Macroeconomic Indicator Analysis

and Policy Suggestion

ANSH KAPOOR 2430512

DHEERAJ KASHYAP V 2430519
MICHELLE ANDREA SEQUEIRA 2430534
UTSAV SHAH 2430570
PRAGYA PRASHANT 2430575
Letter to the Prime Minister:

Namaste,

We, as your designated chief economic advisors, have collated, analysed and summarised, to the
best of our ability, the trends and policy suggestions for the macroeconomic indicators you have
listed, namely- Real GDP, Rate of Unemployment, Rate of Inflation and Gross Domestic
Savings. Our objective is to assess their trends, derive meaningful inferences, and propose
targeted policy recommendations for economic stability and growth.

We have sourced our data for the Rate of Inflation from the Ministry of Statistics and Program
Implementation (MoSPI), for Real GDP, Rate of Unemployment and Gross Domestic Savings
from the World Bank Group, due to the lack of complete and precise public domestic records.

In this report, we have attempted a structured evaluation of each indicator, identifying significant
patterns and the underlying economic factors. Based on our findings, we put forth policy
recommendations aimed at stabilising and improving each of these macroeconomic parameters,
with the view of long-term economic resilience of our glorious nation.

Jai Hind.
ABSTRACT

This report analyzes India’s macroeconomic indicators—Real GDP, Unemployment Rate,

Inflation, and Gross Domestic Savings—identifying trends, causes, and policy recommendations
to enhance economic stability, investment growth, and financial resilience.​

INTRODUCTION

Macroeconomic indicators have an impact on long term growth strategies and policy decisions,
they are essential instruments for evaluating a country's economic health. Real GDP, the
unemployment rate, inflation, and gross domestic savings are some of the key macroeconomic
factors that have shaped India's economic path between 2010 and 2023. These metrics reveal
information that includes purchasing power, labor market circumstances, production efficiency,
and the stability of the national economy. Up until 2019, India's GDP grew steadily thanks to
foreign investments, digital innovation, and increased manufacturing. External shocks such as
the COVID-19, the introduction of GST in 2017, and demonetization in 2016, proved fatal for
the growth of the economy. While inflationary behavior was a reflection of supply-side
constraints and monetary adjustments, the unemployment rate appeared to be more influenced by
sectoral growth patterns and policy interventions. The reduced gross domestic savings rate has
affected self-sufficiency and investment capacity in the economy. In this study, we'll examine
this variable in depth.

INDICATOR ANALYSIS

1.​ Real GDP

GDP is a measure of national income. It measures the market value of all final goods and
services produced within a domestic territory in a given period of time.

Real GDP is a measure of the value of a country's economic output, adjusted for inflation. It is
calculated by adjusting its nominal value to take into account any price changes. It showcases
whether the value of output has risen due to more production or due to increase in prices. In
India, GDP is calculated annually, with the fiscal year running from April 1st to March 31st.
 Figure 1.1: Graphical Representation of India's Real GDP Growth (2010–2023)

From 2010 onwards, the Indian economic trajectory has been rising consistently. This is due to
the rebound in the agriculture sector, the boom in the manufacturing and service sector and the
increase in exports. Along with this, both savings and investments were looking up.
service sector and the increase in savings and investments. Due to several policies implemented
by the Indian government, such as the Make in India initiative, has helped transform India into a
manufacturing hub which helped raise the Indian GDP.

This growth in the real GDP was relatively consistent until 2019, when the pandemic hit.
During COVID-19, India suffered one of the largest contractions. Different sectors of the Indian
economy suffered including agriculture and the service sector. India saw a dip in exports as the
demand for Indian commodities fell due to the shutdown of international trade. The lockdown
also restricted the movement of foods that hampered domestic sales.

