Chief Economic Advisor (CEA) Urges India Inc to Move Beyond Weak Currency Reliance

Chief Economic Advisor (CEA) Urges India Inc to Move Beyond Weak Currency Reliance

Sub : Eco

Sec : External sector

• Avoid Over-Reliance on Weak Currency:
  • Chief Economic Advisor (CEA) stressed that weak currency should not be relied upon as the primary means to boost exports.
  • Weak currency may temporarily make exports cheaper, but long-term competitiveness should be driven by productivity, R&D investment, and quality improvements.
• Caution Against Using Weak Currency as a Protective Shield:
  • CEA pointed out that in the past, India and some other developing countries used weak currency to mask inefficiencies rather than addressing them.
  • Unlike India’s approach, China leveraged weak currency alongside significant productivity gains, amplifying its export competitiveness.
• Global Context of Exchange Rate Policies:
  • Many nations are now using exchange rate policies as industrial tools, leading to reactions and counter-reactions in the global economy.
  • With the world shifting toward de-globalization, relying on global GDP and export growth to drive domestic exports is no longer sustainable.

CEA’s Recommendations for India Inc

• Focus on Human Capital Development:
  • Investing in human capital is critical to achieving industrial growth and long-term competitiveness.
• Industrial Growth and Energy Transition:
  • India’s industrial transformation is necessary for higher economic growth.
  • Achieving this requires affordable energy and resolving the challenges posed by energy cross-subsidization.
• Export Performance:
  • India’s export growth has shown improvement in FY 2024 compared to FY 2023.

India’s Economic Growth Trajectory

• Economic Growth Stats:
  • India’s average annual economic growth between 2013-14 and 2023-24 was 5.9%.
  • Industrial growth is key to returning to higher growth rates.
• Job Creation Challenges:
  • With a population of 1.4 billion, creating decent jobs is a pressing need.

Production-Linked Incentive (PLI) Scheme Success

• The PLI scheme has made India a major player in smartphone manufacturing, a sector where it previously had no presence.
• This aligns with the Make in India initiative, which aims to generate jobs and boost manufacturing.

Production Linked Incentive (PLI) Scheme

• The Production Linked Incentive (PLI) Scheme is an initiative by the Government of India aimed at enhancing domestic manufacturing, reducing reliance on imports, and fostering economic growth. It provides performance-based financial incentives to companies on incremental sales of products manufactured in India.

Objectives of the PLI Scheme

• Boost Domestic Manufacturing:
  • Encourage global and domestic companies to set up manufacturing units in India.
• Reduce Import Dependence:
  • Promote self-reliance in critical sectors.
• Increase Employment Opportunities:
  • Spur job creation across key industries.
• Foster Economic Growth:
  • Enhance India’s position as a manufacturing hub and contribute to GDP growth.

Implementation: Each sector’s scheme is overseen by the respective Ministry/Department, with schemes currently in various stages of implementation. 

Incentive Mechanism: Incentives are provided on incremental production and sales made by domestic units.