Navigating the treacherous waters of multiple global crises, the Indian economy has surfaced as a shining beacon of resilience and robust expansion. Shattering conventional wisdom and defying expectations, the Indian economy has not only withstood global economic storms but has also charted a growth trajectory that has become a benchmark for developing nations across the globe.
The growth story of the Indian economy has been fueled by several key drivers. These include a strong emphasis on innovation and digitization, a significant push towards making India an attractive investment destination, focused policies on improving the ease of doing business, and a consistent drive towards economic liberalization.
In addition, India’s vast consumer market, young workforce, and entrepreneurial ecosystem have served as strong pillars for sustained economic growth. In the face of global headwinds, these attributes have helped the country maintain steady economic momentum and attract foreign direct investment, even during periods of global downturns.
This article delves into the various facets that have contributed to this remarkable economic achievement. It provides an in-depth analysis of the structural changes, policy initiatives, and strategic decisions that have been instrumental in shaping India’s economic success story.
India’s Economic Rise
The most substantial transformation of the Indian economy began with the election of Prime Minister Narendra Modi in 2014. PM Modi, determined to boost investment, foster innovation, improve infrastructure, and make India a manufacturing and design hub, kick-started a new era of economic reform.
Under PM Modi’s administration, India jumped from being the world’s 10th largest economy to the 5th largest, despite the impact of the COVID-19 pandemic, the Russia-Ukraine war, and a global recession. This success is notably reflected in India’s foreign direct investment (FDI) statistics. The nation achieved its highest-ever FDI of $84.8 billion in FY22, reflecting an impressive 84% increase from $45 billion in FY14-15.
The Four I’s: Investment, Infrastructure, Innovation, and Inclusion
Modi’s economic strategy revolves around four main pillars that are Investment, Infrastructure, Innovation, and Inclusion. The government liberalized FDI policy and created a favorable environment for investment, encouraging both domestic and foreign investors. Resultantly, private sector participation grew stronger across multiple sectors. In terms of infrastructure, the budget for capital expenditure was increased fourfold compared to 2014 figures. This allowed for substantial expansion in transportation infrastructure, doubling the number of national airports and increasing the length of national highways by nearly 60%.
Under the banners of ‘Vocal for Local’ and ‘Aatmanirbhar Bharat’, the government pushed for self-reliance, introducing initiatives like ‘Make in India’, ‘Startup India’, and ‘Stand-Up India’. These programmes fostered domestic manufacturing and fuelled the growth of Indian startups, contributing to the nation’s technological and entrepreneurial landscape.
Inclusion was addressed through campaigns like ‘Digital India’ and the ‘Jan Dhan Yojana’, which aimed to integrate rural India into the mainstream economy. The successful introduction of the GST simplified the taxation system, leading to increased government revenue and the broadening of the tax base.
Overcoming Past Economic Challenges
Prior to 2014, the Indian economy was besieged with a raft of challenges. High inflation, coupled with a sizeable portfolio of non-performing assets (NPAs), exerted substantial pressure on the financial sector. Investor confidence was also at an ebb, owing to a number of high-profile scams that cast a shadow over the business landscape. Nevertheless, the advent of the Modi government brought a renewed commitment to economic reform and stability. A raft of strategic initiatives were introduced to confront the existing challenges head-on and foster a more resilient and robust financial ecosystem.
A prominent reform was the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016. This piece of legislation was a game-changer for the Indian financial sector. The IBC provided a consolidated legal framework for the reorganization and insolvency resolution of corporate entities, partnership firms, and individuals in a timely and efficient manner. This law not only expedited the resolution of the rising NPAs but also fostered a culture of credit discipline, thereby helping to restore the health of the banking sector.
The government also embarked on a mission to recapitalize public sector banks. This was done to replenish their capital base, which had been eroded due to high levels of NPAs. By infusing capital into these banks, the government aimed to improve their financial health and enhance their lending capacity. This recapitalization strategy also reinforced the stability of the financial system and boosted investor confidence.
Bank mergers were another crucial step in the financial sector reform agenda. By consolidating numerous smaller banks into larger entities, the government sought to create stronger and more competitive banks. These newly merged banks, with their enhanced scale and operational efficiency, were better equipped to support the growing credit needs of the Indian economy.
Unfazed by Global Challenges
In the face of worldwide economic downturns, the Indian economy stands as a resilient beacon of growth. Even as many nations grapple with the financial fallout of the pandemic, India, against all odds, continues to outperform expectations. As per the International Monetary Fund’s (IMF) projections, the Indian economy is poised to grow at a rate close to 6% in 2024, which is a significant accomplishment given the widespread economic disturbances.
