1 NOV 2021

INDIAN ECONOMY

SREYAS SATHEES BABU

21MBMA81
INTRODUCTION

India's economy is classified as a middle-income emerging market economy. It has the

sixth-largest nominal GDP and the third-largest purchasing power parity economy in the
world (PPP). According to the International Monetary Fund (IMF), India ranks 145th by
nominal GDP and 122nd by nominal GDP per capita (PPP). From 1947 through 1991,
consecutive administrations advocated protectionist economic policies that included
substantial government intervention and regulation. Following the conclusion of the Cold
War and a severe balance-of-payments crisis in 1991, India adopted substantial economic
liberalisation. Annual average GDP growth has been 6% to 7% since the turn of the
century, and from 2013 to 2018, India was the world's fastest growing major economy,
surpassing China. From the first through the nineteenth centuries, India had the world's
largest economy for the majority of the two millennia.

Domestic private consumption accounts for over 60% of India's GDP. The country's
consumer market is still the world's sixth largest. Apart from individual consumption,
government spending, investment, and exports all contribute to India's GDP. India was the
ninth-largest importer and twelfth-largest exporter in the world in 2019. Since January 1,
1995, India has been a member of the World Trade Organization. On the Ease of Doing
Business Index, it is ranked 63rd, while on the Global Competitiveness Report, it is ranked
68th. As of 2019, India's labour force was 500 million people, making it the world's second-
largest.

AGRICULTURAL SECTOR

For around 58 percent of India's population, agriculture is their primary source of income.
Agriculture, forestry, and fishery had a Gross Value Added of Rs. 19.48 lakh crore (US$
276.37 billion) in FY20. In FY20, agricultural and allied sectors accounted for 17.8% of
India's gross value added (GVA) at current prices. Consumer spending in India would grow
by as much as 6.6 percent in 2021, following a pandemic-driven drop.
Due to its enormous potential for value addition, notably in the food processing industry,
the Indian food industry is poised for massive expansion, increasing its contribution to
world food commerce every year. The Indian food and grocery market is the sixth largest
in the world, with retail accounting for 70% of total sales. The Indian food processing
sector, which accounts for 32 percent of the country's overall food market and is rated fifth
in terms of production, consumption, export, and predicted growth, is one of the country's
largest industries. Agricultural commodities exports were US$ 32.12 billion from April
2020 to January 2021.

Market Size
In FY19, the country's total food grain production was 296.65 million tonnes, up 11.44
million tonnes from FY19's 285.21 million tonnes. In FY21, the government plans to
purchase 42.74 million tonnes from the central pool, which is a 10% increase over the
amount purchased in FY20. The government has set a new milestone for farmers in FY22,
requiring them to increase food grain production by 2% to 307.31 million tonnes.
Production was 303.34 million tonnes in FY21, compared to a target of 301 million tonnes.

Seed production by the private sector climbed from 57.28 percent in 2017 to 64.46 percent
in FY21. Rice, wheat, sugarcane, cotton, groundnuts, and fruits and vegetables are among
India's top exports. It also produced 25% of the world's pulses till 2019, as of last decade.

From Rs. 2,700 crore (US$ 386.32 million) in 2015, the organic food industry in India is
predicted to increase at a CAGR of 10% from 2015 to 2025, reaching Rs. 75,000 crore
(US$ 10.73 billion). On the back of government efforts such as planned infrastructure
worth US$ 1 trillion and the Pradhan Mantri Kisan Sampada Yojna, India's processed food
market is predicted to increase to Rs. 3,451,352.5 crore (US$ 470 billion) by 2025, up from
Rs. 1,931,288.7 crore (US$ 263 billion) in FY20. About 1.77 million people work in the
food processing business. Under the automatic approach, the sector enables 100 percent
FDI. Exports of processed food goods totaled Rs. 43,798 crore (US$ 6.02 billion) between
April 2020 and February 2021. Pulses, processed vegetables, processed fruits and juices,
groundnuts, guar gum, cereal preparations, milled products, alcoholic drinks, and oil meals
were among the significant processed food exports from India.

