Q) Given the new challenges grappling the Indian economy, there is an urgent need for wider structural reforms as those taken during the first wave of the pandemic. Discuss.

Why this Question?

Important part of GS paper- III.

Key demand of the Question 

Major problems that the Indian economy is currently facing and measures (structural) needed to tackle them.


Critically examine- Look in close detail and establish the key facts and important issues surrounding the topic. Try and offer reasons as to why the facts and issues identified are most important, as well as explain the different ways they could be construed.


Start by briefly giving a context about the question.


In the first part, categorically highlight the challenges prevailing in the Indian economy.

In the next part, highlight the structural measures needed to tackle the challenges.


Conclude with a way forward. 

Model Answer


India’s growth forecasts are now 1-2 percentage points lower owing to the second wave of coronavirus. But there are ample hints the economic toll may be higher; consumption demand may remain subdued longer than currently foreseen. Economic uncertainty has escalated sky high as a result.

Current Challenges facing the Indian Economy

  1. Unemployment- The CMIE data show that nearly five million or 50 lakh salaried jobs were lost in July, taking the total number of layoffs in the formal sector alone to over 1.8 crore. 
  2. Weak Demand- demand for goods and commodities like fuel, food, consumer goods and electricity have fallen over the last few months mainly on account of increasing inflation.
  3. Fiscal Deficit- the fiscal deficit for 2020-21 was pegged at 9.5% of GDP. This is way higher than what is proposed by the FRBM Act. Reducing this in addition to increasing government expenses will be a challenge. 
  4. Inflation- inflation has risen to levels like never before. This is evident from the frequent price hikes of petrol and diesel. Economists say it is an unusual situation where prices of food items like vegetables, pulses, meat and fish are on the rise despite weak demand.
  5. Weak Manufacturing sector- a larger population of India (about 50%) is still concentrated in the agricultural sector. Moreover, the contribution of the manufacturing sector to GDP has remained constant at below 30%.
  6. Banking crisis- NPAs in the public sector banks have risen to very high levels affecting the lending ability of the banks. 
  7. Low Exports- India’s share in global exports remained constant around 18%, which is far less than that of China and many other countries.

Steps to Revive the Indian Economy 

  1. A stimulus package focused on giving direct benefits to the middle-class to cause a spike in private consumption. This will directly help in better cash flow, giving India a much better shot at economic recovery. 
  2. Policy reforms to boost the domestic demand and sector specific consultations to find out ways to attract consumers to increase demand. 
  3. Provide targeted stimulus, especially to the worst-affected sectors, to help companies retain their employees.
  4. Subsidising labour costs, cutting taxes and offering incentives to the worst-affected sectors to prevent jobs losses and even result in the creation of new ones.
  5. Taking policy measures to boost the MSME sector and the manufacturing sector. 
  6. Recapitalization of public sector banks to increase their credit capabilities. 
  7. Clearing dues with the states mostly on account of GST to encourage parallel involvement of Centre and states.
  8. Comprehensive legislation to deal with promotion of exports.

Because of the pandemic’s harsher incidence this year and no clarity of exit from its miseries anytime soon, income support is now imperative. The government can no longer remain on the sidelines. With its sorry financial state, it now has to think structurally and start creating space for income assistance, whose magnitude and duration is as uncertain as the pandemic. It must brace up for fiscal action by structural reforms in revenue expenditures.