28 January 2025 : Indian Express Editorial Analysis
1. The quality of growth
(Source – Indian Express, Section – The Editorial Page – Page No. – 12)
Topic: GS3 – Indian Economy |
Context |
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Analysis of the news:
The Power of Compound Interest and Economic Growth
- Albert Einstein’s observation that “compound interest is the eighth wonder of the world” highlights its transformative potential, not just for investments but also for economic development.
- Applied to India, a sustained real growth rate of 6% over 20 years could raise GDP per capita from $2,650 to $10,000 by 2045.
- Even with a slightly lower growth rate of 5.5%, this target could be achieved by 2047.
- The timeline may differ slightly, but the importance lies in achieving consistent, risk-mitigated growth.
- The assumptions underpinning this analysis—such as inflation, currency depreciation, and population growth—illustrate how long-term planning can create meaningful outcomes.
Risks of Debt-Fueled Growth
- While several nations have experienced high growth through significant borrowing, this often leads to economic slowdowns and debt restructuring.
- Countries with current account deficits are particularly vulnerable as external borrowings escalate, leading to unsustainable foreign debt levels.
- India must avoid such pitfalls by ensuring that growth is balanced and not overly reliant on external borrowings.
The Role of Household Debt in Economic Slowdowns
- India’s rising household indebtedness is an area of concern. In contrast to earlier generations, today’s consumers frequently borrow for depreciating assets or discretionary spending, influenced by e-commerce, social media, and easy access to credit.
- This shift toward debt-driven consumption brings immediate economic benefits but shifts growth from the future to the present, leading to eventual repayment pressures.
- Current efforts to curb the growth of personal loans are prudent, as they help reduce risks and create a foundation for sustainable growth.
- Encouraging cash-down purchases and moderating EMI-driven consumption can foster better financial discipline among consumers.
China’s Export Strength and Its Impact on India
- China’s robust export engine remains a challenge for India. Despite the “China+1” strategy that aims to diversify global supply chains, India faces hurdles in becoming a significant manufacturing alternative.
- China’s decades of investment, infrastructure development, and policy support give it a strong competitive edge.
- Additionally, China’s weak domestic demand exacerbates its export-driven deflation, further complicating the landscape for Indian exporters.
- While India’s geopolitical position and government initiatives provide opportunities, progress in manufacturing will be slow and arduous.
External Challenges to India’s Growth
- India’s economy faces several temporary external challenges, including rising U.S. interest rates, the strength of the U.S. dollar, and a narrowing yield gap between Indian and U.S. government bonds.
- A decline in net FDI inflows, driven by multinational corporations selling stakes in their Indian subsidiaries, has also raised concerns.
- However, these sales appear to be driven by sectoral valuations rather than pessimism about India’s long-term prospects.
- While these headwinds are likely to pass, a cautious approach remains advisable.
Stock Market Trends and Investor Behavior
- The post-Covid era has seen a surge in stock market activity, particularly in small and mid-cap stocks, which have delivered significant returns due to their sharper decline and subsequent recovery.
- However, the enthusiasm for these segments may not reflect sustainable long-term wealth creation.
- The proliferation of new investors—most of whom lack experience with previous market cycles—has added to speculative activity, particularly in IPOs.
Conclusion
- India’s economic journey toward higher per capita income is achievable with consistent, risk-managed growth.
- However, navigating challenges such as household debt, external economic pressures, and global competition will require careful policy measures and disciplined financial behavior.
- By fostering sustainable growth strategies and tempering speculative excesses, India can stay on course to meet its long-term economic goals.
What Measures can India Adopt to Accelerate Economic Growth? |
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Practice Question: Discuss the role of sustained economic growth in achieving long-term prosperity for India, while analyzing the challenges. Suggest measures to ensure balanced and risk-managed development. (150 Words /10 marks) |
For more such UPSC related Current Affairs, Check Out –27 January 2025 : Indian Express Editorial Analysis