Indian Institute of Spices Research (IISR) under the Indian Council for Agricultural Research (ICAR) inked a Memorandum of Understanding (MoU) with Lysterra LLC, a Russia-based company for the commercialization of bio capsule, an encapsulation technology for bio-fertilization on June 30, 2022.
• As of April 2022, India signed 13 Free Trade Agreements (FTAs) with its trading partners including major trade agreements like the India-UAE Comprehensive Partnership Agreement (CEPA) and the India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA).
• 'Mission Shakti' was applicable with effect from April 1, 2022, aimed at strengthening interventions for women’s safety, security, and empowerment.
• The Union Budget of 2022-23 was presented on February 1, 2022, by the Minister for Finance & Corporate Affairs, Ms. Nirmala Sitharaman. The budget had four priorities PM GatiShakti, Inclusive Development, Productivity Enhancement and Investment, and Financing of Investments. In the Union Budget 2022-23, effective capital expenditure is expected to increase by 27% at Rs. 10.68 trillion (US$ 142.93 billion) to boost the economy. This will be 4.1% of the total Gross Domestic Production (GDP).
• Strengthening of Pharmaceutical Industry (SPI) was launched in March 2022 by the Ministry of Chemicals & Fertilisers to provide credit linked capital and interest subsidy for Technology Upgradation of MSME units in pharmaceutical sector, as well as support of up to Rs. 20 crore (US$ 2.4 million) each for common facilities including Research centre, testing labs and ETPs (Effluent Treatment Plant) in Pharma Clusters, to enhance the role of MSMEs.
• Under PM GatiShakti Master Plan, the National Highway Network will develop 25,000 km of new highways network, which will be worth Rs. 20,000 crore (US$ 2.67 billion). In 2022-23. Increased government expenditure is expected to attract private investments, with a production-linked incentive scheme providing excellent opportunities. Consistently proactive, graded, and measured policy support is anticipated to boost the Indian economy.
• In February 2022, The Ministry of Social Justice & Empowerment launched the Scheme for Economic Empowerment of Denotified/Nomadic/SemiNomadic tribal communities (DNTs) (SEED) to provide basic facilities like good quality coaching, and health insurance. livelihoods initiative at a community level and financial assistance for the construction of houses.
• In February 2022, Minister for Finance and Corporate Affairs Ms. Nirmala Sitharaman said that productivity linked incentive (PLI) schemes would be extended to 14 sectors to achieve the mission of Aatmanirbhar Bharat and create 60 lakh jobs with an additional production capacity of Rs. 30 trillion (US$ 401.49 billion) in the next five years.
• In the Union Budget of 2022-23, the government announced funding for the production-linked incentive (PLI) scheme for domestic solar cells and module manufacturing of Rs. 24,000 crore (US$ 3.21 billion).
• In the Union Budget of 2022-23, the government announced a production-linked incentive (PLI) scheme for Bulk Drugs which was an investment of Rs. 2,500 crore (US$ 334.60 million).
• In the Union Budget of 2022, Minister for Finance & Corporate Affairs Ms. Nirmala Sitharaman announced that a scheme for design-led manufacturing in 5G would be launched as part of the PLI scheme.
• In September 2021, Union Cabinet approved major reforms in the telecom sector, which are expected to boost employment, growth, competition, and consumer interests. Key reforms include rationalization of adjusted gross revenue, rationalization of bank guarantees (BGs), and encouragement of spectrum sharing.
• In the Union Budget of 2022-23, the government has allocated Rs. 44,720 crore (US$ 5.98 billion) to Bharat Sanchar Nigam Limited (BSNL) for capital investments in the 4G spectrum.
• Minister for Finance & Corporate Affairs Ms. Nirmala Sitharaman allocated Rs. 650 crore (US$ 86.69 million) for the Deep Ocean mission that seeks to explore vast marine living and non-living resources. Department of Space (DoS) has got Rs. 13,700 crore (US$ 1.83 billion) in 2022-23 for several key space missions like Gaganyaan, Chandrayaan-3, and Aditya L-1 (sun).
• In May 2021, the government approved the production-linked incentive (PLI) scheme for manufacturing advanced chemistry cell (ACC) batteries at an estimated outlay of Rs. 18,100 crore (US$ 2.44 billion); this move is expected to attract domestic and foreign investments worth Rs. 45,000 crore (US$ 6.07 billion).
• Minister for Finance & Corporate Affairs Ms. Nirmala Sitharaman announced in the Union Budget of 2022-23 that the Reserve Bank of India (RBI) would issue Digital Rupee using blockchain and other technologies.
• In the Union Budget of 2022-23, Railway got an investment of Rs. 2.38 trillion (US$ 31.88 billion) and over 400 new high-speed trains were announced. The concept of "One Station, One Product" was also introduced.
• To boost competitiveness, Budget 2022-23 has announced reforming the 16-year-old Special Economic Zone (SEZ) act.
• In June 2021, the RBI (Reserve Bank of India) announced that the investment limit for FPI (foreign portfolio investors) in the State Development Loans (SDLs) and government securities (G-secs) would persist unaffected at 2% and 6%, respectively, in FY22.
• In November 2020, the Government of India announced Rs. 2.65 trillion (US$ 36 billion) stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction, and housing. Also, India's cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.
• Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India. Prime Minister of India Mr. Narendra Modi launched the Make in India initiative with an aim to boost the country's manufacturing sector and increase the purchasing power of the average Indian consumer, which would further drive demand and spur development, thus benefiting investors. The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector with an aim to take it to 25% of the GDP from the current 17%. Besides, the government has also come up with the Digital India initiative, which focuses on three core components: the creation of digital infrastructure, delivering services digitally, and increasing digital literacy.
• On January 29, 2022, the National Asset Reconstruction Company Ltd (NARCL) will acquire bad loans worth up to Rs. 50,000 crore (US$ 6.69 billion) about 15 accounts by March 31, 2022. India Debt Resolution Co. Ltd (IDRCL) will control the resolution process. This will clean up India’s financial system, help fuel liquidity, and boost the Indian economy.
• National Bank for Financing Infrastructure and Development (NaBFID) is a bank that will provide non-recourse infrastructure financing and is expected to support projects from the first quarter of FY23; it is expected to raise Rs. 4 trillion (US$ 53.58 billion) in the next three years.
• By November 1, 2021, India, and the United Kingdom hope to begin negotiations on a free trade agreement. The proposed FTA between these two countries is likely to unlock business opportunities and generate jobs. Both sides have renewed their commitment to boost trade in a manner that benefits all.
• In August 2021, Prime Minister Mr. Narendra Modi announced an initiative to start a national mission to reach the US$ 400 billion merchandise export target by FY22.
• In August 2021, Prime Minister Mr. Narendra Modi launched a digital payment solution, e-RUPI, a contactless and cashless instrument for digital payments.
• In April 2021, Dr. Ahmed Abdul Rahman AlBanna, Ambassador of the UAE to India and Founding Patron of IFIICC, stated that trilateral trade between India, the UAE and Israel is expected to reach US$ 110 billion by 2030.
• India is expected to attract investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23.
• The Government of India is expected to increase public health spending to 2.5% of the GDP by 2025.

