Indian Economy
Session 3
Last Class
• Review of India’s journey through liberalization
• Pre pandemic immediate trends
• GDP growth impressive despite lesser growth in investment, credit, lower
industrial production
• Tax collection growth stunted as well
Some contemporary issues
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
• Consumption growth? (mostly in line with GDP Growth)
• Investment behavior strongly correlated with exports and also may be
causing higher imports
• Open Questions:
• How do you get the consumption growth if direct tax collections have not
grown as much?
• Why has investment growth declined if consumption growth is steady?
Other developments
• Oil price fall by 2014
• Demonetization 2016 induced capital infusion to banks
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Govt. moved certain items off balance sheet- NHAI, FCI
Why has investment and credit growth declined?
Online payments and spike of NBFC capital
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Remedies?
• Monetary policy?
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
IBC
• IBC 2016
• Amended many times to improve effectiveness (latest Jan 2025)
Population
1.6
Billion
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2001 2006 2011 2016 2021 2026
Total Below 15 Years 15-64 Years Above 65 Years
Population stagnation impact
• Japan exemplifies the challenges of decreased fertility, with a fertility rate
of 1.3 children per woman and over 28% of its population aged 65 or older.
This aging population strains healthcare and pensions, while a shrinking
workforce and high dependency ratios hinder economic growth.
• Consumer spending and housing markets have declined, deepening
economic stagnation. Despite pro-natalist policies like child allowances and
subsidized childcare, results have been limited.
• Like South Korea, Italy, and Germany, Japan has turned to immigration and
investments in robotics and AI to address labor shortages, but integration
and sustainability remain challenges. These nations highlight the far-
reaching impacts of low fertility and aging populations.
Demographic dividend & Inequality
• India's challenges include ensuring food security, combating
malnutrition, and addressing environmental strain due to population
growth. Sustainable development requires improving infrastructure,
nutrition, and social services while mitigating ecological damage.
• Gini: deviation from equal income distribution. India’s Gini (2010-11):
36.8, lower than countries like South Africa (57.8) and Brazil (53.9).
• Quintile Income Ratio: Ratio of richest 20% to poorest 20% income.
India’s ratio (2010-11): was 5.6, compared to the USA (8.5) and
Australia (7.0).
Rising Urbanization
Year Urban population %
1980 23%
1995 27%
2010 31%
2020 35%
Inequality
• Rural-Urban Disparities: Urban Monthly Per Capita Expenditure (MPCE) ₹1353.82
was nearly double rural MPCE was ₹703.42 in 2011-12, with faster growth in
urban areas.
• Rising Wealth and Poverty – The wealth of Indian billionaires grew from 5% of the
GDP (2005) to 15% (2017). Post-pandemic (2021), their wealth increased by ₹30
lakh crore.
• According to OXFAM, the bottom 50% owns only 6% of national wealth, while
billionaire numbers grew during COVID-19. Higher inequality risks limiting full
growth potential due to social conflicts and lower investment in physical capital.
Growth-Inequality Nexus – Economic growth does not inherently cause inequality;
domestic policies and socioeconomic structures are key drivers. Unequal access to
education and elite-focused policies worsen inequality. OECD studies show regions
investing in education, healthcare, and job training achieve lower inequality,
challenging the "grow first, distribute later" model. Prioritizing equity during
growth ensures sustainability.
Inequality
• Inter-state(Regional) Disparities in Development – Growing inter-state
disparities in per capita GSDP, driven by inequalities in secondary and
tertiary sector incomes, have worsened since the 1990s.
• Developed states like Gujarat and Maharashtra benefited most from
economic reforms, while eastern states like Bihar and Odisha lagged.
Effects and cure of inequality
• Decline in Democratic Governance –Rising inequality weakens
democracy, reducing voter engagement and enabling elite
dominance. For example, the decline in unionization and tax benefits
for the wealthy in the US contributes to inequality.
• Unionization and Redistribution – Unionization reduces inequality by
promoting welfare policies. For example, Nordic countries with strong
unionization have higher social expenditure and lower inequality.
Notable steps
• The Code on Wages Act (2019) was implemented to ensure timely
payment of minimum wages to all employees, removing wage ceiling
limits.
• The MUDRA and Stand-Up India schemes were launched to provide
formal credit access to small businesses, while ESI contribution rates
were reduced to lower employer and employee costs.
• The National Career Service (NCS) platform was developed to offer
job matching, career counseling, and skill development opportunities
through a digital platform.
India's Education System
• Public expenditure on education in India remains low, with only 3.55% of GDP
allocated in 2004-05, falling short of the targeted 6%, despite significant progress
in access and infrastructure.
• Universalizing elementary education remains incomplete; skill-based training in
secondary education is limited, and higher education benefits only a small
proportion of the population.
• The Right to Education (RTE) Act, 2009, ensures free and compulsory education
for children aged 6-14,
• Post-2000, enrollment increased, but learning outcomes remained poor, with
over 50% of rural students struggling with basic math in 2018, highlighting a gap
between access and quality.
Health
• Inadequate Public Expenditure on Education and Health Care – India
spends only 4% of GDP on education and 1% on health, with
privatization raising costs and pushing millions into poverty due to
high out-of-pocket expenses. Despite commitments to increase
health spending to 2.5% of GDP by 2025, education and healthcare
remain underfunded, hindering inclusive development
• Inequities in Utilization of Curative Services – Outpatient care
depends heavily (80%) on the private sector due to weak public
health services; poorer states like Uttar Pradesh and Madhya Pradesh
show lower public service utilization compared to Kerala and Tamil
Nadu.
