CONTENTS
- Calibrating a Strategy for India’s Future Growth
- An Icy Warning/ The Global Climate 2011-2020 Report
Calibrating a Strategy for India’s Future Growth
Context:
India’s growth for the fiscal year 2023-24 is currently estimated at 7% by the Reserve Bank of India, while the International Monetary Fund (IMF) and the World Bank have set it at 6.3%. Looking ahead, the IMF forecasts an annual growth of 6.3% up to 2028-29. India’s future growth strategy needs to be adjusted considering changing global conditions.
Relevance:
GS3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Mains Question:
Raising the savings and investment rates, improving the skill acquisition of youth, and adopting an employment-friendly technology must be the focus areas in calibrating a strategy for india’s future growth. Analyse. (15 marks, 250 words).
Concerns Raised by the Current Status quo:
- The trend towards deglobalization is evident, influenced by geopolitical conflicts like the Russia-Ukraine and Israel-Hamas wars.
- These conflicts have led to sanctions, disrupting supply chains and international settlements, particularly for countries with restricted access to systems like SWIFT.
- Global real GDP growth has decreased, resulting in reduced demand for global exports.
- Many nations, including India, aim to decrease reliance on imported petroleum due to supply uncertainties and price volatility.
Export- Centric Approach:
- India’s export-led growth strategy, prominent during 2003-04 to 2008-09, reaching a peak of 25% of GDP in 2013-14, has shifted.
- In 2022-23, exports constituted 22.8% of GDP, following a dip to 18.7% in 2019-20 and 2020-21.
- The former export-centric approach may not be viable for India anymore, necessitating the formulation of a new growth strategy.
Investment Rate in Medium Term
Status of Saving Rate:
- In the medium term, India will need to depend relatively more on domestic growth catalysts. Achieving and sustaining a real growth rate of 7% or more, especially, hinges on the importance of domestic savings.
- The estimated nominal saving rate for 2022-23 is approximately 29%. A concerning aspect is the observed decline in the household sector’s savings in financial assets, dropping to 5.1% of GDP in 2022-23 from an average of 7.8% in the pre-COVID-19 period from 2015-16 to 2019-20 – a decline of 2.7% points.
- This decline includes a 2.2% point increase in the change in gross household financial liabilities and a 0.5% point decrease in the change in gross household financial assets.
- While these changes may be temporary responses post-COVID-19, if these trends persist, they pose a significant risk to India’s growth potential.
- This is because the surplus financial savings of the household sector are crucial for the government and the corporate sector to draw resources from to meet their investment demand beyond their own savings.
Significance of Savings:
- Savings are translated into gross fixed capital formation (GFCF) by adding net capital inflows and subtracting changes in stocks, valuables, and discrepancies.
- The estimated nominal investment rate, i.e., GFCF relative to GDP, was 29.2% in 2022-23. However, the deflator of capital goods is lower than that of all goods, and the movement of the relative deflator of capital goods is somewhat volatile.
- Utilizing the five-year average of the relative magnitude of the two deflators, the nominal investment rate of nearly 29% would yield a real investment rate of around 33%.
- To achieve investible resources amounting to 35% of GDP, enabling a 7% growth with an Incremental Capital-Output Ratio (ICOR) of 5 (its value in 2022-23), a 2% point increase is required. If the ICOR is lower, the achievable growth would be higher.
Enhanced Employment:
- Developing strategies for increased employment poses a unique challenge for India in the next three decades, as a large and potentially employable population seeks jobs in the midst of progressively more labor-saving innovations and technologies.
- According to United Nations population projections, India’s working-age population is anticipated to peak at 68.9% in 2030, while its overall dependency ratio is expected to reach its lowest point at 31.2%.
- These trends underscore the need for a heightened allocation of resources for training and skilling India’s expanding working-age population.
- The growth of employment is intricately linked to GDP growth and the composition of output. The growth rate of the working-age population is projected to gradually decrease from 1.2% in 2023-24 to 0% in 2048-49.
- In 2022-23, based on the Periodic Labour Force Survey (PLFS), the worker population ratio, indicating the number of employed individuals in the population above 15 years of age, rose to 51.8% from 44.1% in 2017-18, reflecting an average annual increase of 1.5 percentage points.
Steps Needed:
- Looking ahead, non-agricultural growth must be sufficiently high to absorb labor transitioning from agriculture, estimated at 45.8% in 2022-23 by the PLFS.
- Additionally, it needs to accommodate the labor-substituting impact of new technology.
- Facilitating the integration of productivity-enhancing technologies, including Artificial Intelligence (AI) and Generative AI, would contribute to overall growth.
- India has committed to specific targets for reducing carbon emissions due to global climate concerns. During the COP26 Summit in 2021, India pledged to decrease total carbon emissions by one billion tonnes between 2021 and 2030 and achieve net-zero emissions by 2070.
- India’s initiatives include the Green Grids Initiative (GGI), One Sun One World One Grid (OSOWOG), and a focus on the adoption of electric vehicles, as well as ethanol-based and hydrogen fuels.
