Challenges Faced by The Indian Economy

Every person in the country has the right to live a peaceful and dignified life. Every person must be able to meet their necessities, such as food, health care, housing, and primary education. However, India is a developing country, and a significant portion of the people cannot afford all of these. The problem worsens because our economy does not give enough job possibilities for disadvantaged individuals to find work and make money. As a result, eradicating poverty and unemployment is a significant economic problem. Similarly, receiving appropriate education and health care facilities improves one’s quality of life.

Current Challenges of The Indian Economy 2021

Over the last two years, the COVID-19 pandemic has created a massive disruption to the global economy. Recurring sickness, and supply-chain disturbances, made this extremely difficult.

•  India’s first response was a slew of safety nets to cushion the impact on the country’s most vulnerable citizens and businesses. 
• It then significantly increased infrastructure spending to re-invigorate medium-term demand and aggressive supply-side measures to position the economy for long-term expansion. 
• According to preliminary forecasts, after declining in 2020-21, the Indian economy will expand by 9.2% in 2021-22. 
• This indicates that overall economic activity has rebounded to levels before the pandemic. 
• After the release of Second Wave data, we had a far more negligible economic impact than the complete lockdown period in 2020-21, despite the health damage being much worse. 
• The pandemic has had a minor influence on agriculture and associated industries, predicted to rise by 3.9 per cent in 2021-22 after growing by 3.6 per cent the previous year. 
• The industry’s GVA (including mining and construction) will expand by 11.8 per cent in 2021-22 after declining by 7% in 2020-21. 
• The pandemic has had the most significant impact on the services industry, particularly those areas that involve human interaction. 
• Following a decrease of 8.4% last year, this industry will rise by 8.2% this fiscal year.

Major Problems of the Indian Economy and Their Solution

Some of the problems that hit the economy:

• Unemployment
• Poor education and infrastructure
• Payment balance
• Private loans
• Big budget deficit
• Ineffective agriculture
• Improper tax collection
• Low business

Unemployment

Unemployment remains a problem in rural and urban areas, despite the significant economic expansion. The quick pace of economic growth has left unskilled employees struggling to find work in rising industries.

Poor education and infrastructure

Although India has a high percentage of English speakers (which is vital for the call centre industry), the populace nonetheless has significant levels of illiteracy.

• It is a severe concern in rural regions and among women. More than half of all Indian women are illiterate. 
• This stifles economic growth and prevents the creation of a highly-skilled workforce where many Indians do not have access to basic facilities such as running water.
• Bureaucratic inefficiency is wreaking havoc on India’s public services. 
• Over 40% of Indian fruit rots before reaching the market, illustrating the supply limits and inefficiencies that the Indian economy faces.

Payment balance, private loans and big-budget deficit

Although India has amassed significant foreign currency reserves, the country’s rapid economic expansion has come with a persistent current account deficit. 

• The quantity of financing in India has increased by 30% due to a property bubble in the last year.
•  However, the risk of such loans is a source of concern. It could be troublesome if they are reliant on growing home values. 
• Furthermore, if inflation continues to rise, the RBI will have to raise interest rates. 
• If interest rates climb significantly, people in debt may face higher interest payments and possibly less consumer spending in the future.
• India’s budget deficit is one of the highest in developing countries. It amounts to approximately 8% of GDP, excluding subsidies.
• However, it has decreased little during the last year. It still leaves little room for increased spending on essential services such as health and education.

Ineffective agriculture

Agriculture accounts for 17.4% of total economic output, yet it employs more than half of the workforce. This is the economy’s most inefficient sector, and transformation has been glacial.

Improper tax collection and low business 

• According to the Economist, India has one of the world’s lowest tax-to-GDP ratios. 
• As a percentage of GDP, India’s tax revenue is only 12%. 
• In comparison, the EU average is 45 per cent. 
• This low tax collection rate results from rampant corruption, tax evasion, and complex tax rates.
• According to the World Bank, India has low ease of doing business.India is ranked 130th out of 190 countries.Due to this, small and large scale businesses run down, which in turn, the government gets less tax and private loans increase. 

Solution

A high birth rate combined with a low mortality rate will not allow the population to adjust to the means of subsistence. Therefore, the Indian people must be aware of the negative consequences of population growth.

• People should be encouraged to use birth control methods.
• People must receive education as more educated people are more inclined to employ population control measures.
• Capital equipment is in short supply. Modernisation of capital equipment should be prioritised.
• Private capital should be encouraged to invest in capital-intensive industries.
• Businesses in large-scale sectors should have access to easy financing.
• Despite the high rate of taxation, there is insufficient revenue.
• Encourage people to pursue post-secondary education and professional training. This would allow them to escape the cycle of poverty. Increased revenue from direct and indirect taxation would arise from increased earnings.

Significant Challenges of the Indian Economy

• Unemployment or underemployment rates are increasing. Like the rich becoming more affluent and the poor remaining poor.
• Inequality is rising, with many people left out of the growth process.
• Poverty levels are much higher, primarily due to the pandemic, and growth is slow.
• Major economic activities, such as tourism, took a massive hit, disrupting business due to the pandemic.
• There are insufficient financial resources to save jobs and respond to a pandemic.
• We are facing recurrent balance of payments shocks and macroeconomic instability. 
• Due to a lack of human capital development, productivity is low.
• Lack of quality jobs, high levels of informality in the economy, and talent mismatch between the skills and the jobs created. 

Conclusion

According to a survey, the industrial sector experienced a sharp turnaround from a decline in 2020-21 to an 11.8 percent expansion this financial year. The manufacturing, construction, and mining sub-sectors all had a similar swing. However, the utility sector maintained a more subdued cycle of food, electricity and water throughout the national lockdown. Finally, the survey is confident that overall economic stability indicators show that the Indian economy is prepared to meet the difficulties of 2022-23 as the country has endured pain, sickness and hunger. After much endurance, the Indian economy has slowly stabilised.