In the second quarter of FY24, the growth momentum of the first quarter was sustained, and high-frequency indicators (HFIs) performed well in July and August of 2023. India's comparatively strong position in the external sector reflects the country's positive outlook for economic growth and rising employment rates. India ranked 5th in foreign direct investment inflows among the developed and developing nations listed for the first quarter of 2022.

India's economic story during the first half of the current financial year highlighted the unwavering support the government gave to its capital expenditure, which, in 2023-24, stood 37.4% higher than the same period last year. In the budget of 2023-24, capital expenditure took lead by steeply increasing the capital expenditure outlay by 37.4 % in BE 2023-24 to Rs.10 lakh crore (US$ 120.12 billion) over Rs. 7.28 lakh crore (US$ 87.45 billion) in RE 2022-23. The ratio of revenue expenditure to capital outlay increased by 1.2% in the current year, signalling a clear change in favour of higher-quality spending. Stronger revenue generation because of improved tax compliance, increased profitability of the company, and increasing economic activity also contributed to rising capital spending levels. In February 2024, the Finance Ministry announced the total expenditure in Interim 2024-25 estimated at Rs. 47,65,768 crore (US$ 571.64 billion) of which total capital expenditure is Rs. 11,11,111 crore (US$ 133.27 billion).

Since India’s resilient growth despite the global pandemic, India's exports climbed at the second-highest rate with a year-over-year (YoY) growth of 8.39% in merchandise exports and a 29.82% growth in service exports till April 2023. With a reduction in port congestion, supply networks are being restored. The CPI-C inflation reduction from June 2022 already reflects the impact. In September 2023 (Provisional), CPI-C inflation was 5.02%, down from 7.01% in June 2022. With a proactive set of administrative actions by the government, flexible monetary policy, and a softening of global commodity prices and supply-chain bottlenecks, inflationary pressures in India look to be on the decline overall.

Note:  Conversion rate used for January 2024 is Rs.1 = US$ 0.012

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SUMMARY OF THE ECONOMIC SURVEY 2022-23

India to witness gdp growth of 6.0 per cent to 6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally economic survey 2022-23 projects a baseline gdp growth of 6.5 per cent in real terms in fy24 economy is expected to grow at 7 per cent (in real terms) for the year ending march 2023, this follows an 8.7 per cent growth in the previous financial year credit growth to the micro, small, and medium enterprises (msme) sector has been remarkably high, over 30.5 per cent, on average during jan-nov 2022 capital expenditure (capex) of the central government, which increased by 63.4 per cent in the first eight months of fy23, was another growth driver of the indian economy in the current year rbi projects headline inflation at 6.8 per cent in fy23, which is outside its target range return of migrant workers to construction activities helped housing market witnessing a significant decline in inventory overhang to 33 months in q3 of fy23 from 42 months last year surge in growth of exports in fy22 and the first half of fy23 induced a shift in the gears of the production processes from mild acceleration to cruise mode private consumption as a percentage of gdp stood at 58.4 per cent in q2 of fy23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport survey points to the lower forecast for growth in global trade by the world trade organisation, from 3.5 per cent in 2022 to 1.0 per cent in 2023.

India to witness GDP growth of 6.0 per cent to 6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally.

The optimistic growth forecasts stem from a number of positives like the rebound of private consumption given a boost to production activity, higher Capital Expenditure (Capex), near-universal vaccination coverage enabling people to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas, as well as the return of migrant workers to cities to work in construction sites leading to a significant decline in housing market inventory, the strengthening of the balance sheets of the Corporates, a well-capitalised public sector banks ready to increase the credit supply and the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector to name the major ones.

The Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman tabled the Economic Survey 2022-23 in Parliament today, which projects a baseline GDP growth of 6.5 per cent in real terms in FY24. The projection is broadly comparable to the estimates provided by multilateral agencies such as the World Bank, the IMF, and the ADB and by RBI, domestically.

It says, growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors. Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentive schemes to boost manufacturing output.

The Survey says, in real terms, the economy is expected to grow at 7 per cent for the year ending March 2023. This follows an 8.7 per cent growth in the previous financial year.

Despite the three shocks of COVID-19, Russian-Ukraine conflict and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0 per cent in FY23.

According to Survey, India’s economic growth in FY23 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. Moreover, World’s second-largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Still, private capex soon needs to take up the leadership role to put job creation on a fast track.

It also points out that the upside to India’s growth outlook arises from (i) limited health and economic fallout for the rest of the world from the current surge in Covid-19 infections in China and, therefore, continued normalisation of supply chains; (ii) inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent; (iii) recessionary tendencies in major Advanced Economies (AEs) triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below 6 per cent; and (iv) this leading to an improvement in animal spirits and providing further impetus to private sector investment.

The Survey says, the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been remarkably high, over 30.6 per cent, on average during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union government. It adds that the recovery of MSMEs is proceeding apace, as is evident in the amounts of Goods and Services Tax (GST) they pay, while the Emergency Credit Linked Guarantee Scheme (ECGLS) is easing their debt servicing concerns.

Apart from this, increase in the overall bank credit has also been influenced by the shift in borrower’s funding choices from volatile bond markets, where yields have increased, and external commercial borrowings, where interest and hedging costs have increased, towards banks. If inflation declines in FY24 and if real cost of credit does not rise, then credit growth is likely to be brisk in FY24.

The Capital Expenditure (Capex) of the central government, which increased by 63.4 per cent in the first eight months of FY23, was another growth driver of the Indian economy in the current year, crowding in the private Capex since the January-March quarter of 2022. On current trend, it appears that the full year’s capital expenditure budget will be met. A sustained increase in private Capex is also imminent with the strengthening of the balance sheets of the Corporates and the consequent increase in credit financing it has been able to generate.