According to third advance estimates, India's horticulture crop production would reach a
new high of 326.6 million metric tonnes (MMT) in FY20, up 5.81 million metric tonnes
from FY20. India has the world's highest livestock population, with 535.78 million
animals, or around 31% of the world's population. Milk output in the country is predicted
to increase by 10% year on year to 208 MT in FY21, up from 198 MT in FY20. In FY21,
the area under horticulture is expected to increase by 2.7 percent. According to the Indian
Sugar Mills Association, sugar production in India reached 26.46 MT between October
2019 and May 2020. (ISMA).

India is one of the top 15 agricultural commodity exporters in the world. India's agricultural
exports totaled US$ 38.54 billion in fiscal year 2019 and US$ 35.09 billion in fiscal year
2020. The Indian agricultural sector is expected to grow to US$ 24 billion by 2025.
SERVICE SECTOR
The services industry not only accounts for the majority of India's GDP, but it also attracts
significant foreign investment, contributes significantly to export, and employs a big
number of people. Trade, hotel and restaurant services, transportation, storage and
communication, financial, insurance, real estate, business services, community, social, and
personal services, and construction services are all part of India's services industry.

Market Size
In FY21, the services sector contributed 54 percent of the total GVA. From Rs. 68.81
trillion (US$ 1,005.30 billion) in FY16 to Rs. 101.47 trillion (US$ 1,439.48 billion) in
FY20, India's services sector GVA expanded at a CAGR of 11.43 percent to Rs. 101.47
trillion (US$ 1,439.48 billion). Financial, real estate, and professional services grew at a
CAGR of 11.68 percent (in Rs. values) between FY16 and FY20, while trade, hotels,
transportation, communication, and broadcasting services grew at a CAGR of 10.98
percent (in Rs. terms).
According to the Reserve Bank of India, India's service exports totaled US$ 19.72 billion
in June 2021, while imports totaled US$ 11.14 billion. In July 2021, the India Services
Business Activity Index/ Nikkei/IHS Markit Services Purchasing Managers' Index rose to
45.4 from 41.2 in June 2021.

The following are some of the recent advances in the services sector:
 India's exports climbed by 48.34 percent to US$ 32.5 billion in June 2021, marking
the ninth month of growth.
 Between April 2000 and March 2021, India's services* category garnered a total of
US$ 87.06 billion in foreign direct investment (FDI). According to data given by
the Department for Promotion of Industry and Internal Trade, the services category
ranked first in FDI inflow (DPIIT).According to Refinitiv, in the first-half of 2021,
private equity investments in India stood at US$ 11.82 billion, as compared with
US$ 5.43 billion in the same period last year.
 Tata Teleservices and Zoom Video Communications partnered in July 2021 to offer
packaged communication services.
 As a follow-up to the government's focus on ease of doing business to enable ease
of living for stakeholders, the Ministry of Education (MoE) and University Grants
Commission (UGC) began a series of online interactions with stakeholders in April
2021 to streamline forms and processes to reduce compliance burden in the higher
education sector.
 The Health Ministry's eSanjeevani telemedicine services, which enable patient-to-
doctor and doctor-to-doctor consultations from the comfort of their own homes,
reached 3 million (30 lakh) teleconsultations on March 17, 2021.
 In December 2020, the India Edison Accelerator, powered by GE Healthcare, will
choose a cohort of six health-tech start-ups: AarogyaAI, BrainSightAI, Fluid AI,
InMed Prognostics, Wellthy Therapeutics, and Onward Assist. The India Edison
Accelerator, the company's first start-up partnership programme focusing on Indian
mentors, brings together strategic partners to collaborate on healthcare
solutions.The Indian healthcare industry is expected to shift digitally enabled remote
consultations via teleconsultation. The telemedicine market in India is expected to
increase at a CAGR of 31% from 2020 to 2025.
The COVID-19 epidemic, as well as the ensuing lockdown and social distancing measures,
has had a major impact on the contact-intensive services industry. The services sector
shrank by over 16 percent in the first half of the fiscal year 2020-21. Following the first
shutdown, which was announced in March 2020, air passenger traffic, train freight traffic,
port traffic, foreign tourist arrivals, and foreign exchange revenues all fell drastically. As
the economy began to open up, most of these indicators began to show signs of
improvement. Domestic passenger air traffic is progressively increasing on a monthly basis
as well, albeit it is still low compared to last year. Interestingly, FDI inflows into the
services sector surged by 34% YoY from April to September 2020, to reach US$ 23.61
billion, despite global disruptions. Many substantial structural reforms occurred in the
years 2020-21. The space sector was deregulated, telecom-related rules were eliminated
from the IT-BPO industry, and e-commerce consumer protection regulations were enacted.
The importance of the services sector in the Indian economy has steadily increased, with
the sector now accounting for over 54% of GDP and about four-fifths of total FDI inflows.
Meanwhile, the time it takes for a container to arrive at a port has nearly halved, from 4.67
days in 2010-11 to 2.62 days in 2019-20.

