The year 2024 has posed significant economic challenges for India, with various sectors experiencing turbulence. From fluctuating GDP rates to concerns about foreign exchange reserves, the country faces multiple hurdles in stabilizing and fostering growth.
In an exclusive conversation with NewsX, Bank Of India’s Former Director Vishwas Utagi stated that India, which hitherto had the GDP growth ranging between 6.5 to 7.5%, suffered a decline during the last two quarters to 5.2%. The fall of GDP has majorly been witnessed due to failure in the sector of manufacturing industries. Though there has been constant growth in organized sectors, falling manufacturing sectors show red flags at the time of job creation.
There was a paradox from the digital and AI technologies to the traditional methods of manufacturing processes. The innovation promises growth, but does not proportionately augment employment opportunities with an unemployment rate that is at one of its lowest levels within the last 40 years.
Key Drivers Of GDP Growth: Services, Manufacturing, And Agriculture
India’s GDP depends on three sectors: services, manufacturing, and agriculture. Even though the services sector is continuously growing and holds a dominant position, the lag of the manufacturing sector affects the economy as a whole. Moreover, the agriculture sector has issues like the lack of employment generation, which needs to be addressed immediately for balanced growth.
Over the last two budgets, the Government of India has allocated ₹8 to ₹12 lakh crore for infrastructure development, driving new projects and industries. However, private sector contributions remain underwhelming. For sustainable growth, the private sector must step up in supporting infrastructure development, complementing government efforts.
The pandemic has burdened India with a debt as high as ₹225 to ₹205 lakh crores. Such a scenario dictates that debt servicing itself is taking approximately 35% of the National Budget. Against this backdrop, it is paramount to enhance and optimize revenue generated through improved collection of taxes.
Tax reforms have caused corporate tax to decline over the years, but futures budgets should adopt fair taxation systems to enhance yields. There will be a keen need to treat middle- to high-income tax payers quite efficiently in managing compliance and the collections.
Holding Foreign Exchange Reserves
India’s foreign exchange reserves have dwindled from $700 billion to around $610 billion. The devaluation of the rupee against major currencies like the dollar and pound has compounded this challenge. The Reserve Bank of India (RBI) has spent nearly $150 billion in recent years to stabilize the rupee, yet its efforts have met with limited success.
To maintain foreign exchange reserves, exports need to increase and import dependence has to go down. For this balance lies the economic security that is on the basis of a strong reserve of forex.
Inflation remains another challenge which has persisted at 5.2%. It needs to be brought down to 4%, for which strategic monetary policies will be required. Experts believe the RBI should bring down interest rates, like the U.S. Federal Reserve has done, to get borrowing and investment going. That will bring relief to businesses and consumers.
ALSO READ | Anmol Ahluwalia On How Indian Weddings Are Redefining Tourism In 2024 | NewsX Exclusive