Dwelling on halt in construction activities during the Pandemic, the Survey underscores that vaccinations have facilitated the return of migrant workers to cities to work in construction sites as the rebound in consumption spilled over into the housing market. This is evident in the housing market witnessing a significant decline in inventory overhang to 33 months in Q3 of FY23 from 42 months last year.

It also says that the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been directly providing jobs in rural areas and indirectly creating opportunities for rural households to diversify their sources of income generation. Schemes like PM-Kisan and PM Garib Kalyan Yojana have helped in ensuring food security in the country, and their impact was also endorsed by the United Nations Development Programme (UNDP). The results of the National Family Health Survey (NFHS) also show improvement in rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate, household amenities, and women empowerment.

The Survey notes with optimism that Indian economy appears to have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in FY23. Yet in the current year, India has also faced the challenge of reining in inflation that the European strife accentuated. Measures taken by the government and RBI, along with the easing of global commodity prices, have finally managed to bring retail inflation below the RBI upper tolerance target in November 2022.

It, however, cautions that the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Fed. The widening of the CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year.

Therefore, the Global growth has been projected to decline in 2023 and is expected to remain generally subdued in the following years as well. The slowing demand will likely push down global commodity prices and improve India’s CAD in FY24. However, a downside risk to the Current Account Balance stems from a swift recovery driven mainly by domestic demand, and to a lesser extent, by exports. It also adds that the CAD needs to be closely monitored as the growth momentum of the current year spills over into the next.

The Survey brings to the fore an interesting fact that in general, global economic shocks in the past were severe but spaced out in time, but this changed in the third decade of this millennium, as at least three shocks have hit the global economy since 2020.

It all started with the pandemic-induced contraction of the global output, followed by the Russian-Ukraine conflict leading to a worldwide surge in inflation. Then, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation. The rate hike by the US Fed drove capital into the US markets causing the US Dollar to appreciate against most currencies. This led to the widening of the Current Account Deficits (CAD) and increased inflationary pressures in net importing economies.

The rate hike and persistent inflation also led to a lowering of the global growth forecasts for 2022 and 2023 by the IMF in its October 2022 update of the World Economic Outlook. The frailties of the Chinese economy further contributed to weakening the growth forecasts. Slowing global growth apart from monetary tightening may also lead to a financial contagion emanating from the advanced economies where the debt of the non-financial sector has risen the most since the global financial crisis. With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.

India’s Economic Resilience and Growth Drivers

The Survey points out that factors like monetary tightening by the RBI, the widening of the CAD, and the plateauing growth of exports have essentially been the outcome of geopolitical strife in Europe. As these developments posed downside risks to the growth of the Indian economy in FY23, many agencies worldwide have been revising their growth forecast of the Indian economy downwards. These forecasts, including the advance estimates released by the NSO, now broadly lie in the range of 6.5-7.0 per cent.

Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the pandemic.

IMF estimates India to be one of the top two fast-growing significant economies in 2022. Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0 per cent, and that too without the advantage of a base effect, it is a reflection of India’s underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy. India’s economic resilience can be seen in the domestic stimulus to growth seamlessly replacing the external stimuli. The growth of exports may have moderated in the second half of FY23. However, their surge in FY22 and the first half of FY23 induced a shift in the gears of the production processes from mild acceleration to cruise mode.

Manufacturing and investment activities consequently gained traction. By the time the growth of exports moderated, the rebound in domestic consumption had sufficiently matured to take forward the growth of India’s economy. Private Consumption as a percentage of GDP stood at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport, which registered sequential growth of 16 per cent in real terms in Q2 of FY23 compared to the previous quarter.

Although domestic consumption rebounded in many economies, the rebound in India was impressive for its scale. It contributed to a rise in domestic capacity utilisation. Domestic private consumption remains buoyant in November 2022. Moreover, RBI’s most recent survey of consumer confidence released in December 2022 pointed to improving sentiment with respect to current and prospective employment and income conditions.

The Survey also points to another recovery and adds that the “release of pent-up demand” was reflected in the housing market too as demand for housing loans picked up. Consequently, housing inventories have declined, prices are firming up, and construction of new dwellings is picking up pace and this has stimulated innumerable backward and forward linkages that the construction sector is known to carry. The universalisation of vaccination coverage also has a significant role in lifting the housing market as, in its absence, the migrant workforce could not have returned to construct new dwellings.

Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget (Capex) of the central government and its public sector enterprises is rapidly being deployed.

Going by the Capex multiplier estimated for the country, the economic output of the country is set to increase by at least four times the amount of Capex. States, in aggregate, are also performing well with their Capex plans. Like the central government, states also have a larger capital budget supported by the centre’s grant-in-aid for capital works and an interest-free loan repayable over 50 years.  

Also, a capex thrust in the last two budgets of the Government of India was not an isolated initiative meant only to address the infrastructure gaps in the country. It was part of a strategic package aimed at crowding-in private investment into an economic landscape broadened by the vacation of non-strategic PSEs (disinvestment) and idling public sector assets.

Here, three developments support this firstly the significant increase in the Capex budget in FY23, as well as its high rate of spending, secondly direct tax revenue collections have been highly buoyant, and so have GST collections, which should ensure the full expending of the Capex budget within the budgeted fiscal deficit. The growth in revenue expenditure has also been limited to pave the way for higher growth in Capex and thirdly the pick-up in private sector investment since the January-March quarter of 2022. Evidence shows an increasing trend in announced projects and capex spending by the private players.

While an increase in export demand, rebound in consumption, and public capex have contributed to a recovery in the investment/manufacturing activities of the corporates, their stronger balance sheets have also played a big part equal measure to realising their spending plans. As per the data on non-financial debt from the Bank for International Settlements, in the course of the last decade, Indian non-financial private sector debt and non-financial corporate debt as a share of GDP declined by nearly thirty percentage points.

The banking sector in India has also responded in equal measure to the demand for credit as the Year-on-Year growth in credit since the January-March quarter of 2022 has moved into double-digits and is rising across most sectors.

