20 Jul Feature of An Indian Economy Aspect
Incremental Capital Output Ratio (ICOR)
ICOR = investment % in GDP/Growth in GDP
If investment was 28% and our growth in GDP was 7% then ICOR comes out to be 4. ICOR represents how efficiently capital is being used to produce output but it depends on several factors like skill, education, technology, administration etc. Lower the ICOR, better it is for the country.
From 2016 – 2019, ICOR increased due to demonetization and GST which resulted in disruption in economic output. So during that time, even though our investment was around 28%, our growth dipped to around 6% resulting in higher ICOR (4.65)
But now things have changed and last year (2022-23), investment was 29.2% and GDP growth was 7.2%, which results in an ICOR of around 4. So, if India wants to be a developed nation then it needs to grow at 7% for the next 25 years (till 2047) and that will require an investment of 28% with ICOR being 4.
Trade Issue (WTO)
Earlier developed countries preached free trade to increase their exports are now backing out and putting restrictions when we (developing countries) have started competing in the world market. This is one of the reasons that WTO is not making any progress and stuck with Doha Round issues
Artificial Intelligence (AI)
We should adopt AI as it will increase productivity and output but not necessarily jobs. For a populous country like India, we need to focus on labour intensive sectors also like textile (Mega Textile Parks) and toys. Due to AI and other technological innovations the employment elasticity of growth (% change in employment/%change in GDP) will be less which means that for every 1% increase in GDP, the job created will be much less.
Govt. should try to move out of most of the inefficient subsidies (except food) and try to providing a basic minimum income.