This predicted growth rate not only places India ahead of many economies severely impacted by the pandemic, but it also underscores the successful policy measures and strategies undertaken by the country in managing the economic crises. Central to this has been the careful implementation of stimulus packages designed to infuse liquidity, stimulate demand, and bolster key sectors of the economy.
These comprehensive stimulus packages were rolled out in a phased and calibrated manner to address the evolving economic situation and sector-specific challenges. From direct cash transfers and food security measures for the vulnerable sections of society to liquidity support for businesses and a push for infrastructure development, these stimulus measures provided the much-needed cushion to the economy.
Fiscal prudence, another key factor, played an instrumental role in keeping the Indian economy on a steady course. Despite the pressing need to spend on health infrastructure and relief measures, the government adopted a balanced approach in managing its finances. It aimed to strike a delicate balance between providing fiscal stimulus to revive the economy and maintaining fiscal stability to prevent any runaway inflation.
Digital Revolution and its Economic Impact
The Indian economy has undergone a transformative shift over the past decade, courtesy of the pervasive digital revolution. The remarkable interconnection of Jan-Dhan Yojana (a financial inclusion program aimed at providing banking services to the poor), Aadhaar (a unique identity number issued to all Indian residents based on their biometric and demographic data), and mobile technology, often referred to as the JAM trinity, has had a profound impact on the nation’s economic landscape.
The JAM trinity has been instrumental in catalyzing the growth of Direct Benefit Transfers (DBTs). Under the DBT system, subsidies and other governmental monetary benefits are directly transferred to the beneficiaries’ bank accounts. This has significantly curbed the potential for leakages and corruption that were rampant in the previous indirect transfer system. By eliminating intermediaries, DBTs have ensured that subsidies reach their intended recipients in a timely and efficient manner.
A key enabler of this digital transformation has been the widespread availability of affordable internet services. Over the past few years, India has witnessed a sharp increase in internet penetration, largely due to the proliferation of cheap data plans and affordable smartphones. This digital democratization has not only empowered citizens with access to information and digital services but has also significantly boosted the growth of India’s digital economy.
The omnipresence of the internet has led to the rise of various digital sectors like e-commerce, online education, digital entertainment, and fintech, among others. The digital economy has unlocked new avenues for businesses, facilitated the rise of numerous startups, and created countless job opportunities. Moreover, it has driven financial inclusion, as even the rural and remote parts of India can now access banking and financial services through their smartphones.
Social Sector Achievements: Striding towards Inclusiveness
A critical factor underpinning the Indian economic success story has been the emphasis on inclusive development. Economic growth doesn’t translate into development unless it is inclusive. The social sector initiatives under the Modi government have been extensive. The focus has been on ‘Sabka Saath, Sabka Vikas’, meaning development for all.
The Pradhan Mantri Jan Dhan Yojana, launched in August 2014, was a game-changer, creating a financial revolution in rural India. With a focus on financial inclusion, it opened the banking sector to the poorest of the poor. Over 48 crore new bank accounts were opened, making banking services available to the masses, reducing corruption, and increasing transparency.
Significant strides have also been made in the health sector, with the introduction of Ayushman Bharat, a National Health Protection Scheme, launched in 2018. It provides health insurance coverage to over 10 crore poor and vulnerable families in India, resulting in a more robust and healthy workforce.
Moreover, India’s commitment to green energy also contributes to the economic stability of the country. Initiatives like the International Solar Alliance, commitment to the Paris agreement, and efforts to increase the share of renewables in the energy mix have portrayed India as a responsible global player, further improving the investment climate.
Lastly, the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), which provides income support to all landholding farmers’ families across the country, to enable them to take care of expenses related to agriculture and allied activities as well as domestic needs, has increased rural consumption, further contributing to the economy.
Looking forward, India is well-positioned to capitalize on the various opportunities presented by the emerging global economic order. The ongoing digital revolution is expected to create numerous opportunities across sectors like e-commerce, fintech, edtech, healthtech, and agtech. The introduction of 5G is likely to usher in a new era of economic growth driven by high-speed connectivity.
Furthermore, the planned investments in infrastructure under the National Infrastructure Pipeline project are expected to provide a much-needed stimulus to the economy and create millions of jobs. Additionally, the government’s Atmanirbhar Bharat initiative is expected to further boost domestic manufacturing and reduce the country’s reliance on imports, making the Indian economy more self-reliant.
In conclusion, the Indian economy has indeed been on a successful run and has emerged victorious despite global challenges. The robust economic policy, focus on inclusive development, fostering innovation, and future-oriented planning have made India a bright spot in the global economic landscape.
It is an example of how visionary leadership, bold economic reforms, and a focus on inclusive growth can transform a developing nation into a global economic powerhouse. As we look towards the future, India’s journey towards becoming an economic superpower is filled with promise and potential.