The finances of the public sector banks have seen a significant turnaround, with profits being booked at regular intervals and their Non-Performing Assets (NPAs) being fast-tracked for quicker resolution/liquidation by the Insolvency and Bankruptcy Board of India (IBBI). At the same time, the government has been providing adequate budgetary support for keeping the PSBs well-capitalized, ensuring that their Capital Risk-Weighted Adjusted Ratio (CRAR) remains comfortably above the threshold levels of adequacy. Nonetheless, financial strength has helped banks make up for lower debt financing provided by corporate bonds and External Commercial Borrowings (ECBs) so far in FY23. Rising yields on corporate bonds and higher interest/hedging costs on ECBs have made these instruments less attractive than the previous year.

RBI has projected headline inflation at 6.8 per cent in FY23, which is outside its target range. At the same time, it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest.

Macroeconomic and Growth Challenges in the Indian Economy

After the impact of the two waves of the pandemic seen in a significant GDP contraction in FY21, the quick recovery from the virus in third wave of Omicron contributed to minimising the loss of economic output in the January-March quarter of 2022. Consequently, output in FY22 went past its pre-pandemic level in FY20, with the Indian economy staging a full recovery ahead of many nations. However, the conflict in Europe necessitated a revision in expectations for economic growth and inflation in FY23. The country’s retail inflation had crept above the RBI’s tolerance range in January 2022 and it remained above the target range for ten months before returning to below the upper end of the target range of 6 per cent in November 2022.

It says that the Global commodity prices may have eased but are still higher compared to pre-conflict levels and they have further widened the CAD, already enlarged by India's growth momentum. For FY23, India has sufficient forex reserves to finance the CAD and intervene in the forex market to manage volatility in the Indian rupee.

Outlook: 2023-24

Dwelling on the Outlook for 2023-24, the Survey says, India’s recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. It says that aided by healthy financials, incipient signs of a new private sector capital formation cycle are visible and more importantly, compensating for the private sector’s caution in capital expenditure, the government raised capital expenditure substantially.

Budgeted capital expenditure rose 2.7 times in the last seven years, from FY16 to FY23, re-invigorating the Capex cycle. Structural reforms such as the introduction of the Goods and Services Tax and the Insolvency and Bankruptcy Code enhanced the efficiency and transparency of the economy and ensured financial discipline and better compliance, the Survey added.

Global growth is forecasted to slow from 3.2 per cent in 2022 to 2.7 per cent in 2023 as per IMF’s World Economic Outlook, October 2022. A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organisation, from 3.5 per cent in 2022 to 1.0 per cent in 2023.

On the external front, risks to the current account balance stem from multiple sources. While commodity prices have retreated from record highs, they are still above pre-conflict levels. Strong domestic demand amidst high commodity prices will raise India’s total import bill and contribute to unfavourable developments in the current account balance. These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure.

Entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stay ‘higher for longer’. In such a scenario, global economy may be characterised by low growth in FY24. However, the scenario of subdued global growth presents two silver linings – oil prices will stay low, and India’s CAD will be better than currently projected. The overall external situation will remain manageable.

India’s Inclusive Growth

The Survey emphasises that growth is inclusive when it creates jobs. Both official and unofficial sources confirm that employment levels have risen in the current financial year, as the Periodic Labour Force Survey (PLFS) shows that the urban unemployment rate for people aged 15 years and above declined from 9.8 per cent in the quarter ending September 2021 to 7.2 per cent one year later (quarter ending September 2022). This is accompanied by an improvement in the labour force participation rate (LFPR) as well, confirming the emergence of the economy out of the pandemic-induced slowdown early in FY23.

In FY21, the Government announced the Emergency Credit Line Guarantee Scheme, which succeeded in shielding micro, small and medium enterprises from financial distress. A recent CIBIL report (ECLGS Insights, August 2022) showed that the scheme has supported MSMEs in facing the COVID shock, with 83 per cent of the borrowers that availed of the ECLGS being micro-enterprises. Among these micro units, more than half had an overall exposure of less than Rs10 lakh.

Furthermore, the CIBIL data also shows that ECLGS borrowers had lower non-performing asset rates than enterprises that were eligible for ECLGS but did not avail of it. Further, the GST paid by MSMEs after declining in FY21 has been rising since and now has crossed the pre-pandemic level of FY20, reflecting the financial resilience of small businesses and the effectiveness of the pre-emptive government intervention targeted towards MSMEs.

Moreover, the scheme implemented by the government under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been rapidly creating more assets in respect of “Works on individual’s land” than in any other category. In addition, schemes like PM-KISAN, which benefits households covering half the rural population, and PM Garib Kalyan Anna Yojana have significantly contributed to lessening impoverishment in the country.

The UNDP Report of July 2022 stated that the recent inflationary episode in India would have a low poverty impact due to well-targeted support. In addition, the National Family Health Survey (NFHS) in India shows improved rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate, household amenities, and women empowerment.

So far, India has reinforced the country’s belief in its economic resilience as it has withstood the challenge of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process. India’s stock markets had a positive return in CY22, unfazed by withdrawals by foreign portfolio investors. India’s inflation rate did not creep too far above its tolerance range compared to several advanced nations and regions.

India is the third-largest economy in the world in PPP terms and the fifth-largest in market exchange rates. As expected of a nation of this size, the Indian economy in FY23 has nearly “recouped” what was lost, “renewed” what had paused, and “re-energised” what had slowed during the pandemic and since the conflict in Europe.

The global economy battles through a unique set of challenges

The Survey narrates about six challenges faced by the Global Economy. The three challenges like COVID-19 related disruptions in economies, Russian-Ukraine conflict and its adverse impact along with disruption in supply chain, mainly of food, fuel and fertilizer and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies. The fourth challenge emerged as faced with the prospects of global stagflation, nations, feeling compelled to protect their respective economic space, thus slowing cross-border trade affecting overall growth. It adds that all along, the fifth challenge was festering as China experienced a considerable slowdown induced by its policies. The sixth medium-term challenge to growth was seen in the scarring from the pandemic brought in by the loss of education and income-earning opportunities.

The Survey notes that like the rest of the world, India, too, faced this extraordinary set of challenges but withstood them better than most economies.

 In the last eleven months, the world economy has faced almost as many disruptions as caused by the pandemic in two years. The conflict caused the prices of critical commodities such as crude oil, natural gas, fertilisers, and wheat to soar. This strengthened the inflationary pressures that the global economic recovery had triggered, backed by massive fiscal stimuli and ultra-accommodative monetary policies undertaken to limit the output contraction in 2020. Inflation in Advanced Economies (AEs), which accounted for most of the global fiscal expansion and monetary easing, breached historical highs. Rising commodity prices also led to higher inflation in the Emerging Market Economies (EMEs), which otherwise were in the lower inflation zone by virtue of their governments undertaking a calibrated fiscal stimulus to address output contraction in 2020.

