The Indian economy is the world’s sixth-largest economy by nominal GDP and the third-largest by purchasing power parity, with a growing middle class, a young and educated workforce, and a rapidly expanding digital economy. India is one of the fastest-growing economies in the world, and its economic growth has been remarkable in recent years. With a population of over 1.3 billion, India’s economy is diverse and complex, with various sectors contributing to its growth. The Reserve Bank of India has released the Report on Currency and Finance (RCF) for the year 2022-23. The theme of the Report is “Towards a Greener Cleaner India”.
Key Highlights:
- The Report covers four major dimensions of climate change to assess future challenges to sustainable high growth in India, namely, the unprecedented scale and pace of climate change; its macroeconomic effects; implications for financial stability; and policy options to mitigate climate risks.
- India has embarked on a targeted and time-bound climate action plan to reduce carbon emissions and currently ranks the best amongst G-20 countries as per the Climate Change Performance Index, 2023.
- India’s goal of achieving the net zero target by 2070 would require an accelerated reduction in the energy intensity of GDP by around 5 percent annually and a significant improvement in its energy mix in favor of renewables to around 80 percent by 2070-71.
- India’s green financing requirement is estimated to be at least 2.5 percent of GDP annually till 2030.
- A balanced policy intervention with progress ensured across all policy levers will enable India to achieve its green transition targets by 2030, making the net zero goal by 2070 attainable.
In this article, we will highlight 15 important facts about the Indian economy.
1. Climate Change and its impact
Climate change is a phenomenon that has always been a part of human existence. However, with rapid industrialization and urbanization since the 19th century, climate change has taken on a new dimension, threatening the sustainability of life, livelihood, and the surrounding ecosystem. The rising incidence of extreme climate events in recent decades has raised greater public awareness about its adverse effects.
2. India’s Climate Action Plan
India has embarked on an ambitious and targeted climate action plan while balancing its growth and environmental objectives. India’s climate action plan is in line with the target of Net Zero emissions by 2070, and it has updated its nationally determined contributions (NDCs) to aim at raising the share of renewable energy and reducing the carbon emissions intensity of GDP by 2030.
3. India’s Initiatives towards Climate Change Mitigation
India has taken several initiatives to mitigate climate change. The country presented its Long-Term Low Emission Development Strategy at the COP27, covering plans for the expansion of green hydrogen production, electrolyzer manufacturing capacity and increased use of biofuels. India has also launched and nurtured the International Solar Alliance, the Coalition for Disaster Resilient Infrastructure, and the Mission LiFE (Lifestyle for Environment) to strengthen solutions-based international cooperation.
India has taken several initiatives toward climate change mitigation. These include the National Action Plan on Climate Change, which aims to promote sustainable development and reduce greenhouse gas emissions, and the International Solar Alliance, which aims to increase the use of solar energy globally.
The report also notes that India has set a target of achieving 40% of its total electricity generation from non-fossil fuel sources by 2030, and has made significant investments in renewable energy infrastructure. However, the report highlights the need for India to take further action to reduce its carbon emissions and improve its environmental performance.
4. India’s Ranking in Global Climate Indices
India ranked high (seventh) in the list of most affected countries in terms of exposure and vulnerability to climate risk events as per the Global Climate Risk Index 2021. However, it is also the highest-ranked G-20 country in its climate protection performance as per the Climate Change Performance Index 2023. This reflects the progress made on four parameters – greenhouse gas (GHG) emissions; renewable energy; energy use; and climate policy.
India’s ranking in global climate indices has been mixed. While India has been ranked poorly in indices that measure greenhouse gas emissions and carbon intensity, it has performed relatively better in indices that measure renewable energy capacity and energy efficiency. The report notes that India has made significant progress in recent years in increasing its renewable energy capacity, particularly in the areas of solar and wind power.
However, the report also highlights the need for India to take further action to reduce its carbon emissions and improve its environmental performance in order to address the challenges posed by climate change.
5. Key Policy Challenges for India
India will soon become the most populous country in the world. Preserving food and energy security amidst extreme climatic events while obtaining access to technology and critical raw materials required for a successful green transition will remain a key policy challenge for India.
There are several challenges that India must address to achieve sustainable growth and development. One of the key challenges highlighted in the report is the need to address income inequality, which has increased in recent years. The report also notes that India must invest in education and skill development to ensure that its workforce is equipped to meet the demands of a rapidly changing economy.
Additionally, the report highlights the need to improve infrastructure, particularly in the areas of transportation and energy, in order to support economic growth. Finally, the report notes the importance of addressing environmental challenges, such as air pollution and climate change, in order to ensure a sustainable future for India.
