Practice Question 16

Q) Despite decent economic growth, what structural challenges should Indian economy overcome to sustain its growth momentum? Analyse.

Superb Hints:

The economy of India is the sixth-largest in the world measured by nominal GDP and the third-largest by purchasing power parity (PPP). India has average growth rate of approximately 7% over the last two decades.

Recently, International Monetary Fund (IMF) described the Indian economy as the "bright spot" in the global landscape. According to the IMF, India's growth is expected to rebound to 7.2% in the 2017–18 fiscal and 7.7% in 2018–19.

However, there are some structural challenges which need to be addressed if growth momentum has to be sustained. They are:

1. Banking sector - Twin Balance Sheet problem of the corporate and the banks due to which there is huge NPA levels and limited credit growth. Bad loans have risen by 135 per cent in last two years. They now constitute 11 per cent of of the gross advances of Public Sector Unit (PSU) banks.

2. Jobless Growth - Creation of more jobs in manufacturing sector especially in labour intensive industries like apparels is needed. Automation poses a challenge to existing jobs in all sectors.

3. Controlling the debt - GDP ratio by sustaining the current improvements made on the fiscal consolidation front.

4. Increase tax base - percentage of people paying direct taxes is less when compared to other developing nations. India has 7 taxpayers for every 100 voters ranking us 13th amongst 18 of democratic G-20 countries.

5. Ease of Doing Business - While multiple efforts are made to reduce red-tapism, much work is needed to reach a point where single window clearance are needed for doing business across the country.

6. Physical Infrastructure - Infrastructure is to be developed to support the industries and contribute to development. Focus on Inland water ways etc. will promote cheap exports and imports. There increased focus on port development and multimodal transport system.

7. Investment in social infrastructure - Health care and educational facilities are much needed to reap demographic dividend which India has at this stage. There is need to invest in medical care, education and development of skill to make people more employable.

Some government initiatives on roll:

  • PARA (Public Sector Asset Rehabilitation Agency) and bad bank concept are on way to address twin balance sheet problem. Also, implementing Basel III norms by 2019 will bring better regulations in banking sector.

  • Digitisation and encouraging cashless economy will help in proper tax accounting and will expand the tax net as well as tax compliance.

  • Projects like Sagarmala, Bharatmala are aimed to improve physical infrastructure.

  • Skill India campaign is focused to improve employability and productivity of labour.

  • An Innovation Fund for Secondary Education is proposed in budget to ensure universal access.


Recent efforts made such as GST, Monetary policy committee, banks board bureau etc shows that the economy is in a state of transition for the good where transparency and accountability are being enforced.

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