Evaluating the long-term sectoral drivers of India's GDP growth

Abstract

This project aims to understand the current economic performance in India and the degree to which it is affecting the GDP growth rate. Covid19 has changed the way we have been analyzing economies around the world, and India seems to be the worst-hit economy globally among its peers with a quarterly GDP contraction of 23.9% (National Statistics Office, 2020) (Figure 1). Given the crisis, India needs to focus on the short-term drivers like improving the consumer purchasing power by analyzing the current government policies, learning from the other developing countries and their policies and most importantly fostering investments in specific critical sectors that look promising in delivering long-term impact on the GDP’s growth. Government policies define the future course of an economy’s wellbeing. The Indian Government introduced some landmark reforms in the recent past. The Insolvency and the bankruptcy code sought to revolutionize the liquidation proceedings to minimize risks for the lenders in a time-bound manner. Still, they failed to achieve its target with its operational inefficiency. GST initially envisioned to simplify the indirect tax structure in the country complicated the entire process with several filing and twisted clauses. Other initiatives like the Jan Dhan Yojna and recent Farms bills have been well-intended but are failing to derive the required results due to implementation issues and ambiguous clauses. In this report, we seek to highlight these ambiguities in the government policies, sectoral conditions and propose measures to push the potential in the most promising prospect. Extensive research and the consequent understanding of the economy, we have identified sectors which hold the potential for the long-term growth of the Indian GDP. Agriculture has shown tremendous resilience in the pandemic times growing at a CAGR of 4.8% between 2016-20(data.worldbank.org, 2020). This sector can contribute to the GDP growth in the long-term with policies focusing on exports, improving productivity, and lifting trade restrictions. Manufacturing sector with the increased FDIs, favorable government policies and abundance of domestic labor has tremendous potential. By fixing the rigid regulations, focusing on R&D and improving productivity, the Government can effectively use this sector to reach its target of becoming a USD 5 trillion economy—Healthcare sector in India huge given that it ranks 3rd in global production volumes and 10th in revenues. With the backing of government policies, the healthcare industry should find avenues to venture into rural areas and increase investments in the R&D division to increase revenue from patented drugs. Infrastructure is the basis of all assets in every sector. Focusing on improving the finances, streamlining regulations, and building a strong Public, private partnerships (PPP) in this sector is of paramount importance. Overall, the Government needs a focused approach towards these sectors, which, according to us, would drive the long-term GDP growth rate. This should simplify the complicated process in these sectors and make it more attractive for private investments.