The Survey underlines that Inflation and monetary tightening led to a hardening of bond yields across economies and resulted in an outflow of equity capital from most of the economies around the world into the traditionally safe-haven market of the US. The capital flight subsequently led to the strengthening of the US Dollar against other currencies – the US Dollar index strengthened by 16.1 per cent between January and September 2022. The consequent depreciation of other currencies has been widening the CAD and increasing inflationary pressures in the net importing economies.

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• Essay on Indian Economy

Introduction to Essay on Indian Economy

Indian Economy is a concept which deals with the system which manages all Economic activities of a country. It covers different sectors like agriculture, industry, and services along with their sub-segments.

Importance of Indian Economy:

The Indian Economy is important to study because it is the seventh-largest in terms of purchasing power parity and the third largest in terms of nominal GDP. Inflation in the Indian Economy is a major concern. The growth and development sector of the Indian Economy is an important area of focus. The Foreign exchange reserves of India are also an important aspect to study. Employment generation is an important area of focus for the Indian Economy.

Investment is another major concern when it comes to the Indian Economy. The balance in trade and budget deficit are other aspects that need attention from people studying the Indian Economy. Every year, a lot of research papers on India's Economy are written by various students all over India.

Some Tips to help You write Your Own Essay on the Indian Economy:

First Step: Collecting Information/ Data:

You must collect as much information related to your topic as possible. If necessary, ask experts or professionals who work in that particular field and get their opinions too if required. This would give you more authentic data rather than just reading out general stuff available online or through books.

Second Step: Sorting Information/ Data:

In this step, you must sort out all your collected data and information into separate sections. For example, if the essay is on the Indian Economy then divide it into different parts like Agriculture, Industry, or Services sector, etc. You can also use sub-heads for each of these main divisions to make things easier for yourself while writing down the final draft of your work.

Third Step: Analysis & Research Plan:  

In this part, start by researching a particular topic thoroughly so that you have a clear idea as to how to proceed with it in detail before actually starting off with the actual writing process itself. This way there would be no loose ends left at the end of the whole thing and your essay would be complete and well-structured.

Fourth Step: Drafting the Essay:

Start by writing an introduction to your topic, explaining what it is all about in detail. After that, start discussing different points one by one with proper evidence backing up everything you say. Make sure each paragraph flows smoothly into the other so that the reader does not lose focus at any point while reading through it. The conclusion should summarize all your findings and leave a lasting impression on the mind of the reader.

Fifth Step: Editing & Proofreading:

This is an important step where you must check for grammar mistakes, punctuation errors, etc. Also, make sure that the structure of your essay is perfect and there are no loose ends left at the end of it. It is better to ask someone else to proofread your work too if you are not very confident about yours.

Sixth Step: Finalizing & Presenting Your Work in the Form of an Essay/ Paperwork etc.:

Finally, present your paper with proper references and bibliography so that every statement made in the essay has a source backing it up. Make sure everything looks neat and clean before actually sending off this final piece for assessment or assignment purposes.

Conclusion: So these were some tips on how one can write their own essay on Indian Economy which would be useful for students studying it or anyone interested in knowing more about India's Economy.

FAQs on Essay on Indian Economy

1. How much time does it take to write an essay on the Indian Economy? How long should my essay be?

It totally depends on the length of your topic and how much information you have collected for writing it. Usually, an essay takes around four to six hours to complete depending upon its size.

2. Where can I get authentic data regarding the Indian Economy?

There are various websites like IMF (International Monetary Fund), World Bank, etc which provide useful data on the Indian Economy.

3. Is there a specific thesis statement that I should focus on when writing my essay?

Yes, there should be a clear thesis statement that you must mention at the beginning of your essay. It can also follow throughout the entire course of it so as to maintain a good flow and structure in your work.

4. Who is my audience? How do I write an authentic essay for them?

Your audience would mostly comprise students and researchers who are interested in knowing more about the Indian Economy. So make sure your language and tone are appropriate for them, and all the information you provide is accurate and backed up by authentic sources.

5. What are some good transition words that I can use to connect my ideas?

There are many transition words that can be used. For example, you could start off with "firstly", "next" or even use phrases like "in the second place" to make your sentence flow smoothly into another one.

6. How will I know if my essay is well-structured? What does it need?

Your essay should be well-structured and organized according to the points you are discussing. Each paragraph must flow smoothly into another one, starting with a topic sentence that summarizes the main point of that particular section in your work. After every point is discussed there needs to be some sort of conclusion at the end which sums up all your findings.

7. What are large-scale industries?

The industries with large capital requirements engaging strong manpower. These organizations have a fixed asset worth more than 10 crore rupees and are considered to be large-scale industries. In India, the large-scale industries are those industries that have a fixed asset which is more than one hundred million rupees or Rs. 10 crores.

8. In India which place is known as the Industrial Hub?

Tamil Nadu is the state with the largest number of factories situated overall in India. Tamil Nadu is the capital city Chennai with the largest industrial and commercial centre in the whole of South India. India has 13 minor industrial regions located in 15 industrial districts.

9. How is the Indian Economy in recent times?

India's GDP was estimated at Rs. 33.14 trillion in the year 2011 and 2012, US＄452.74 billion for the second quarter of the FY2020-21, against Rs. 35.84 trillion US＄489.62 billion in the second quarter of FY2019-20.

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Indian economy by 2050: In pursuit to achieve the $30 trillion mark

EY India Chief Policy Advisor

• Link Copied

Economy Watch - August 2022 (PDF)

India to reach us$5, 10, 20 and 30 trillion by fy27, fy34, fy43 and fy48, respectively..

• The UN World Population Prospects 2022 projects India to have the largest population by 2023.
• As per OECD’s baseline projections, India would overtake the US to become the second largest economy in terms of size of GDP in purchasing power parity (PPP) terms by the late 2040s. 
• However, with suitable supporting policies and altering some of the OECD assumptions, India’s GDP growth path may be modified with a view to taking better advantage of the unfolding population trends.