Post pandemic growth began to increase as a result of public infrastructure investment and an
upswing in household investments in real estate. The structural shift in GDP growth was further
influenced by increased foreign direct investment and the expanding service sector.
Policy Recommendations:
​
To maintain the steady GDP growth, the government has undertaken several steps, such as the
Industrial Corridor Development Programme, National Single Window System, and other
initiatives. These policies helped boost economic growth, generate employment opportunities,
and make Indian products more competitive in the global market.​

1.​ Attracting Investments:​

Increasing both the quantity and quality of investments through deficit reduction and
infrastructure expansion is essential. Creating a desirable investment climate for foreign
capital boosts GDP, drives job creation and fosters technological advancements.
Diversifying the investments made by the nation helps boost other sectors and makes it
less susceptible to shocks faced by an individual sector.

2.​ Human Capital Development: ​

Increase in the quality of the labour force can only be enhanced by proper education and
training. This helps utilise the demographic dividend that India currently has, more
efficiently. An increase in private and public spending on research and development
R&D, and physical capital stock also helps in the growth of the nation.

3.​ Fiscal policies:​

Implementation of a countercyclical fiscal policy can be used to stimulate aggregate
demand and revive a stagnant economy. This needs to be backed by higher investment
levels as this helps ease supply constraints. An increase in government spending and
reduction in taxes during a recession, followed by decreased government spending and
increased taxes during times of economic growth, helps stabilize the economy. Another
fiscal policy that can be implemented is tax reform and budget management which helps
mobilise resources and ensure long term economic stability and growth.

4.​ Adopting policies: ​

Policies such as Singapore’s SkillsFuture (2015) which aims to stimulate economic
growth by improving skill sets and enhancing productivity, and Brazil’s New Growth
Acceleration Program (2023) which provides financial support to large scale projects
while focusing on public and private partnerships have helped boost productivity of
different sectors in their respective economies, thereby supporting overall economic
growth.​
2. Rate of Unemployment

The rate of unemployment is the percentage of the labor force that is unemployed. India’s
unemployment trends from 2010 to 2023 reflect economic shifts, policy changes, and global
challenges. Early in the decade, unemployment remained stubbornly high despite economic
recovery, while later years saw fluctuations tied to events like demonetization, GST
implementation, and the COVID-19 pandemic. However, targeted government initiatives,
infrastructure growth, and rising digital sectors played key roles in improving employment
conditions.

Figure 2.1: Graphical Representation of India's Unemployment Rate (2010–2023)

Between 2010 and 2013, unemployment remained consistently high, fluctuating between 8.32%
and 8.09%. Although GDP showed signs of recovery, job creation lagged due to slow private
sector hiring and weak absorption of workers into formal sectors. Growth in construction,
textiles, and exports provided some relief, but this wasn’t enough to significantly improve
employment conditions.

However, from 2014 to 2019, unemployment gradually declined from 7.99% to 7.65%. Reforms
like “Make in India” encouraged manufacturing investments, while the growth of startups and
digital services expanded job opportunities in urban areas. However, this progress was slowed by
the economic disruptions caused by demonetization (2016) and GST implementation (2017).

Between 2019 and 2021, unemployment rose and dropped sharply. In 2019-20, rates dropped to
6.51%, largely due to increased public sector hiring, rising investments in infrastructure, and
growth in e-commerce and logistics. However, this improvement was short-lived as the
COVID-19 pandemic in 2020 caused unemployment to spike to 7.86%. ​

Policy Recommendations:

The Indian government has implemented several schemes to lower the unemployment rate. One
such policy is the “Make in India” initiative which boosted manufacturing investments and
created job opportunities across industries. Post-pandemic efforts came in the form of policies
such as Atmanirbhar Bharat provided financial support to businesses, helping to sustain jobs.
Additionally, Digital India promoted IT and e-commerce sector growth. While these policies
have helped improve the employment conditions, further actions need to take place in order to
achieve long-term stability.

