UPSC Mains 2017 GS-3 Model Answers


Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the other factors available for growth potential?  (UPSC Mains 2017 GS-3 Model Answers)

Yes, for India’s potential growth, savings rate is the most effective one. As Harrod-Domar economic growth model suggests that the economy's rate of growth depends on:
(i) The level of national saving (S)
(ii) The productivity of capital investment (this is known as the capital-output ratio)
Basic Harrod-Domar model says:
Rate of growth of GDP = Savings ratio / capital output ratio
Therefore the rate of growth in an economy can be increased in one of two ways:
(i) Increased level of savings in the economy (i.e. gross national savings as a % of GDP)
(ii) Reducing the capital output ratio (i.e. increasing the quality / productivity of capital inputs)
Ratings firm India Ratings in August 2018 said that India’s savings rate declined to 30% at the end of March 2017 compared with 34.6% in FY12 and 31.3% in 2015-16, pulled down by slow growth in household savings. India Ratings and Research believes if the declining trend of household saving continues, it may pose a serious challenge to the GDP growth and macroeconomic stability. 

Even if we have a sufficient capital that does not automatically transform into production, various other factor affecting growth potential are — population and manpower resources, natural resources and its utilization, capital formation and accumulation, capital output ratio, occupational structure, external resources, extent of the market, investing pattern, technological advancement, development planning, infrastructural facilities, suitable industrial relations etc.

Wednesday, 31st Oct 2018, 04:32:53 AM

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