From population to output

I n the assessment of India’s growth potential, one key determinant as well as an important objective variable is the availability of human resources, which pertains to the size and growth in the working age population of India. The potential contribution of the growing population to  India’s GDP growth  would depend, among other factors, on the rate of growth and size of total population and its contribution to the size of working age population who may be absorbed in productive employment. It would also depend on increase in labor productivity and the impact of rising per-capita income on savings and capital formation. The working age population is estimated to decline at a rate lower than that of total population. Even as working age population declines over time, its adverse impact on potential growth rate can be overcome by its higher rate of absorption in productive employment and an increase in productivity. Absorption in productive employment and increase in labor productivity would depend an increase in the employment elasticity of output and higher investment in human capital, requiring a significant augmentation of  education  and  health  expenditures.

Future share and size of the Indian economy: alternative scenarios

The  OECD  focuses on projecting the potential or trend output growth based on a long-term model in which the key determinants of growth include growth of capital stock and its productivity, growth of labor force and its productivity, and the pace of technological progress (Guillemette and Turner, 2018; Johansson A. et al., 2013; OECD, 2014) 1 .

Table 1 below gives the estimated growth rates for a selected group of countries in the OECD baseline scenario. In the case of world, China, India and the US, average growth rates progressively fall, decade after decade, although the rate of this decline slows after the 2030s. The main reason for the falling growth rates is the declining marginal productivity of capital and reduced contribution of the technological progress. 

As compared to the average growth rates given in Table 1 for India, we work on alternative growth paths for India, leaving projections for other countries as per the OECD baseline scenario (Table 2). However, the world growth and India’s share in world output changes with each simulation as the share of India in world output increases. In the initial period covering 2022 to 2025 (FY23 to FY26 for India), we have taken a lower average growth for India as compared to the OECD projections based on more recent information (RBI Monetary Policy Review, August 2022 and IMF World Economic Outlook, April 2022).

However, 2026 (FY27) onwards, in each of the three simulations (S1, S2, and S3), there may be a slight increase in India’s assessed average growth as compared to the OECD baseline scenario. This is dependent on India taking fuller advantage of the population growth trends, which results in both increased rate of accumulation of capital stock and increased employment. If India is able to follow suitable growth-supporting policies, its average five-year growth rates would turn out to be higher than those projected by the OECD, especially in the latter decades. However, in each scenario, average five-year growth rates continue to fall, similar to the trend in the OECD baseline scenario. Thus, in the most optimistic scenario (S3), the average growth rate in the 2050s is 4.9% each in the two five-year blocks as compared to the OECD projections of 2.4% and 2.3%, respectively. 

Based on these projections, we can work out the size of the Indian economy in market exchange rate and PPP terms as well as the share of the Indian economy in global GDP. Chart 1 below shows the evolving size of the Indian economy in both market exchange rate and PPP terms. In Market exchange rates terms, the Indian economy would cross the thresholds of US$5, 10, 20 and 30 trillion in FY27, FY34, FY43 and FY48, respectively. We expect that by FY48, in PPP terms, India’s GDP may reach the US$40 trillion mark. Consistent with this scenario (S2), the share of India in world GDP is shown in below Chart 2. By 2047 (FY48 for India), India’s share may increase to 19.6%.

Accordingly, India’s per capita GDP which is almost 50% of the world per capita GDP in PPP terms currently (FY22 and FY23) would catch up to the world level by the early 2040s. This would become 1.5 times the world per capita GDP by 2057 (FY58) under S2.

Indian economy: the long picture

We take a long-term view of India’s trend growth rate based on actual growth and estimated potential growth covering a period of more than 100 years from 1951-52 to 2059-60. Growth numbers 2022-23 onwards are based on simulations under alternative assumptions, referred to as S1, S2 and S3. In this long history two major dips occur in 1972-73 and more recently, in 2020-21 pertaining to the year affected by the COVID-19 shock. In the historical period there was a peak in trend growth in 1958-59 and then in 2008-09. In the projection period, in all simulations, a peak in the trend growth rate of close to 7% is reached by 2029-30 after which there is a steady decline just as in the case of OECD projections where growth rate falls for most countries in the long run due to a fall in the contribution of capital stock to growth, among other factors.

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Determining policy priorities

The following policy measures may be critical to sustain India’s growth:

• There is a need to increase the size of government expenditure relative to GDP for which augmenting the combined tax-GDP ratio is a pre-requisite. Further, there should be an increase in the share of combined expenditure on education to 6% of GDP and on health to 3% by the mid-2030s, rising subsequently to about 5%.
• Alongside, adherence to fiscal responsibility may facilitate higher emphasis on  infrastructure  investment. Further, the fiscal policy should also ensure a balance on the combined government revenue accounts and utilization of the entire capital receipts, including fiscal deficit for capital expenditure.
• Female workforce participation rate in India is still comparatively low. As per International Labour Organization (ILO) data, India’s female labor force participation rate has been declining in recent years. The ILO has estimated this rate to be as low as 18.6% in 2020. Emphasis on female education and health may help tangibly increase their participation in productive activities.
• Emphasis on better health provisions may enable an increase in the number of working years for India’s gradually rising old age population.
• Investment in education and technological skills would accelerate adoption of global technologies in India, thereby augmenting the contribution of technological progress to growth.
• A virtuous cycle of higher per capita income, lower dependency ratio, and higher female earnings in the family may facilitate higher savings and investment, and thereby growth.
• Overall, employment intensity of output needs to be increased. To some extent, this would be facilitated by the relatively higher growth of the services sector, which tends to be more employment intensive.
• Guillemette, Y. and D. Turner (2018), " The Long View: Scenarios for the World Economy to 2060 ",  OECD Economic Policy Papers , No. 22, OECD Publishing, Paris; OECD (2014), “Growth Prospects and Fiscal Requirements over the Long Term”, in  OECD Economic Outlook , Volume 2014 Issue 1 , OECD Publishing, Paris; Johansson Å. et al. (2013), “ Long-Term Growth Scenarios ”,  OECD Economics Department Working Papers , No. 1000, OECD Publishing, Paris

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India needs several supporting government policies to become the second largest economy in PPP terms by 2040. Increasing the size of government expenditure relative to GDP and prioritizing public expenditure on education, health and physical infrastructure are key steps that the government can take in this regard.

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Inflation And Current Outlook of Indian Economy

• 29 Aug 2023
• GS Paper - 3
• Growth & Development
• Monetary Policy
• Banking Sector & NBFCs

For Prelims: Inflation And Current Outlook of Indian Economy, Retail Inflation , Reserve Bank of India , Monetary Policy , GDP (Gross Domestic Product) , Supply Chain.

For Mains: Inflation And Current Outlook of Indian Economy, Impact of Inflation on Na Economy.

Why in News?

