- QP-GSM3-2019: Economy in good shape?
- Related questions in the past UPSC Mains Exams
- Introduction: GDP & inflation
- Body: Economic health is not in good shape
- Conclusion: Finding: why you disagree with Q statement
- Mistakes in Answer Writing: Economy not in good shape
- Model Answer in Hindi
QP-GSM3-2019: Economy in good shape?
- Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.
- (क्या आप इस मत से सहमत हैं की सकल घरेलू उत्पाद (जी. डी. पी) की स्थायी संवृद्धि तथा निम्न मुद्रास्फीति के कारण भारतीय अर्थव्यवस्था अच्छी स्थिति में है ? अपने तर्कों के समर्थन में कारण दीजिए |) 10m, 150 words
Related questions in the past UPSC Mains Exams
- <Tone of the question> Growth is there but everything is not fine
- GSM3/2015: The nature of economic growth in India in described as jobless growth. Do you agree with this view? Give arguments in favour of your answer.
- GSM3/2014: While we found India’s demographic dividend, we ignore the dropping rates of employability. What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain.
Introduction: GDP & inflation
This is an opinion based question so writing definition of GDP or inflation looks very superficial, we have to start with the origin of the problem.
- In the aftermath of the Subprime Crisis in USA (2007-08), India’s GDP growth rate had fallen in the range 5%, whereas the inflation had entered in double-digit figures.
- However, since 2016, RBI has successfully controlled the CPI (All India) inflation in the 2-6% range, while our GDP growth rate has remained in the 6-8% region.
- So prima-facie in the economy would appear in good shape however following factors have created a new set of challenges:
Body: Economic health is not in good shape
- Twin Balance Sheet Syndrome (TBS) and Non Performing Assets (NPA),
- ILFS & NBFC Crisis
- OPEC oil cut vs imports,
- Protectionism Vs Exports
- 2018: Rupees historically weakened against dollar @74 Rs/ dollar. While a weak rupee is considered good for exports but because of protectionism this is not happening.
- Agriculture and Food sector: Deflationary trend is creating agrarian distress.
- Agitations related to farm loan waivers have increased in recent years.
- Unemployment rate is historically high in the last 40 years as per NSSO’s latest report.
- Agitations related to reservation demands have increased in recent years.
- After demonetisation, the number of tax assessees have increased but there has not been a corresponding great increase in tax collections. People are hiding their reported incomes. As a result government is struggling to meet its Fiscal Deficit Targets and the deadlines have been shifted towards 2020 and later period.
- In August and September 2019 government has announced a series of fiscal stimulus measures, mainly because of the slowdown faced by the automobile sector. If the economy was in good shape, such measures were unwarranted.
Conclusion: Finding: why you disagree with Q statement
- Thus, despite a steady GDP growth and low inflation, Indian economy can’t be called being in a ‘good shape’ because of the challenges created by
- 1) Protectionism and External Factors
- 2) Crisis in the Banking & NBFC sector
- 3) Inadequate growth in revenue collections and consumer demand.
Mistakes in Answer Writing: Economy not in good shape
- Arguments must be coherent and comprehensive. You may do even Modi-Bhakti but that must be backed by solid arguments just vaguely alluding that “Because of GST and demonetisation on Indian economy has benefited, Lot of jobs and generated in the Unorganised sector which is not captured in the statistical details”- You can say that but you have to logically prove it with arguments. Bollywood movies are making 100 crore rupees so economy is in a good shape = not a logical argument.
- Excessive focusing that automobile sector has low down Maruti has thrown out 3,000 people from jobs. = poor quality. You have to address multiple dimensions and sectors.
- Type: Opinion based contemporary question
- Span: >D-2 Years (12 years if you start from Subprime Crisis)
- Difficulty Level: Medium. These challenges were already identified by the successive economic service so the question has not fallen out of the sky but at the same time it cannot be termed easy because you have to prove the things in a logical manner.
- Score: 4/> out of 10. PDF-Zombies tend to get fixated only on 1-2 dimension ki automobile slow down or bank NPA, So it is unlikely they would have scored good marks in this question.
