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Prelims Capsule


How the Indian economy perform in 2021? From GDP & inflation to unemployment and inequality

How the Indian economy perform in 2021? From GDP & inflation to unemployment and inequality


  • GS 3 || Economy || Structure of the Indian Economy || National Income & its measures


  • The United Nations Secretary-General termed the coronavirus pandemic as the most challenging crisis since World War II and International Monetary Fund (IMF) chief declared that the COVID-19 pandemic has driven the global economy into a downturn. Some sectors even collapse completely. At this time there is a single key to revive the economy again which is the massive funding to revive the economy. Various sectors of the economy performed poorly and affected the determinants of the economy got hit terribly and it can be attributed to the Havoc caused by the Covid-19 Pandemic.

Performance of different indicators of the Indian economy in 2021


  • The first quarter (April, May, June) GDP data was neither as bad as the critics claimed nor as good as the government would have us believe.
  • By the time the second quarter (July, August, September) the GDP estimates were released, it was clear that India’s economic recovery was still quite iffy and no way near the claimed “V-shaped” recovery.
  • However, a key concern subdued levels of consumer demand. Because of economic crises due to Covid-19,  2021 did provide an opportunity for us to evaluate how the Indian economy had done during the last seven years


  • GDP growth is considered the most well-recognized variable to track an economy’s health, but it became clear in 2021 that high unemployment, not low GDP growth, is the biggest challenge facing India.
  • There were fewer people (around 14 million less) employed in India in August 2021 than there were in August 2016.
  • Low labor participation– A key part of the problem was India’s comparatively low labour force participation rate.
    • The biggest reason for India’s low LFPR is its abysmal labor force participation by women.
    • Data suggests that India is no country for working women and this has massive ramifications for the wellbeing of the economy.
    • Apart from such structural bottlenecks like women’s limited involvement in the labor force -many policy-induced reasons have aggravated the jobs-related distress.
      • for example, the case of manufacturing sector jobs. In just four years (2016-17 to 2020-21), and despite the Make in India policy push, the number of people employed in the manufacturing Sector reduced by almost half.
    • Indian policymakers have ignored the crucial need to focus on labor-intensive sectors.


  • The other big worry for India in 2021 has been inflation.
  • For the second year running, inflation rates have remained uncomfortably high.
  • Part of the reason has been the RBI’s unwillingness to contain inflation lest it scuppers India’s fledgling growth recovery.
  • But there are the pitfalls of the RBI continuing to prioritize economic growth over inflation.


  • Covid has deepened inequalities of wealth, education, and gender as Oxfam’s report, titled “The Inequality Virus”, showed.
  • As per the latest Oxfam report- 10% of people own the wealth of what the other 77% 
  • These concerns were again shared by the World Inequality report.
  • The income of the billionaires was increased by 35%. On the other hand, 112 million people lost their jobs.
  • India’s rank is 116 out of 174 nations as per the inequality report.
  • However, rising inequality should not result in India stepping away from economic reforms and reverting to the India of 1960.


  • Poverty too has increased- According to economists Santosh Mehrotra and JajatiParida, the unprecedented fall in poverty between 2004 and 2011 has been followed by an equally unprecedented rise between 2012 and 2020.
  • 27 % of the people are living in multidimensional poverty.
  • The human development index rank of India is 131 and has slipped one rank below than previous year
  • 64 million people were driven into poverty because of health expenditure.

Economic reforms

  • The year also witnessed its share of controversies and economic reforms.
  • The government announced the creation of a bad bank to tackle the problem of non-performing assets in the banking system.
  • Then, after several failed attempts, Air India’s privatization finally took off.
  • On the controversial front, the World Bank’s Ease of Doing Business rankings were finally shelved this year.
  • The government finally repealed the three contentious farm laws. The farmers are still asking for a guaranteed return on their produce.

Way forward

  • As there is apprehension and also a prediction of Covid-19’s third wave. To limit inflation while also ensuring economic growth and dealing with the epidemic, the following steps should be adopted.
  • Immunization and Covid-Appropriate Behaviour: India’s vaccination campaign is also ongoing, with over 3-4 million people being vaccinated every day, although this is insufficient. It is necessary to increase capacity and vaccinate an increasing number of individuals at a faster rate.
    • There should be no leniency in following the basic covid appropriate behavior of wearing a mask, conducting social distance, and following hygiene standards even after immunization.
  • Citizen-centric approach to be followed- Only healthy citizens can reach their full potential and contribute to a country’s overall growth.
  • Managing Inflationary Pressures: India is at risk of inflation, and it is at a high level, which is why the RBI has been cautious, projecting a growth rate of only 10.5 percent.
    • India must balance growth imperatives with inflation concerns on a razor-thin line.
    • The Reserve Bank of India (RBI) has also implemented a policy to promote economic growth. It has raised the state’s cap on ways and means advances and permitted them to borrow additional money from the RBI.
  • Women labor participation- India continues to struggle to provide its women with equal opportunity.
    • In 2019, before the Covid-19 pandemic, female labor force participation in India was 23.5%, according to ILO estimates.
    • In 2020-21 it further got reduced to 16.1%. Women empowerment is to be ensured by equal participation in the economic labor force will surely help to fight the distress and lead to economic progress.
  • The role of government policies: The growth forecast is also influenced by government policies, particularly fiscal and monetary policies.
    • In comparison to other countries, India has shown to be more prudent in its implementation of such programs.
    • When the pandemic was at its climax in 2020, India enacted enormous economic reforms.
    • Privatization, In addition, India has freed several sectors from excessive government control, which will result in greater and quicker economic growth.
  • Investment-Centered Approach: The NSO has given the investment rate in the economy for FY 2020-21 at only 31% of GDP which is a very low rate of investment for any economy as large as India, therefore investment is the right way forward.
    • The FY 2021-22 should be the year of beefing up, strengthening, and stepping up the pace of investment in infrastructure and many other projects where India is in the deficit stage.
  • Strengthening the rural economy – a three-pronged approach is needed
    • First, the easiest way to grow farmer incomes is by having them grow more value-added crops.
      • Fruits and vegetables have great export potential, and exports must be consistently encouraged and not switched on and off as domestic prices change.
      • Also, the cultivation of palm plantations has the potential for huge import substitution.
    • Second, we need to encourage agro-processing near the source. Fostering entrepreneurship in rural and semi-urban areas would combine nicely with local processing.
    • Third, we need to invest even more massively in rural connectivity. Today along with road connectivity, digital connectivity is the need of the hour.


  • Although we have performed better than the global average in 2021 despite tremendous challenges India still has a long way to go. The task is huge, and only collaboration between all levels of government (Central, state, and District level ) and our dynamic private sector can hope to make substantial progress.

Mains model Question

  • Describe the key indicators of the Indian economy. What reforms does India need to take to ensure massive economic growth not just to satisfy the aspirations of our youth but to keep our unfriendly neighbors at bay?