6. Climate Change and Macroeconomic Implications for India
Climate change-induced risks to the macro-financial prospects of the country and the range of policy options available to mitigate climate risks require dedicated research. Such research becomes even more critical in the context of the complexity and non-linearity of the ways in which climate, economy, financial systems, and related policies operate.
The document highlights the urgent need for India to address the challenges posed by climate change. According to the report, climate change could have significant macroeconomic implications for India, including a decline in agricultural productivity, increased healthcare costs, and the potential for natural disasters to disrupt economic activity. The report notes that India is particularly vulnerable to the effects of climate change due to its heavy reliance on agriculture and the high levels of poverty in rural areas. The report suggests that India must take urgent action to reduce greenhouse gas emissions and adapt to the impacts of climate change in order to ensure sustainable economic growth and development.
7. Report on Currency and Finance
Hence, this year’s Report on Currency and Finance has “Towards a Greener Cleaner India” as its theme. Structured in four chapters, this Report highlights the importance of climate goals as a policy priority and examines the macro-financial implications of climate change for India in the medium to long term. The focus is on growth, inflation, and financial stability.
8. The GDP growth rate
India’s Gross Domestic Product (GDP) growth rate was 7.5% in the fiscal year 2020-21. This significant increase in the GDP growth rate indicates the Indian economy’s resilience to the COVID-19 pandemic. The GDP growth rate is a crucial indicator of a country’s economic health. India’s GDP growth rate for the financial year 2021-22 is projected at 10.5%.
This estimate is based on the expectation of a continued recovery in the economy from the impacts of the COVID-19 pandemic. The report also highlights the impact of the pandemic on India’s economy, with the first quarter of the financial year experiencing a contraction of 24.4% in GDP. However, the subsequent quarters have seen a steady recovery, with growth rates of 7.5% and 0.5% in Q2 and Q3, respectively.
9. Agriculture Sector
Agriculture is a significant sector of the Indian economy, contributing about 17% to the GDP. The agriculture sector is also the largest employer in the country, providing employment to over 50% of the workforce. In 2020-21, the agriculture sector’s growth was estimated at 3.6%, mainly due to good monsoons and favorable weather conditions.
The agriculture sector remains a crucial driver of the Indian economy, and concerted efforts are needed to address the challenges it faces and unleash its full potential.
The agriculture sector plays a vital role in the Indian economy, accounting for around 18% of the country’s Gross Domestic Product (GDP) and employing more than 50% of the country’s workforce. According to the Reserve Bank of India’s report, the sector experienced a growth rate of 3.4% in the financial year 2020-21, despite challenges posed by the COVID-19 pandemic.
The report highlights the impact of government policies, such as the Pradhan Mantri Fasal Bima Yojana and the Pradhan Mantri Krishi Sinchai Yojana, in boosting the sector’s growth. These policies have helped increase the area under irrigation and improve access to credit for farmers.
However, the report also highlights the challenges faced by the agriculture sector, including climate change, soil degradation, and low productivity. It calls for increased investment in research and development, as well as the adoption of modern farming techniques, to address these challenges.
The report also emphasizes the need to strengthen market linkages and improve access to markets for farmers. It suggests the development of robust supply chains and the establishment of farmer-producer organizations to enhance the bargaining power of small and marginal farmers.
10. Industrial Sector
The industrial sector, including manufacturing, construction, and mining, accounts for around 25% of India’s GDP. The sector’s growth was estimated at -7.2% in 2020-21 due to the COVID-19 pandemic, but it is expected to rebound and grow at a rate of 11.1% in 2021-22.
The industrial sector is a significant contributor to the Indian economy, accounting for around 26% of the country’s Gross Domestic Product (GDP) and employing around 22% of the workforce. According to the Reserve Bank of India’s report, the industrial sector contracted by 7.2% in the financial year 2020-21, largely due to the disruptions caused by the COVID-19 pandemic.
The report highlights the impact of government policies such as the Production-Linked Incentive (PLI) scheme and the Atmanirbhar Bharat Abhiyan in boosting the industrial sector’s growth. These policies aim to encourage domestic manufacturing, increase exports, and promote self-reliance.
However, the report also points out the challenges faced by the industrial sector, such as low capacity utilization, inadequate infrastructure, and limited access to credit. It calls for greater investment in infrastructure, such as roads, ports, and power, to improve the sector’s competitiveness.
The report also emphasizes the need for the adoption of advanced technologies to improve productivity and competitiveness. It suggests the promotion of research and development and the establishment of technology transfer centers to facilitate the adoption of new technologies by small and medium enterprises.
11. Services Sector
The services sector is the largest contributor to India’s Gross Domestic Product (GDP), accounting for around 55% of the country’s economic output. According to the Reserve Bank of India’s report, the services sector contracted by 6.9% in the financial year 2020-21, largely due to the disruptions caused by the COVID-19 pandemic.
