As per the latest World Bank GDP rankings, the Indian economy in 2018 has slipped to 7th position from 6th in the previous year. India (GDP $2.72 trillion) has been overtaken by France(GDP $2.77 trillion) which stood at number 7 in the list in 2017.
US Is Still The Leader
While India’s rank has dropped, surprisingly the list above us remains unchanged compared to the previous year. United States is still the world leader with GDP of $20.5 trillion, followed by China ($13.6 trillion), Japan ($4.9 trillion), Germany ($3.9 trillion), and the United Kingdom ($2.82 trillion).
The slip in rank is not just bad news for the economy but also for the Modi government which has set a target of making India a $5 trillion economy by 2024 and $3 trillion in the current financial year.
Where Do We Lack?
The US economy regained its number one spot in 2018 after a gap of 10 years. It was the sign of the nation’s successful economic revival after the 2008 recession. The US was also on top of The Global Competitiveness Report published in October 2018 which compared 140 countries on 98 parameters. At the same time, India was 58th in the list which was 5 places up from 2017.
The major reason for the US constantly recovery after the 2008 financial crisis is constant innovation, especially in the IT sector. It gave the US 79.4 points for its positive attitude towards entrepreneurial risk. According to Cyberstates 2018, employment in the IT sector is projected to grow by 13 percent from 2016 to 2026.
In India, despite our vibrant IT sector, we were one of the weakest performers, with a score of 28.0 (117th) on macroeconomic parameters such Gross National Product (GNP) and Gross Domestic Product (GDP), inflation rate, etc.
At the same time, the report said, “India’s financial system stability (83.2) is mainly held back by relatively low performance on the soundness of banks and regulatory capital ratios.”
In May 2018 the NITI Ayog had said that the macroeconomic parameters improved in the last four years.
Another sector which has held the US economy in a firm state is health. It is one of the fastest-growing sectors projected to create a total of 2.8 million jobs between 2016-2026.
Agencies Constantly Downgrading Indian Economy
This is the second blow to the government’s economic policies within a week after global rating agency CRISIL revised India’s growth rate to 6.9 per cent from 7.1 per cent.
In July, the Asian Development Bank too revised its forecast for India. The ADB said, “The Indian Economy is expected to grow by seven percent in 2019 (FY20) and 7.2 percent in 2020 (FY21), slightly slower than projected in April because the fiscal 2018 outturn fell short.”
In June the International Monetary Fund (IMF) had cut the GDP forecast to 7 percent from 7.3 projected earlier.
How Can We Improve?
According to Crisil the onus of improvement will be on monetary policy to achieve. In which case now the eyes are on Wednesday’s RBI move. Experts say that public spending alone won’t make the economy regrow. The significant push has to come from the banking regulator.
The government has constantly tried to keep inflation in limits. As of June 2019 the inflation of 3.18 per cent was registered which is well below the government’s target of 4 per cent. If the RBI cuts the rate of interest for the fourth time by 25 basis points to 5.5 per cent it will increase inflation. The small increase in prices will affect the consumers but at the same time will not put a hole in their pocket. Lower interest rates would also mean cheaper loans which will encourage the consumer to spend on big-ticket items like automobiles and housing. Now, if the public spending increases with all of the above, the economy should get back on track soon as per the experts.
Also Read: India’s GDP Not As Spectacular As Claims Suggest: Arvind Subramanian