MANUFACTURING SECTOR

Manufacturing has emerged as one of India's fastest-growing industries. Mr. Narendra

Modi, India's Prime Minister, initiated the 'Make in India' campaign to put India on the
map as a manufacturing centre and to give the Indian economy international prominence.
By 2022, the government wants to create 100 million new employment in the sector.

Market Size
According to the second advanced estimates for FY21, the sector's gross value added
(GVA) at current prices was anticipated to be US$ 348.53 billion. The Purchasing
Managers Index (PMI) for manufacturing in India fell to 48.1 in June 2021 from 50.8 in
May 2021. Manufacturing GVA accounts for 19% of real gross value added in the country.
Between April 2020 and March 2021, the manufacturing component of IIP was at 117.2.
India's industrial production, as measured by the Index of Industrial Production (IIP), was
116.6 in May 2021, according to the Ministry of Statistics and Programme Implementation.
The mining, manufacturing, and electrical sectors' industrial output indices were 108.0,
113.5, and 161.9 in May 2021, respectively.
Capacity utilisation in India's manufacturing sector was 66.6 percent in the third quarter of
FY21, according to the latest study.
Between April 2020 and March 2021, the manufacturing component of the IIP was 116.9.
India's industrial production, as measured by the Index of Industrial Production (IIP), was
143.4 in March 2021, according to the Ministry of Statistics and Programme
Implementation.
WAYS TO IMPROVE INDIAN ECONOMY

In the April-June quarter, the Indian economy contracted for the fifth time in its post-
independence history, dropping by 23.9 percent of GDP. Construction, manufacturing, and
transportation all experienced significant contractions.

While the markets have reopened, the coronavirus pandemic continues to rage, and private
consumption has witnessed one of the steepest drops in history (26.7 per cent in the April-
June quarter).

1. Rethink economic policy in light of new growth drivers

It is undeniable that the Indian economy is experiencing a slowdown. For the fourth quarter
in a row, the rate of GDP growth has slowed. To uncover new potential growth drivers,
economic policy must be re-thought. The following are some of the actions that the
government can take:

 Multi-sector integrated infrastructure projects aimed at improving overall quality of

life.
 Healthcare will prioritise an expanded primary care network, multi-functional
infrastructure, national health insurance coverage, and digital technology adoption.
 Digital infrastructure for business continuity and ongoing focus on optical fibre
deployment.
 Digital infrastructure for business continuity and ongoing focus on optical fibre
deployment.
 Labor reforms to facilitate performance
 Centre-state convergence on targeted policy improvements and sectoral reforms

The key to restoring the economy and getting back on the growth agenda is reprioritization
and robust implementation, as well as the construction of future-ready infrastructure.
 2. Increase consumer demand and purchasing power

Even before Covid-19, the Indian economy had been shrinking for a few quarters. As a
result of the shutdown caused by Covid-19, GDP shrank by up to 23.9 percent. In my
perspective, the economy will improve only when end consumers spend more, but
consumers are already spending money more wisely since millions have lost their jobs and
millions more are always fearful of losing their jobs.

