Dramatic changes in the structure of the Indian economy in the last four decades

- At present the increased level of public debt and damage to the environment is a matter of great concern

The last four decades have seen dramatic changes in the structure of the Indian economy. In 1980-81, the share of the agricultural sector in India's economy declined from 38 percent to 21 percent, while the share of the service sector increased from 37 percent to 53 percent. The share of industry (including construction) remained more or less unchanged at 26 percent. These figures show that agriculture, the slowest growing sector in the economy, has shrunk more than other sectors, while the fastest growing service sector has peaked. What is the significance of this structural change for the economy as a whole? Assuming no change in sectoral growth rates, the importance of the fast-growing service sector means that economic growth should have picked up. Given the change in the share of these three sectors, the growth rate of 5.5 per cent recorded in the 1980s should rise to at least 6.3 per cent now.

Quality of education is definitely a major issue. Along with these things, the rate of fixed capital investment (in 1980-81, this rate increased from 19.7 per cent of GDP before the Covid pandemic to 28.6 per cent) has also increased and digitization in the country has also taken place on a large scale. Some of these factors may have caused changes in sector-wise shares. Keeping this in mind, it can be argued that the annual growth potential of the Indian economy should reach at least 7 percent. If the growth rate goes above this level then it is considered that the economy is growing at a fast pace. In fact, in the two decades before the Covid pandemic, the Indian economy, despite going through many ups and downs, did not lag behind an average annual growth rate of 7 percent.

On global economic growth prospects, global economist Pierre-Olivier-Gorinus said last month that India's growth rate in the current year is close to its potential limit and there is no "output gap" between actual and potential. The government and the Reserve Bank of India have projected the growth rate to be relatively high this year. But policymakers should be serious about growth rates at which an "output gap" does not appear. Is the rate really 6 percent which is much lower than the rate achieved in two decades?

To find the answer to this question, one must consider the impact of the Covid pandemic in the medium term. A large number of people are again dependent on the agricultural sector for livelihood and the ratio of working people to the total population is declining. Apart from this, small and medium enterprises have suffered and due to these factors consumption and investment demand has decreased. Currently, the increased level of public debt is also a matter of concern. The reason for the fiscal deficit is that the government has tried to meet the fall in private sector spending with its available resources. Slow global growth rate and trade are also reasons for this.

The environment also suffered, and growth rates based on capital expenditure are taking their toll, while massive investment in transport infrastructure is needed. Mistakes made by the government on the policy front (decision to stay away from regional trade agreements etc.) and war and its aftermath are also posing challenges to the economy.

After considering all these points, it has to be admitted that the estimate regarding the sustainable growth rate of the country has fallen. It is good that India is the fastest growing economy in the world but it is only a comparative study. What really matters is whether a country's economy can achieve the status of a fast growing economy. But it seems that India is not able to reach this target. It is not so important whether the sustainable growth rate is less than 7 percent or more than 6 percent but one thing is clear that the government has to increase the capacity for creative development and employment.