July 2023 witnessed a notable increase in Retail Inflation , reaching 7.44%, creating Goldilocks scenario for India, making investors and savers uncertain about the economic situation.

• A Goldilocks Scenario describes an ideal state for an economy whereby the economy is not expanding or contracting by too much. A Goldilocks economy has steady economic growth, preventing a recession, but not so much growth that inflation rises by too much.

What is the Current Economic Scenario of India and Projections?

• However, if inflation remains high, it could affect returns on stock market investments.
• Gold and bank deposit rates, on the other hand, are expected to remain stable in the coming months.
• The Reserve Bank of India (RBI) anticipates inflation to stay above 5% until the first quarter of 2024-25, potentially reaching 6.2% in the current quarter (July-Sept) 2023, exceeding the RBI's comfort level of 4%.
• Food prices are expected to remain elevated for a few more months. July's data reveals a surge in vegetable prices (37.3%), along with inflation in cereals, pulses (both 13%), spices (21.6%), and milk (8.3%).
• It is expected that government interventions and fresh crop arrivals will eventually ease this pressure.
• Due to the higher inflation projections, the possibility of a rate cut has been postponed to the next Fiscal Year (2024-25).
• The Monetary Policy Committee (MPC) is likely to maintain policy rates in the upcoming meeting, with the first rate cut potentially occurring in the following fiscal year.
• Despite inflation and high interest rates, India's market has performed well.
• Supported by strong earnings prospects and stable macro conditions , India has outperformed other markets.

What is the Impact of Such Rising Inflation on the Indian Economy?

• When inflation is high, stock prices are undervalued, and the value of gold increases. Rising inflation reduces purchasing power, leading to lower real earnings .
• The RBI's series of repo rate hikes since April 2022 has contributed to an overall increase in lending rates, affecting various types of loans.
• Inflation can impact different groups within society unevenly. Creditors may lose out, as the value of the money they receive from debtors decreases.
• Conversely, debtors could benefit by repaying loans with money that is worth less than when they borrowed it.
• High inflation in one country can lead to a decrease in its international competitiveness. If domestic prices rise faster than those in trading partner countries, the country's exports may become less attractive on the global market.
• Inflation can sometimes trigger a cycle of rising wages and prices. Workers demand higher wages to keep up with rising costs, and businesses pass on those higher costs to consumers in the form of higher prices. This cycle can perpetuate inflation.

Way Forward

• Given the concerns about rising inflation, the government and the RBI need to work together to manage inflationary pressures. This could involve targeted measures to stabilize food prices, improve Supply Chain efficiency , and maintain a cautious monetary policy.
• The government should focus on maintaining a balanced budget , reducing unnecessary expenditure, and boosting revenue generation through reforms and measures that promote economic growth.
• The RBI should continue to adopt a vigilant and data-driven monetary policy approach. This may involve adjusting interest rates to manage inflation while also considering the impact on economic growth.

UPSC Civil Services Examination, Previous Year Question (PYQ)

Q.1 With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

• Expansionary policies
• Fiscal stimulus
• Inflation-indexing of wages
• Higher purchasing power
• Rising interest rates

Select the correct answer using the code given below:

(a) 1, 2 and 4 only (b) 3, 4 and 5 only (c) 1, 2, 3 and 5 only (d) 1, 2, 3, 4 and 5

Q.2 Consider the following statements: (2020)

• The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
• The WPI does not capture changes in the prices of services, which CPI does.
• Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only  (b) 2 only  (c) 3 only  (d) 1, 2 and 3

India Better Positioned to Navigate Global Headwinds Than Other Major Emerging Economies: New World Bank Report

NEW DELHI, 06 December 2022 – India’s economy has demonstrated resilience despite a challenging external environment , says the World Bank in its latest India Development Update, a World Bank flagship publication. The report titled “ Navigating the Storm ”, finds that while the deteriorating external environment will weigh on India’s growth prospects, the economy is relatively well positioned to weather global spillovers compared to most other emerging markets.

Impact of a tightening global monetary policy cycle, slowing global growth and elevated commodity prices will mean that the Indian economy will experience lower growth in 2022-23 financial year compared to 2021-22.  Despite these challenges, the update expects India to register a strong GDP growth and remain one of the fasted growing major economies in the world, due to robust domestic demand.

The World Bank has revised its 2022-23 GDP forecast upward to 6.9 percent from 6.5 percent (in October 2022), considering a strong outturn in India in the second quarter (July-September) of the 2022-23 financial year.

"India’s economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies," said Auguste Tano Kouame, World Bank's Country Director in India. “ However, continued vigilance is required as adverse global developments persist. ”

The report forecasts that the India economy will grow at slightly lower rate of 6.6 percent in the 2023-24 fiscal year. A challenging external environment will affect India’s economic outlook through different channels. The report states that rapid monetary policy tightening in advanced economies has already resulted in large portfolio outflows and depreciation of the Indian Rupee while high global commodity prices have led to a widening of the current account deficit.

However, it argues that India’s economy is relatively insulated from global spillovers compared to other emerging markets. This is partly because India has a large domestic market and is relatively less exposed to international trade flows. The report finds that while a 1 percentage point decline in growth in the US is associated with a 0.4 percentage point decline in India’s growth, the effect is around 1.5 times larger for other emerging economies. Analysis for growth spillovers from the EU and China also yields similar results.

India’s external position has also improved considerably over the past decade. The current-account deficit is adequately financed by improving foreign direct investment inflows and a solid cushion of foreign exchange reserves (India has one of the largest holdings of international reserves in the world).

Policy reforms and prudent regulatory measures have also played a key role in developing resilience in the economy . Increased reliance on market borrowings has improved the transparency and credibility of fiscal policy and the government has diversified the investor base for government securities. The introduction of a formal inflation targeting framework during the past decade was an important step in lending credibility to monetary policy decisions. While there are still some challenges in the financial sector, the adoption of several regulatory and policy measures— including the introduction of a new Insolvency and Bankruptcy Code and the creation of the new National Reconstruction Company Limited— facilitated an improvement in financial sector metrics over the past five years; these policy interventions are also expected to help alleviate pressures related to non-performing loans.

“A well-crafted and prudent policy response to global spillovers is helping India navigate global and domestic challenges,” said Dhruv Sharma, Senior Economist, World Bank, and lead author of the report . 