It's like a cycle that has been put on hold. To keep the cycle going, it's critical to boost
consumer demand while also increasing their purchasing power, either directly or
indirectly through creating jobs, so they can start spending money on things that aren't as
vital. The economy took two to three years to tumble this badly, and it will take even longer
to get back on track.

3. Government needs to provide skill-based education

For India's expanding population, the actual economy resides in each of the country's
families. This is why per capita income is important. It is the average annual income earned
by each person in a certain area. When per capita income rises, so does the nation's
productivity, and consequently our economy. To achieve this, every member of a family
with labour capability (excluding youngsters and the elderly) must work, regardless of
gender. People nowadays, however, despite their schooling, lack abilities. They are also
denied opportunities since our schooling does not emphasise vocational skills.

Unemployment will suffocate a nation's backbone. That is why the government must
provide work opportunities, particularly for young people. To help students reach their
goals, the government should fund skill-based education and more internships, among
other things. If a family is self-sufficient, the economy of a country will be as well.
 4. Disinvestment, labour changes, and GST simplification

Disinvestment, labour reforms, and GST simplification should all be high on the
government's priority list. Because India is experiencing an unprecedented economic crisis
as a result of the Covid-19 outbreak, this is an excellent time to implement far-reaching
changes. Disinvestments should be accelerated by the government, which will generate
revenue that can be used to raise government spending, adopt labour reforms to free up the
manufacturing industry, and assist create more jobs. Finally, the GST rate slabs should be
consolidated into just two. This will make it easier to collect more tax income.

5. Focus on supplying skilled labour rather than low-cost labour

India's GDP has decreased as a result of the global economic downturn, but more than
projected. In a situation like this, the government has the support of the people. It's the ideal
chance for them to cover up previous policy mistakes.

Our industries rely significantly on manual labour and have very little automation. The
economic impact of mass departure of manual labourers was unavoidable. This, I feel, is
the optimum time to make significant reforms and focus on supplying skilled labour rather
than low-cost labour. The government and the business sector should form a partnership to
devote a portion of the year to improving the skills of the existing workforce. To repair this
wounds, we need a long-term radical plan, not a band-aid.

6. Treat waste as revenue-generating resource

Every year, India produces 277 million tonnes of municipal solid garbage, of which just
5% is recycled. Every day, India produces almost 26,000 tonnes of plastic waste and more
than 5 lakh tonnes of wet waste. 1 tonne of wet garbage can be recycled into biogas
equivalent to 2 LPG cylinders, and 1 kg of plastic can be recycled into 1 litre of fuel
(14.2kg). If India begins to view waste as revenue and establishes proper infrastructure to
recycle and handle it, it will benefit us not only financially, but also in terms of contributing
to a clean and green India.

7. More jobs must be created by the government

Unemployment has a significant impact on a country's GDP. Even before the coronavirus
outbreak, the unemployment rate was at its highest in 45 years. The government must
create more jobs in response to public demand. It also depends on the government's policies
in numerous areas. Only the agriculture industry has made progress; otherwise, all sectors
are experiencing difficulties.

Almost every major country's economy is in decline, but India ranks last among countries
of its size. If the government is unable to boost GDP, it should at the very least attempt to
limit its decrease.

8. Increase domestic demand, private investment, corona bonds

Here are some suggestions for the government to consider:

I. The government can encourage private investment by launching projects such as

road and bridge construction.
II. Governments can issue bonds similar to those issued by European Union countries,
such as corona bonds.
III. The government can concentrate on labour reforms, faster approvals, lower
compliance costs, and the promotion of export-oriented industries.