Model Answer in Hindi
Introduction (परिचय)
यह एक राय आधारित प्रश्न है इसलिए जीडीपी या मुद्रास्फीति की परिभाषा लिखना बहुत ही सतही लगता है, अत: हमें समस्या की उत्पत्ति से शुरूआत करनी चाहिए ।
- सबप्राइम संकट (2007-08) के बाद भारत की जीडीपी विकास दर गिरकर 5% की सीमा में रह गई थी, जबकि मुद्रास्फीति दो अंकों के आंकड़ों में थी।
- हालांकि, 2016 के बाद से, भारतीय रिज़र्व बैंक (RBI) ने 2-6% की सीमा में अखिल भारतीय उपभोक्ता मूल्य सूचकांक मुद्रास्फीति को सफलतापूर्वक नियंत्रित किया है, जबकि हमारी जीडीपी विकास दर 6-8% की सीमा में बनी रही।
- अत: प्रथम दृष्टया अर्थव्यवस्था एक अच्छे स्तर पर दिखाई देनी चाहिए , लेकिन निम्नलिखित कारकों ने नई चुनौतियों को उत्पन्न कर ऐसा नहीं होने दिया :-
Body: आर्थिक स्थिति ठीक नहीं है-
- दोहरे तुलन पत्र की चुनौती, गैर निष्पादित संपत्ति (एनपीए),
- आईएलएफएस (इंफ्रास्ट्रक्चर लीजिंग एंड फाइनेंशियस सर्विसेज) एवं गैर-बैंकिंग वित्तीय कंपनियाँ (एनबीएफसी) का संकट
- ओपेक ( तेल निर्यातक देशों का संगठन) तेल कटौती बनाम आयात, संरक्षणवाद बनाम निर्यात
- 2018: रुपये, डॉलर के मुकाबले ऐतिहासिक रूप से कमजोर हुआ, @74 रूपए / डॉलर । जबकि कमजोर रुपया निर्यात के लिए अच्छा माना जाता है लेकिन संरक्षणवाद के कारण ऐसा नहीं हो पा रहा है।
- खाद्य क्षेत्र: अपस्फीति की प्रवृत्ति, कृषि संकट पैदा करना। हाल के वर्षों में कृषि ऋण माफी से संबंधित आंदोलन बढ़े हैं।
- राष्ट्रीय प्रतिदर्श सर्वेक्षण कार्यालय (एनएसएसओ) की नवीनतम रिपोर्ट के अनुसार पिछले 40 वर्षों में बेरोजगारी दर ऐतिहासिक रूप से सर्वाधिक है। आरक्षण की मांगों से संबंधित आंदोलन हाल के वर्षों में बढ़े हैं।
- विमुद्रीकरण के बाद कर निर्धारणकर्ताओं की संख्या में वृद्धि हुई है लेकिन कर संग्रह में अपेछित वृद्धि नहीं हुई है। लोग अपनी आय को छिपाते हैं। परिणामस्वरूप सरकार राजकोषीय घाटे के लक्ष्य को पूरा करने के लिए संघर्ष करना पड़ रहा है एवं समय सीमा को 2020 और बाद की अवधि में स्थानांतरित कर दिया गया है।
- मुख्य रूप से ऑटोमोबाइल क्षेत्र की मंदी के कारण अगस्त और सितंबर 2019 में सरकार ने राजकोषीय प्रोत्साहन उपायों की घोषणा की है | यदि अर्थव्यवस्था अच्छी स्थिति में होती तो निश्चित ही ऐसे उपाय अनुचित थे।
Conclusion (निष्कर्ष): कथन से असहमत है ?
- इस प्रकार, स्थिर जीडीपी वृद्धि एवं कम मुद्रास्फीति के बावजूद,
- 1) संरक्षणवाद और बाहरी कारक
- 2) बैंकिंग और गैर-बैंकिंग वित्तीय कंपनियाँ (एनबीएफसी) क्षेत्र में संकट
- 3) राजस्व संग्रह और उपभोक्ता मांग में अपर्याप्त वृद्धि
- की चुनौतियों के कारण ‘ भारतीय अर्थव्यवस्थाबहुत अच्छी स्थिति में‘ है ऐसा आकलन अनुचित होगा.
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23 aug
The Indian economy has witnessed a gradual transition from a period of high and variable inflation to a more stable and low level of inflation along with steady GDP growth in the past five years, according to the Economic Survey 2018-2019. Low inflation contributes towards economic stability which encourages saving, investment, economic growth, and helps maintain international competitiveness.
How Steady growth rate and low inflation has been good for a country?
Low inflation has helped to promote stability, confidence, security and therefore encourages investment.
High inflation robs the earnings of the poor. Low inflation increased disposable income and therefore increases demand and investment in the economy.
Low inflation and High GDP growth made Indian exports more competitive.
Low inflation helped in keeping interest rates in check, which in turn helped the corporate sector.
Steady growth rate made possible for the government to introduce reforms such as GST.
Steady growth also provided for better revenue prospects which assisted the government to increase the contribution in various social sector schemes for example 17 per cent hike in allocation to Women and Child Development Ministry.
How steady GDP growth and low inflation were not sufficient:
Low inflation means a high real interest rate that, in turn, tends to crimp investment activity.
When companies see profits decline, they tend to scale back expenses by firing some workers or, leads to an increase in the unemployment rate.
Tax collections depend on nominal GDP growth — lower the latter, the higher the chance of missing tax collection targets forcing GoI to slash expenditures to meet fiscal targets.
Low inflation signalling economic problems because it is associated with weakness in the economy in the future.
High Economic growth has not resulted in employment generation. Higher the unemployment lowers the demand or consumer confidence which further impact investment.
As both investments and consumption slow, economic growth suffers. This causes revenues to decline even more, and the economy is pushed into a negative spiral. Tax revenues fall. There are more bad loans. It strains bank balance-sheets even more. India has experienced all of these symptoms since the late-2014, when inflation hit 4% level.
Low inflation has resulted in reduced returns for farmers. This has adversely affected the rural economy and resulted in agrarian distress. In the extreme, when an economy’s inflation rate turns negative, it raises additional concerns and the prospect that the economy slips into deflation.
There can be a conflict between economic growth and inflation. In periods of rapid economic growth, inflation is likely to rise. However, it is possible to have both low inflation and positive economic growth – so long as the growth is sustainable and productive capacity increases at a similar rate to aggregate demand.