GDP SLUMP WILL HIT $5-TRILLION ECONOMY TARGET

Prelims level : Growth, Development, National Mains level : GS3 - Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
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Why in News?

  • NITI Aayog has warned the Government that GDP slump will hit $5-trillion economy target.

What did NITI Aayog said?

  • The nominal GDP growth — a measure of growth without accounting for inflation — has to be at least 12.4% on an average if that target has to be reached but the current rate was a mere 8% in the first quarter of the current financial year.
  • Experts estimate that growth will dip in Q2 compared to Q1 in both real and nominal terms.
  • For example, while GDP growth in real terms in Q1 stood at 5%, state-run lender State Bank of India recently estimated that this could dip to 4.2% in Q2, with a corresponding dip in nominal growth as well.
  • “Domestic investment and consumption” are the only dependable drivers for sustainable re-acceleration of the economy.
  • However a deceleration in investment is visible, primarily in the household sector, due almost entirely to real estate.
  • Gross fixed capital formation in the sub-sector of ‘dwellings, other buildings and structures’ fell from 12.8% of GDP in 2011-12 to 6.9% in 2017-18.
  • The slowdown in the domestic market is also because of limited availability of capital with the banks which are tied down due to high non-performing assets in heavy industry and infrastructure.
  • In the power sector, there is a high cross-subsidization in favour of residential tariff leading to very high industrial tariffs.
  • The electric power transmission and distribution (T&D) losses in India stand at 19%, higher than that of Bangladesh and Vietnam.

What are the implications?

  • The presentation flagged the urgent need to focus on export of high-value technology and manufacturing goods instead of primary goods currently exported.
  • Citing an example, the NITI Aayog chief said 98% of phones exported by India are in the low-value category, to the Middle East and Africa.
  • There has been a sharp decline in exports in the textiles from 2017 onwards, according to the presentation.
  • Several financial experts have blamed the decline on the November 2016 decision to demonetize high value currency that drained vital liquidity out of the cash-dependent textile market.
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