An Overview of India’s Economic Performance

GDP & Its Components

• Consumption expenditure has been the major driver, accounting for nearly sixty per cent of the total GDP growth between 2012-13 and 2015-16.
• This contribution increased to over 95% in 2016-17, which is attributed to higher growth of both Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE), particularly the latter.
• Growth of GFCE was nearly 21% in 2016-17, against an average growth of 3.5% during 2012-13 to 2015-16.

Investment Rate

• Despite the fact that Indian economy has registered a fairly robust growth in the 4 years between 2014-15 and 2017-18, story on savings and investment in the economy has not been so heartening.
• The investment rate (Gross Capital Formation (GCF) as a share of GDP) in the economy declined by nearly 5.6 percentage points between 2011-12 and 2015-16.
• The faster decline in investment rate vis-à-vis the savings rate has led to lower level of current account deficit (Savings Investment gap) from 2013-14 to 2015-16.

Savings

• Savings in an economy originate from households, private corporate sector and public sector (including general government).
• The share of private corporate sector in the total savings increased from 9.5% of GDP in 2011-12 to about 12% of GDP in 2015-16.
• Financial savings by the households are held mainly in currency, bank deposits, life insurance funds, provident and pension funds and of late in the form of shares and debentures.
• Bank deposits accounted for about 50% of the aggregate financial savings between 2011-12 and 2015-16.
• Within a span of 2 years, savings in the form of mutual funds registered more than 11-fold increase.

Fixed Investments

• The slow growth in fixed investment in the recent years could partly be ascribed to twin-balance sheet problem.
• This trend of declining fixed investment rate needs to be reversed at the earliest to realise the potential growth of over 8% in the years to come.
• Fixed investment accounts for around 90% of total investment.
• Fixed investment is in various assets including dwellings, machinery & equipment and intellectual property products (IPP), along with small contribution coming from cultivated biological resources.

External Sector

• India’s external sector has continued to be resilient and strong in 2017-18 so far and the balance of payments (BoP) situation continued to be comfortable.
• Current account deficit (CAD) was 1.8% of GDP, merchandise exports grew by 12%, net services receipts grew by 14.6%, net foreign investment grew by 17.4%, and external debt indicators improved in H1 of 2017-18.
• The year 2016-17 was characterized by positive growth in merchandise exports after two years of negative growth.
• Similarly, merchandise imports also printed positive growth in 2016-17 after three years of negative growth.

Trade Policy

• Two important developments in the trade policy during the year are the mid-term review of Foreign Trade Policy (FTP) and the recent multilateral negotiations of WTO in December 2017.
• There were some developments on the trade logistics front and anti-dumping measures. MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of textiles and SEIS (Service Exports from India Scheme) for notified services have been increased by 2 per cent.
• In December 2017, a special package for employment generation in leather and footwear sector was approved by the Government which is likely to help exports from these sectors. Improved logistics have huge implications on increasing exports. Government has recognized the need for integrated development of logistics sector.
• The Indian logistics market is expected to reach about US$ 215 billion in 2019-20.

Share of Agriculture in GVA

• The process of development, inter-alia, generally results in decline in share of agriculture in GVA, which is being witnessed in India too.
• The share of agriculture and allied sectors in GVA declined from 18.2% in 2012-13 to 16.4% in 2017-18(1st AE). However, the declining share does not undermine the significance of the sector for employment, livelihood and food security.

Structural Changes in Agriculture: The agriculture sector has been witnessing a gradual structural change in recent years. The share of livestock in GVA of agriculture has been rising since 2011-12, while that of the crop sector declined from 65% in 2011-12 to 60% in 2015-16.

Food Grains Production

• As per the fourth Advance Estimates for 2016-17 released by Department of Agriculture, Cooperation and Farmers’ Welfare, India achieved a record production of food grains estimated at 275.7 million tonnes during 2016-17.
• As per the 1st AE released on 22nd September 2017, food grains production for the Kharif Season during 2017-18 is estimated at 134.7 million tonnes, lower by 3.9 million tonnes as compared to 2016-17.
• The total production of rice during 2017-18 is estimated at 94.5 million tonnes vis-a-vis 96.4 million tonnes (4th Advance Estimates) in 2016-17.
• The production of pulses during 2017-18 is estimated at 8.7 million tonnes, sugarcane at 337.7 million tonnes, oilseeds at 20.7 million tonnes and cotton at 32.3 million bales of 170 kgs each.

Cropping & Cropland Area

• India ranks first, with 9.6% (179.8 Mha) of the global net cropland area according to United States Geological Survey, 2017.
• Hence, India has tremendous potential for crop diversification and to make farming a sustainable and profitable economic activity.
• The pattern of cropping is determined by various factors like agro-climatic conditions, farm size, prices, profitability and government policies.
• Towards achieving a more diversified cropping pattern, the government is implementing the Crops Diversification Programme in original green revolution states viz. Punjab, Haryana and in Western UP, to diversify paddy area towards less water requiring crops.
• It will also help in mitigating the risks faced by farmers in terms of price shocks and production/harvest losses.

Agricultural Productivity

• Agricultural productivity is determined by the appropriate use of critical inputs like irrigation, seeds, fertilisers, credit, machines, technology and extension services.
• As reported in input survey (2011-12), out of total operational holdings, only 9.4% used certified seeds, 27% used seeds of notified variety and only 9.8% used hybrid seeds.

Irrigation

• The All India percentage of net irrigated area to total cropped area was 34.5% in 2014-15, which makes a large part of agriculture in India dependent on rainfall.
• Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) is being implemented in mission mode with the help of Command Area Development to complete 99 major and medium irrigation projects covering 76.0 lakh hectares in a phased manner by December 2019 to increase the coverage of irrigated area and thereby agricultural productivity.

Infrastructure

The eight Core infrastructure supportive industries, viz. coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40% in the IIP attained a cumulative growth of 3.9% during April-November 2017-18 over the corresponding period of previous year.

Micro, Small and Medium Enterprises (MSME) Sector

• MSMEs play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas.
• The Government has also initiated the Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units.

Ease of Doing Business

• India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing Business Report 2018.
• Moody’s Investors Service has also raised India’s rating from the lowest investment grade of Baa3 to Baa2.
• This has been made possible due to a host of measures undertaken by the Government including implementation of GST, Insolvency and Bankruptcy Code, and announcement of bank recapitalization.
• A number of reforms were undertaken to boost industrial growth including Make in India programme, Start-up India and Intellectual Rights Policy.