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Navigating Growth and Disparity: India's Complex Economic Landscape

Edited By: Lavanya Goswami


Abstract: This article delves into India's dynamic economic landscape, highlighting its remarkable growth alongside deep-rooted disparities. It traces the nation's economic journey from post-independence strategies to liberalization reforms in the 1990s, resulting in impressive GDP growth and a surge in billionaires. However, the persistent wealth inequality, with 73% owned by the richest 1%, underscores the complex challenge of wealth distribution. The article identifies key factors contributing to disparities, including savings issues, rural-urban divides, and employment challenges. Despite the service sector's significant role, its limited employment generation poses a concern. Ultimately, the article emphasizes the need for inclusive policies to bridge the gap between economic growth and equitable distribution.





India has emerged as one of the world’s fastest-growing economies, with its real GDP growth recorded at an impressive 7.2% in the fiscal year 2022-23. Projections suggest a continued growth rate of 6.5% for the fiscal year 2023-24. Speaking in the Parliament, the Finance Minister, Nirmala Sitharaman, underscored India’s resilience and substantial economic advancement in the face of global economic challenges encompassing disruptions in global supply chains and mounting inflationary pressures.

India’s economic trajectory post-independence unfolds a compelling story with highs and lows with loads of intricate complexities. The success of the green revolution was followed by a push to develop labor-intensive small-scale manufacturing industries. This strategy had two main purposes: elevating low-income segments and accelerating industrialisation. The plan of development achieved socio-economic objectives such as nurturing rural sectors, the establishment of infrastructure, and strengthening the financial sector. However, the excessive state intervention over some time affected the pace of economic growth leading to a balance of payment crisis. Thus, 1990s reforms were introduced to liberalize the economy, promote trade, reduce state control, and foster private investment for rapid growth.

Following the 1990s reforms, GDP growth has been remarkable in India. By 2022, India has outpaced France to secure the fifth spot among the world’s largest economies, with a formidable GDP of USD 3.75 trillion. This ascent was accompanied by a striking surge in billionaires, from a mere 9 in 2000 to a staggering 101 in 2017, as highlighted by an Oxfam International study. However, despite this phenomenal growth, there exists a puzzling contradiction. In the year 2019, the study showed the persistent economic disparity, with 73% of the wealth going into the hands of the richest 1%, while a vast majority of the population - about 67 crore individuals - witnessed only a marginal 1% increase in their wealth. The persistent economic disparities exist at different levels, across states, between rural and urban, etc as the gains of economic growth have not been distributed evenly.

The conundrum of economic growth coexisting with exacerbating inequalities in India, even amid substantial reductions in poverty, finds its roots in the disparities in access to vital amenities such as infrastructure, education, and healthcare. Upon closer scrutiny of this unequal access, the emergence and deepening of economic inequality can be traced back to a range of macroeconomic policies. One of the factors that laid the groundwork for income disparity in India is the problem of savings in the pre-1990s economy. From the second five-year plan, there was heavy investment in infrastructure projects. However, these projects bore the weight of long gestation periods. Adding to this challenge, the private sector found itself hindered from contributing to these investments due to the shortage of savings within the economy and the limited scope of entrepreneurial capabilities.

Secondly, the disparity between the rural and urban sectors can be traced back to a notable imbalance in investment incentives within underdeveloped regions. Factors such as geographic isolation and inadequate market infrastructure coupled with lesser incentives due to low returns, inadvertently sidelined the rural sector from market-driven investments. Besides, unfavorable terms of trade (TOT) for agriculture created a conduit for the redistribution of resources away from agriculture and towards the industry and services sectors. Adding to this complexity is the paradox that confronts farmers – high risks and low returns, further amplifying the disparities existing between these sectors.

India has experienced significant economic growth, yet the persistent challenge of high unemployment rates has remained a prominent concern. Post-1990 economic reforms and the advent of economic liberalization, particularly in trade, led to a shift in demand towards capital-intensive goods, both for domestic consumption and export. During the period from 1983 to 1993-1994, the employment elasticity of output stood at 0.41. Yet, from 1993-1994 to 2004-2005, this employment elasticity declined to 0.29, and further plummeted to nearly negligible levels from 2004-2005 to 2009-2010.

Furthermore, although the service sector played a pivotal role in pushing India's economic growth, it fell short of generating significant employment opportunities. This discrepancy can be attributed to the fact that the expansion of the service sector was primarily driven by segments like information technology, financial services, and business services, all of which relied heavily on specialized skills and exports. The Economic Survey of 2016-17 underscores that while India's services sector contributes 52.2% to GDP, its employment share is merely 28.6%. This disparity is pronounced in comparison to other rapidly growing economies. This situation arose due to India's transition from an agrarian-led economy to one led by the service sector. Consequently, the service sector struggled to absorb a substantial number of unskilled or low-skilled workers, a role that the manufacturing sector could have fulfilled.

India's economic journey reflects impressive growth and complex challenges. It is important for India as a global player to address the stark economic disparities that persist and build inclusive policies to bridge the gap between growth and distribution, ensuring a prosperous and equitable future.



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