9. The government should import less and export more

The industrial sector must be boosted in order for India's economy to recover. Mobile
phones and electronic items are assembled in India rather than being manufactured there.
India requires genuine "Made in India" goods. India is the world's largest provider of
pharmaceuticals, but it still relies on China for APIs (active pharmaceutical ingredients).
India will have to build its own API. The pesticide sector in India is likewise heavily reliant
on imported raw ingredients. India is one of the world's largest consumers. It's past time
for it to value its industrial divisions.

EXPORT OF INDIAN GOODS AND SERVICES FOR THE EXPONENTIAL

GROWTH OF INDIAN ECONOMY

India's foreign trade exposure has expanded exponentially since it opened its markets in
1990-91 — exports have increased more than 16 times and imports have increased more
than 19 times. India's imports and exports in FY 2020-21 were US$394.43 billion and
US$291.80 billion, respectively.

While the worldwide trade recession caused by the COVID-19 epidemic is projected to
persist longer than the global financial crisis of 2008-09, India's international trade data
provide cause for optimism. India's foreign trade fell 6.8%, which was better than the
World Trade Organization's (WTO) prediction of a 9.2% drop in global trade in October
2020.

Despite the subsequent economic depression caused by the pandemic, several industries
and destinations saw expansionary patterns emerge in FY 2020-21, owing to specific
market demand and supply chain disruptions.

The pandemic's unpredictable global trade condition had a significant impact on global
merchandise commerce in 2020, and India was not immune. Exports in FY 2020-21 totaled
US$291.8 billion, down 6.8% from the previous year.
India’s import-export environment

Mineral fuels (oil) and diamonds and precious metals were the top two most exported
products, accounting for 18 percent of total exports.

The pharmaceutical business, whose output accounted for the third most exported category
of commodities for the financial year, saw a spike in performance in 2021 as well. In
addition to growth in organic demand, India's pharmaceutical industry has benefited from
new investment flows, partnerships in vaccine production and biotechnology, and
manufacturing incentive (Production-Linked Incentives or PLI) schemes since last year.

It's worth mentioning that raw materials and intermediates make for a significant share of
India's exports, whereas completed products dominate India's import basket.
Exports, despite their promising increase, may not be sufficient to fuel growth in the long
run if raw materials and intermediates continue to dominate. It is in India's best interests to
expand and diversify its manufacturing capacity in order to take use of its abundant raw
materials and move up the value chain in order to meet domestic and international demand.

Exports to the United States continued to dominate, accounting for almost 17% of India's
overall exports. Following that, China and the UAE switched places, with exports to the
UAE dropping sharply in 2020-21.

EASE OF DOING BUSINESS IN INDIA

Foreign Direct Investment (FDI) has been a major non-debt financial resource for India's
economic development, in addition to being a critical engine of economic growth. Foreign
companies invest in India to take advantage of lower salaries and unique investment
benefits such as tax breaks, among other things. It also implies gaining technological know-
how and creating jobs in a country where foreign investment is made.
Foreign capital continues to come into India thanks to the Indian government's favourable
policy regime and thriving economic environment. In recent years, the government has
adopted a number of efforts, including loosening FDI restrictions in areas like as defence,
PSU oil refineries, telecommunications, electricity exchanges, and stock exchanges,
among others.
FDI equity inflows into India totaled US$ 547.2 billion between April 2000 and June 2021,
according to the Department for Promotion of Industry and Internal Trade (DPIIT),
demonstrating that the government's efforts to improve ease of doing business and simplify
FDI regulations have paid off.

