Growth Potential of Indian economy

Growth Potential of Indian economy

Subject: Economy

Context: Already slowing down Indian economy face Covid-19 induced slowdown and after opening up there has been talk of raising fiscal deficit and debt levels to propel growth which though goes against FRBM norms, is considered essential for growth potential of economy.

Concept:

Growth potential of an economy is determined interaction of complex set of factors, political setting and even external environment. However, core aspects of it are interaction of land, labour, capital and entrepreneurship in various settings, which are largely economic factors:

1. Capital formation: High capital is a determinant of high growth. It leads to increased productivity in economy and necessitated upgradation of skills for its utilization. Ex- Japan during its high growth phase of 1913 to 1939 saw investment rate between 16 to 20%.
2. Capital-output ratio: It is the units of capital required to produce one unit of output. It reflects the productivity of the economy.
3. Savings and investment: Savings in an economy which are productively invested is another important factor.
4. Occupational structure: Optimum distribution of occupation or labour across sectors like primary, secondary and tertiary sector determines level of growth in an economy. Ex- Transfer of Indian labour from Primary sector to manufacturing and services has also been an enabling factor for growth.
5. Technological progress: It is one of the biggest enablers and one which has been shaping the direction of growth since industrial revolution. Ex- If initial Industrial revolution led to mass-scale production, then Industrial Revolution 3.0 and 4.0 is powering growth through digital technology through disruptions.

Other factors are: Competitive markets; Stable prices; Free trade; Flexible capital markets; Avoiding high marginal tax rates; Securing property rights and land acquisition; Political stability