- Technological changes that promote climate goals may potentially reduce the growth rate, but this adverse impact can be minimized by prioritizing the growth of the service sector, which is relatively climate-friendly.
Fiscal Responsibility:
- Maintaining fiscal responsibility targets is crucial for sustaining growth. In recent times, there has been a notable deviation from achieving fiscal responsibility goals.
- To uphold growth close to its potential, it is imperative to reduce both the combined fiscal deficit and debt-to-GDP ratios to 6% and 60%, respectively.
- This approach ensures that the burden of interest payments relative to revenue receipts remains within acceptable limits.
- Achieving these targets would lead to a balanced or surplus revenue account for both central and state governments, subsequently reducing government dissavings and enhancing the overall savings rate of the economy.
Conclusion:
In the medium term, India’s growth performance is expected to face adverse impacts from various factors, both domestic and external. To achieve a growth rate of 7% to 7.5%, the country needs to focus on increasing savings and investment rates, enhancing the skill acquisition of young entrants to the labor market, and adopting a technology mix that is conducive to employment.
The Global Climate 2011-2020 Report
Context:
Few indicators capture the severity of the climate crisis as effectively as the condition of glaciers, a crucial element of the cryosphere. The World Meteorological Organization’s recent publication, “The Global Climate 2011-2020,” provides a comprehensive overview of the Earth’s reaction to greenhouse gas emissions.
Relevance:
GS3- Environment- Conservation, Environmental Pollution and Degradation, Environmental Impact Assessment.
Mains Question:
With reference to the recently released “The Global Climate 2011-2020” report by the World Meteorological Organization, give your arguments if threats from glaciers should be in same risk category as cyclones and quakes. (15 marks, 250 words).
About Glaciers:
- A glacier is a vast, perennial accumulation of crystalline ice, snow, rock, sediment, and water that originates on land and descends downhill under the influence of its own weight and gravity.
- Out of the Earth’s total water, glaciers account for 2.1%, while 97.2% is found in the oceans and inland seas.
- The conditions conducive to glacier formation include mean annual temperatures close to freezing, significant accumulations of snow from winter precipitation, and temperatures throughout the rest of the year that do not lead to the complete loss of the previous winter’s snow accumulation.
- The process of glacier formation begins in areas where annual snowfall exceeds melting. The freshly fallen snow gradually compacts, becoming denser and tightly packed in a process known as firnification.
- When the ice reaches a thickness of about 50 meters (160 feet), the firn grains merge into a massive solid ice mass, causing the glacier to start moving under its own weight.
- Different sections of a glacier move at varying speeds, with the flowing ice in the middle moving faster than the base.
- Geographically, 91% of glaciers are located in Antarctica, and 8% are in Greenland, collectively occupying approximately 10% of the world’s total land area.
The Global Climate 2011-2020:
- In the segment addressing glacier health, the report highlights that, on average, global glaciers experienced an annual thinning of approximately one meter from 2011 to 2020.
- Although there is notable regional variation when examined over decades, the overarching trend persists: glaciers worldwide are diminishing in size.
- Notably, certain reference glaciers, vital for long-term assessments of glacier health, have already disappeared due to the complete melting of nourishing winter snow during summer.
- Specifically, glaciers on Africa’s Rwenzori Mountains and Mount Kenya are expected to vanish by 2030, with those on Kilimanjaro following suit by 2040.
- The report emphasizes the swift expansion of pro-glacial lakes and the increased risk of glacier lake outburst floods (GLOF), posing additional threats to ecosystems and livelihoods.
- It singles out the significant role of glacial meltwater in contributing to one of the decade’s most devastating flooding incidents, the Uttarakhand floods of June 2013.
Recent Instances:
- The devastation caused by a Glacier Lake Outburst Flood (GLOF) event became evident this year with the Chungthang dam in Sikkim being destroyed after the flooding of South Lhonak Lake from a melting glacier, resulting in downstream catastrophe.
- In a separate report earlier this year, the International Centre for Integrated Mountain Development disclosed that the disappearance of glaciers in the Hindu Kush Himalayas accelerated by “65% faster in the 2010s than in the previous decade.”
Crucial Steps:
- Given the current trajectory of global greenhouse gas emissions, which is anticipated to raise temperatures by 2.5°3°C by the century’s end, glacier volume is projected to decline between 55% and 75%. This foretells significant reductions in freshwater supply in the immediate vicinity around 2050.
- The vulnerability of glacier systems to warming emphasizes the crucial need for vigilant monitoring. Despite awareness of the risks posed by Himalayan glaciers, there is currently no early warning system for the likelihood of GLOF events.
- Similar to alerts issued before cyclones, floods, and earthquakes, authorities must elevate the threats associated with diminishing glaciers to the same level of risk.
Conclusion:
Consequently, there is a pressing need for comprehensive risk assessments, the mapping of vulnerable regions, and the initiation of infrastructure development adhering to the highest standards of care to effectively deal with the risks of diminishing glaciers.
