AUTHOR- DHWANI SHRIVASTAVA*
EDITOR-PRAKHAR VISHWAS MISHRA
A country's economy is generally the major factor determining whether the country is a developed, developing, or underdeveloped. Now, to determine that something is known as 'total size of the economy' is measured using the Gross Domestic Product (GDP). GDP is the total monetary value of the goods and services produced in a country in a particular period. It determines the health and size of an economy and is considered an essential measurement or indicator to determine a particular country's citizens' standard of living.
Apart from measuring the health and size of the economy, GDP also helps the government frame policies for the country and support different investors in their decision-making process regarding the expansion of their businesses and investment in different economies of different countries. Everybody knows that our country's GDP is dropping gradually and that India is not in its best economic state right now, but do we know the genesis and the reasons behind it? In this article, we are going to have a little time travel and will also try to know the actual position of our economy and some ways in which it can be revived.
The agriculture sector was the major contributor to India's GDP and contributed heavily to about 50% of the total value in the 1950s. It was also known as the backbone of the Indian economy. India was the mass producer and exporter of a variety of crops, including jute, cotton, wheat, rice, and a lot more, leading it to be massively involved in international trade, which, in turn, had a positive impact on economic growth. Then came a time when Western countries started to adopt the industrialization system; thus, we saw the rise of industries in India. Many upcoming and budding industries like packed food, animal food grabbed this opportunity and started flourishing. However, the tertiary industry's growth, also known as the service industry, has seen the real deal. The tertiary sector's GDP contribution was 29.2% in the 1950s and rose to 55.7% in 2007-2008.
The below bar graph shows the contributions of the agriculture, industry, and tertiary/service sectors in the country's GDP from the years 1960 to 2000.[i]
PREVIOUS ECONOMIC SHOCKS (1991 AND 2008)
After independence, the Indian economy has been shaken majorly twice till now;
Once in 1991 and then in 2008:
1991:The major reasons for the ‘1991 economic crisis' were the poor economic policies prevailing at that time and the following trade deficits. The imports shot up, and the exports slumped, leaving the country in a situation of 'twin deficit meaning, that the current account deficit and the fiscal deficit happened at the very same time. Until July in the same year, there was a sharp depreciation in India's currency, which again exaggerated the 'twin deficit' problem. The problem was so severe that it was impossible to borrow even short-term loans, and eventually, the World Bank and the International Monetary Fund (IMF) stopped providing their assistance. With no option left, the Indian government had to airlift its national gold reserves to seek an economic bailout from the IMF.
During that time, the fiscal deficit of the government rose from 9% of the GDP in 1980-1981 to 10.4% of the GDP in 1985-1986 and 12.7% of the GDP in 1990-1991 and subsequently the debt rose from 35% of the GDP in 1980-1981 to 53% of GDP in 1990-1991.[ii]
However, the Indian government was quick to respond, and its immediate response was to borrow an emergency loan of 2.2 billion dollars from International Monetary Fund (IMF) by airlifting 67 tonnes worth of India's Gold Reserve as security. In continuation, RBI depreciated the value of the Indian rupee by 9% and further by 11% on the 3rd of July. To recover from the shock, doors for foreign investments were opened, and liberalization policies came into action.
2008: India successfully weathered the great financial crisis of September 2008. It was the time of the Global recession when India's trade with the other countries was not at a promising rate, which became a reason for the mild severity of the Indian economy's impact. India had the capability and was able to withstand this economic shock that had shaken several other economies.
Recently, a tweet was posted by the official Twitter handle of the Bharatiya Janata Party on 22nd of August, 2020, according to which India's GDP growth in 2020 would have been the highest amongst the major economies of the world and was estimated to beat about 1.9%. However, according to the latest projections of the International Monetary Fund (IMF), India's growth rate for 2020 will eventually stand at -4.5%, i.e., in negative values. This is the first time after 1979 when India may have to face a negative GDP growth. Unfortunately, according to the data from the Indian government, this situation could get worse.