The report highlights the impact of government policies such as the National Digital Health Mission and the National Education Policy in promoting growth in the services sector. The adoption of digital technologies has facilitated the delivery of services, while the new education policy aims to improve the quality of education and promote innovation in the sector.
However, the report also points out the challenges faced by the services sector, including low demand, high unemployment, and weak infrastructure. It suggests the development of a robust digital infrastructure to support the delivery of services and the promotion of entrepreneurship and innovation to create new employment opportunities.
The report also emphasizes the need to address regulatory barriers and promote competition in the services sector. It calls for greater ease of doing business and the removal of entry barriers to promote competition and increase efficiency.
12. Inflation
Inflation is an essential factor affecting the economy, and India has been struggling with high inflation rates in recent years. In 2020-21, the Consumer Price Index (CPI) inflation rate was 6.2%, higher than the RBI’s target of 4%. The RBI has been taking measures to control inflation, including maintaining a tight monetary policy and increasing interest rates.
Inflation has been a major concern for the Indian economy. In recent years, inflation has remained persistently high, driven largely by food and fuel prices. The report notes that inflation targeting has been a key policy objective for the Reserve Bank of India and that the bank has implemented a range of measures to manage inflation, including raising interest rates and using other monetary policy tools. However, the report also highlights the need for India to address structural factors that contribute to inflation, such as supply chain inefficiencies and a lack of investment in agriculture and infrastructure.
13. Foreign Exchange Reserves
India’s foreign exchange reserves are the sixth-largest in the world, with a total of US$589.6 billion as of May 2021. The reserves are primarily composed of foreign currency assets, gold, Special Drawing Rights (SDRs), and Reserve Tranche Position (RTP) with the International Monetary Fund (IMF). The high foreign exchange reserves indicate the strength of the Indian economy and its ability to withstand external shocks.
14. Public Debt
Public debt is a significant challenge for the Indian economy, with the government’s fiscal deficit increasing due to the COVID-19 pandemic. The central government’s gross fiscal deficit for 2020-21 was 9.3% of GDP, higher than the target of 3.5%. The RBI has been taking measures to manage the public debt, including implementing Open Market Operations (OMOs) and conducting regular auctions of government securities.
15. Extreme Weather Events Cause Havoc in India in 2022
India faced its hottest February in 2023 since record-keeping began in 1901 (IMD, 2023). In March, large parts of the country experienced hailstorms and torrents of unseasonal rain, leading to apprehensions of extensive damage to standing crops. According to India’s Centre for Science and Environment (CSE), the country experienced extreme weather events on 314 of 365 days in 2022, which claimed 3,026 lives, affected 1.96 million hectares of crop area and 4,23,249 houses, and killed over 69,899 animals. Central India witnessed the highest intensity of extreme weather events.
Among the states, Madhya Pradesh had the highest number of days with extreme weather, but Himachal Pradesh from the northwest region reported the highest number of deaths. In the eastern and north-eastern regions, Assam suffered from the highest number of damaged houses and animal deaths. In the southern peninsula region, Karnataka experienced extreme weather events on 91 days during the year and accounted for 53 percent of the total crop area affected across the country.
16. India’s Extreme Weather Events Exacerbate Climate Change Impact in 2022
In 2022, India recorded its seventh wettest January since 1901. March was the third driest and warmest ever in 121 years. Eastern and northeastern India saw their warmest and driest July in 121 years. These regions also recorded their second-warmest August and the fourth-warmest September in 2022. India seems to be at the watermark of climate change – rather than single events, it is the increased frequency of extreme weather occurrences that is breaking the back of our capability to cope with natural disasters. There is a definite rising trend; but more than the events themselves, India is grappling with severe losses and damages – the human toll of the impact of climate change.
17. The Role of Central Banks in Combating Climate Change
Climate change is manifesting itself at an alarming scale and pace globally. Emerging and developing economies are the most vulnerable in terms of technological capabilities and access to finance for adaptation and mitigation. There has been a significant increase in climate action, both multilaterally and in individual countries. Alongside fiscal policies, recent years have seen a growing experimentation with regulatory instruments and hence, the role of central banks in combating climate change is coming to the fore. The Reserve Bank of India is actively involved in fortifying India’s climate defence through various policy and research initiatives.
In conclusion, the Indian economy is diverse and complex, with various sectors contributing to its growth. Despite the challenges posed by the COVID-19 pandemic, India’s economy has shown resilience and is expected to continue growing at a robust rate. However, there are still challenges to be addressed, such as managing inflation and public debt, to ensure sustained economic growth in the long run.
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