- Economic growth is on an upward move as the twin impacts of demonetisation and GST implementation wane, and will accelerate to 7.3% next fiscal from 6.5% this year.
- 2016: On 8 November 2016, the Government of Indiaannounced the demonetisation of all Rs 500 and Rs 1000 banknotes of the Mahatma Gandhi Series.
- 2017: The Goods and Service Tax Act came into effect on 1st July 2017.
- While GDP growth at 6.3% in the second quarter of 2017-18 signalled turnaround of the economy, growth in the second half is likely to remain between 7.2% to 7.5%.
- 2018: 2018 is the year when India will see benefits of demonetisation and GST coming through.
- Government says that it is firmly on course to achieve high growth of 8% plus as manufacturing, services and exports are back on good growth path.
What are the reasons for which India is affirmative about the fact it has potential to achieve 7-8% GDP growth?
The reasons for which India is affirmative about the fact it has potential to achieve 7-8% GDP growth are as follows:
- The Indian economy in the last few years has become very open, it is integrated globally.
Investment made simple:
- The government invites investments in most sectors and has made its procedures for investment extremely simple.
- The government’s decision-making has made doing business in India much easier.
- Whatever challenges and difficulties do arise, there is an extensive debate in the country as to why procedures must be further simplified and a combined national effort to move in that direction.
Encouragement of manufacturing sector:
- The government is consciously encouraging the manufacturing sector because it is where India still has to achieve its best.
Simpler tax structure:
- The government was able to unify taxes and bring about a relatively simpler tax structure.
Investor friendly tax structure:
- For international investors, indirect tax structures had become extremely investor friendly.
More predictability and stability in tax structure:
- Doubts about India’s direct tax structures in the past including some erroneous decisions have been completely eliminated.
- Instead more predictability and stability have been added as far as taxation is concerned.
Consolidation of tax slabs:
- Currently, there are four broad tax slabs under GST — 5, 12, 18 and 28 percent — which can be converged in the future.
- After the thinning of 28 percent bracket, the second stage of reforms will be consolidation of other rates (12 and 28).
Programmes to uplift the under-developed regions:
- The Government has taken up programmes to direct the benefits of structural changes and good growth to reach farmers, poor and other vulnerable sections of our society and to uplift the under-developed regions.
Direct Benefit Transfer mechanism:
- The Government has ensured that benefits reach eligible beneficiaries and are delivered to them directly and said that Direct Benefit Transfer mechanism of India is the biggest such exercise in the world and is a global success story.
As mentioned in Economic Survey, 2018, what are the hurdles for India in achieving its goal of 7-8% GDP growth? (Updated)
The hurdles for India in achieving its goal of 7-8 % GDP growth are as follows:
Ease of doing business:
- While India saw an improvement in six out of ten indicators of ease of doing business, the country still didn’t see improvement in trading across borders, something that the government has been gunning for at various international forums like World Economic Forum.
Rising Oil Prices:
- One of the biggest challenges evident from the survey is the rise in oil prices. The higher oil prices in Saudi Arabia could have a drastic effect on the prices in India.
India’s Agrarian Crisis:
- The fact that the productivity growth in the agricultural sector has been stagnant reflects poorly on the Indian economy.
- Due to unstable climatic conditions, the growth may necessarily be not on the positive route.
- Over the past few years, Indian banks have been struggling with the growing NPA issues.
- According to the Economic Survey, the share of bank lending to real estate sector has fallen sharply to 17 per cent in 2016 from over 68 per cent in 2013.
- The reason for the fall is that banks are not ready to provide credit to the real estate sector because of the rising NPAs and lower profit.
Micro, Small & Medium Enterprises (MSMEs)
- MSMEs which contribute to a large part of the Indian economy, still face a lack of credit from the banking sector.
Information and Communication Technology (ICT):
- According to the Economic Survey, ICT (Information and Communication Technology) accounted for 67 per cent of India’s services exports in 2016.
- The same has declined rapidly from 2006 to 2016, whereas during the said period countries like China, Brazil, Russia and Philippines have been marching ahead.
What are the major steps taken by the government to achieve its goal of 7-8% GDP growth? (Updated)
The major steps taken by the government to achieve its goal of 7-8% GDP growth are as follows:
- Construction permits where the time frame for approvals during the construction cycle of a building has been brought down to 60 days.
- The government has also recognized the procedure for corporate debtors through insolvency ecosystem.
- To ensure that tax compliances have the taxpayer as a priority, the government has also introduced ‘RAPID- revenue, accountability, probity, information and digitalization’ for administrating the tax reforms.
- To improve trade across borders, online message exchange system for import clearances of agricultural commodities has been established along with the Import Data Processing and Management System (IDPMS) for data processing for payment.
- The Government has taken various measures to deal with the issue of Non Performing Assets (NPAs) in Banking Sector especially in case of Public Sector Banks (PSBs).
- Besides long-term initiatives like Digital India, Make in India, Smart Cities, e-Governance, push for digital talent through Skill India, drive towards a cashless economy and efforts to kindle innovation through Start-up India are also being initiated and boosted.
- As India is moving towards an economic superpower, there is need to expedite socio-economic reforms and take appropriate steps for overcoming institutional and infrastructure bottlenecks inherent in the system. Availability of both physical and social infrastructure is central to sustainable economic growth.