The report notes that both levers of macroeconomic policy – fiscal and monetary – have played a role in managing the challenges that have emerged over the past year. The report notes that the RBI withdrew accommodative monetary policy settings in a measured approach as it balanced the need to rein in inflation while continuing to support economic growth.  Fiscal policy supported the central bank’s rate actions by cutting excise duty and other taxes on fuel to moderate the impact of higher global oil prices on inflation. However, the report also cautions that there is a trade-off between trying to limit the adverse impact of global spillovers on India’s growth and available policy space.

• World Bank India Website
• Website World Bank India on Facebook
• World Bank India on Twitter

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Essay on Indian Economy for Students and Children

500+ words essay on indian economy.

India is mainly an agricultural economy . Agricultural activities contribute about 50% of the economy. Agriculture involves growing and selling of crops, poultry, fishing, cattle rearing, and animal husbandry. People in India earn their livelihood by involving themselves in many of these activities. These activities are vital to our economy. The Indian economy has seen major growth in the last few decades. The credit for this boom largely goes to the service sector. Agriculture and associated activities have also been improvised to match the global standards and the export of various food products has seen an upward trend thereby adding to the economic growth. The industrial sector does not lag behind a bit. A number of new large scale, as well as small scale industries, have been set up in recent times and these have also proved to have a positive impact on the Indian economy.

Government’s Role in Economic Growth

Majority of the working Indian population was and is still engaged in the agriculture sector. Growing crops, fishing, poultry and animal husbandry were among the tasks undertaken by them. They manufactured handicraft items that were losing their charm with the introduction of the industrial goods. The demand for these goods began to decline. The agricultural activities also did not pay enough.

The government identified these problems as hindering the economic growth of the country and established policies to curb them. Promotion of cottage industry, providing fair wages to the laborers and providing enough means of livelihood to the people were some of the policies laid by the government for the country’s economic growth.

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The Rise of the Industrial Sector

The government of India also promoted the growth of small scale and large scale industry as it understood that agriculture alone would not be able to help in the country’s economic growth. Many industries have been set up since independence. A large number of people shifted from the agricultural sector to the industrial sector in an attempt to earn better.

Today, we have numerous industries manufacturing a large amount of raw material as well as finished goods. The pharmaceutical industry, iron and steel industry , chemical industry, textile industry, automotive industry, timber industry, jute, and paper industry are among some of the industries which have contributed a great deal in our economic growth.

The Growth in Service Sector

The service sector has also helped in the growth of our country. This sector has seen growth in the last few decades. The privatization of the banking and telecom sectors has a positive impact on the service sector. The tourism and hotel industries are also seeing a gradual growth. As per a recent survey, the service sector is contributing to more than 50% of the country’s economy.

Indian Economy after Demonetization

The worst affected were the people in the rural areas who did not have access to internet and plastic money. This affects many big and small businesses in the country very badly. Several of them were shut down as a result of this. While the short term effects of demonetization were devastating, this decision did have a brighter side when looked at from long term perspective.

The positive impact of demonetization on the Indian economy is a breakdown of black money, the decline in fake currency notes, increase in bank deposits, demonetization stopped the flow of black money in the real estate sector to ensure a fair play, increase in digital transactions, cutting monetary support for terrorist activities.

Many of our industries are cash-driven and sudden demonetization left all these industries starving. Also, many of our small scale, as well as large scale manufacturing industries, suffered huge losses thereby impacting the economy of the country negatively. Many factories and shops had to be shut down. This did not only impact the businesses but also the workers employed there. Several people, especially the laborers, lost their jobs.

The Indian economy undergoes several positive changes since independence. It is growing at a good pace. However, the rural regions of our country are still under-developed. The government must make efforts to improve the economic condition of these areas.

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Essay on Indian Economy

India’s economy is described as huge, complex and growing. It is one of the most exciting and emerging markets in the world. Since 1951, India has grown as a planned economy. The first few plans focused on growth with the strengthening of the manufacturing sector, emphasising heavy industries to form the backbone of the economy. Other principal areas of planning were agriculture and social development. During the post-independence period and the period of the “Five-year plans”, efforts were focused on identifying the needs of the economy. Further, the economic reforms in the early 90s opened a new chapter in India’s economic history. It gave India an opportunity to shake off the shackles of its past and emerge on the world stage as a progressive nation. This essay on the Indian Economy will help students know about the Indian economy in detail.

Students can go through the list of CBSE Essays on different topics. It will help them to improve their writing skills and also increase their scores on the English exam. Moreover, they can participate in different essay writing competitions which are conducted at the school level.

500+ Words Essay on the Indian Economy

India is on the high road to economic growth. Since 2020, the world economy has declined due to the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and inflation have created challenging times. Faced with these challenges, the Government of India has taken immediate action so that it has the least impact on the Indian economy.

The Indian economy has been staging a sustained recovery since the second half of 2020-21. However, the second wave of the pandemic in April-June 2021 was more severe from a health perspective. The national lockdown has affected small businesses, common people and everyone in India. Due to this, the Indian economy has gone down. But now, it is slowly rising up and taking its form.

Role of Agriculture in the Indian Economy

Agriculture is one of the most important sectors of the Indian economy. It supplies food and raw materials in the country. At the time of independence, more than 70% of India’s population depended on agriculture to earn a livelihood. Accordingly, the share of agriculture in the national product/income was as high as 56.6% in 1950-51. However, with the development of industries and the service sector, the percentage of the population depending on agriculture, as well as the share of agriculture in the national product, has come down. Agriculture is the source of food supply. Agriculture is also a major source of foreign exchange earnings through export. The share of agriculture in India’s export in the year 2011-12 was 12.3%. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables, etc.

Role of Industry in India’s Economy

Industry is the secondary sector of the economy and is another important area of economic activity. After independence, the Government of India emphasised the role of industrialisation in the country’s economic development in the long run. Initially, the public sector contributed the maximum to economic growth. In the early 1990s, it was found that the public sector undertakings were not performing up to expectations. So, in 1991, the Indian Government decided to encourage the role of the private sector in industrial development. This step was taken to strengthen the process of industrialisation in India.

The progress of the Indian economy after independence was impressive indeed. India became self-sufficient in food production due to the green revolution, and industries became far more diversified. However, we still have to go a long way to become a 5 trillion economy by 2025. But, with government effort and the right policymakers, it can be achieved.

Students must have found this essay on the Indian Economy useful for improving their essay-writing skills. They can get the study material and the latest update on CBSE/ICSE/State Board/Competitive Exams at BYJU’S.

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