Between April and June 2021, FDI equity inflows into India totaled US$ 17.56 billion. The
automobile sector drew the most FDI equity inflow of US$ 4.66 billion between April and
June 2021, followed by the computer software and hardware sector (US$ 3.06 billion),
services sector (US$ 1.89 billion), and metallurgical industries (US$ 1.26 billion).
India received the most FDI equity inflows from Singapore (US$ 3.31 billion) between
April and June 2021, followed by Mauritius (US$ 3.29 billion), the United States (US$
1.95 billion), the Cayman Islands (US$ 1.32 billion), the Netherlands (US$ 1.09 billion),
Japan (US$ 539 million), and the United Kingdom (US$ 345 million).

Initiatives by the government

 In September 2021, India and the United Kingdom agreed to increase bilateral
investment in the form of a "Enhanced Trade Partnership."
 In June 2021, the Finance Ministers of the G-7 countries, which include the United
States, the United Kingdom, Japan, Italy, Germany, France, and Canada, reached a
historic agreement on multinational taxation, with a minimum global tax rate of at
least 15%. The measure is intended to improve the country's foreign direct
investment.
 To promote the telecom sector in India, the Union Cabinet declared in September
2021 that it would accept 100 percent foreign direct investment (FDI) via the
automatic method, up from 49 percent previously.
 In August 2021, the government changed the Foreign Exchange Management (non-
debt instruments) Rules, 2019, to allow for a 74 percent increase in the insurance
sector's foreign direct investment ceiling.
 The final guidelines for the foreign investment limit (74 percent) in the insurance
business were announced by the Finance Ministry in May 2021. 23 private life
insurers, 21 private non-life insurers, and seven specialised private health insurance
organisations are projected to benefit from this.
 Mr. Shripad Naik, the Minister of State for Defence, revealed in March 2021 that a
total of 44 Indian enterprises, including public sector units, have secured FDI
authorisation for joint manufacturing of defence items with international
corporations.
 In December 2020, the Uttar Pradesh government agreed to grant special incentives
to Samsung Display Noida Private Limited in order to establish a mobile and IT
 display product manufacturing unit. Samsung will also receive a financial incentive
of Rs.460 crores (US$ 62.61 million) under the Central Government's scheme for
promotion of manufacturing electronic components and semiconductors (SPECS).
This project would help Uttar Pradesh create a worldwide export hub and attract
more foreign direct investment (FDI).
 The Union Cabinet approved modifications to the guidelines for providing Direct-
to-Home (DTH) services in December 2020, allowing 100 percent FDI in the DTH
broadcasting services sector.

Road ahead
According to a research by the CII and EY, India is likely to receive FDI worth US$ 120-
160 billion per year by 2025. Over the last ten years, the country's GDP has increased by
6.8%, with FDI increasing by 1.8 percent.
According to the Economic Times, investors placed India third in terms of attractiveness;
80 percent of investors want to invest in India in the next 2-3 years, with 25% reporting
investments worth more than US$ 500 million.
Furthermore, according to a Deloitte analysis released in September 2021, India remains
an appealing market for overseas investors in both the short and long term.
The Institute for Management Development (IMDannual )'s World Competitiveness Index
2021 rated India 43rd. According to the IMD, India's improvements in government
efficiency are mostly due to relatively stable public finances (despite COVID-19-related
issues) and hopeful emotions among Indian industry stakeholders regarding government
funding and subsidies.
CONCLUSION
According to the RBI's revised estimates from July 2021, the country's real GDP growth
for the first quarter of FY22 is expected to be 21.4 percent. The rise in tax collection,
combined with the government's budget support for states, boosted the Indian economy's
overall growth.
In order to generate energy, India is relying on renewable sources. It aims to get 40% of its
energy from non-fossil sources by 2030, up from 30% now, and expects to raise renewable
energy capacity to 175 gigawatts (GW) by 2022. In line with this, India and the United
Kingdom together unveiled a "Roadmap 2030" in May 2021 to collaborate and battle
climate change by 2030.
India is expected to be the third largest consumer economy as its consumption may triple
to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern,
according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to
become the second largest economy in terms of purchasing power parity (PPP) by 2040 as
per a report by PricewaterhouseCoopers.