1.​ Strengthening the Informal Sector: ​

The informal sector is the primary source of income for unemployed individuals to meet
their basic needs- food, shelter, clothing, household expenses, etc. Providing financial
support, skill training, and incentives for informal businesses to become part of the
formal economy reduces job vulnerability, and helps curb unemployment rates. Since a
large number of individuals residing in rural areas fall under the informal sector, the
government needs to move beyond schemes such as MGNREGA, and promote rural
tourism, handicrafts and industries to create substantial rural jobs, and move them into
the formal sector.

2.​ Target High-Growth Industries:​

Sectors like renewable energy, AI, and cybersecurity offer untapped employment
potential. The government should offer subsidies or grants to encourage private sector
growth in these fields.

3.​ Education-Industry Collaboration:​

Expanding industry partnerships with educational institutions will improve skill
alignment, ensuring students graduate with relevant expertise. Thereby, bridging gaps
between academic and industrial knowledge, which leads a more efficient national
workforce. This includes exposure to industry trends and innovations, real-world
application of academic knowledge, and development of practical skills. This enhances
employability and fosters innovation.
4.​ Promoting Entrepreneurship: ​
Entrepreneurship plays an important role in socio-economic development. As
entrepreneurial training and education and SMEs’ development have a significant
positive relationship with job creation, income generation, and poverty reduction.
Reducing bureaucratic delays, expanding mentorship programs, and supporting startups
in underserved regions boots entrepreneurs and unlock more job opportunities.
3. Rate of Inflation (CPI)

Economists use the term inflation to describe a situation in which the economy’s overall level is
rising. The most widely accepted way to calculate inflation is by using the Consumer Price Index
(CPI) because it reflects the prices of all goods and services bought by consumers. It serves as a
measure of the overall cost of living in an economy and accounts for how much value a currency
loses over time.

Inflation as measured by the CPI reflects the annual percentage change in the cost to the average
consumer of acquiring a basket of goods and services that may be fixed or changed at specified
intervals, such as yearly.

Figure 3.1: India's Consumer Price Inflation (CPI) Trends (2010–2023) in percentages.

Between 2010-2021, the consumer price inflation in India was highest in the year 2010, reaching
11.99%, mainly due to global commodity price surges, supply chain bottlenecks, and high fiscal
deficits (RBI, 2011). A major catalyst was poor agricultural output and supply chain
inefficiencies.

India reported a sharp decline in the inflation rate in 2014 at 6.71%, reaching 3.3% by 2017.
Several factors contributed to this:

●​ International crude oil prices fell significantly from over $100 per barrel in 2014 to
under $40 per barrel in 2016, reducing input costs for businesses and lowering
transportation and energy prices.
 ●​ Demonetization (2016) resulted in a severe cash crunch, reducing the money supply and
limiting consumer spending, leading to short-term deflation.
●​ The introduction of GST (2017) was initially disruptive but helped streamline the tax
structure, improving price stability and minimizing inefficiencies that previously
contributed to high inflation.

Consumer price inflation was by 6.6% in 2020, compared to 3.7% the previous year. In 2020, the
COVID-19 pandemic and lockdown has created disruption in terms of demand and supply.
Higher unemployment has reduced demand for nonessential goods and services, whereas supply
chain constraints have had an upward push on food prices.

According to GlobalData, inflation averaged 4% during 2016–2019. The inflation rate increased
to 6.6% in 2020 amid the pandemic. Reducing excise duties and state-level taxes could provide
relief to consumers, alongside the recent easing of international crude prices.

​
Policy Recommendations:

​
As per the amendments made in the Reserve Bank of India (RBI) Act of 1993, India seeks to
pursue an inflation rate between 4% ± 2%. In order to achieve this, the inflation rates need to be
stabilized. The Finance Act of 2016 seeks to identify price stability as the primary objective of
monetary policy, and to adopt flexible inflation targeting as the nominal anchor for monetary
policy. Along with these policies implementing the following can help stabilize and maintain
inflation levels within desirable amounts.

1.​ Monetary policies:​

Adjusting monetary policy helps the central bank control the money supply in the
economy. This includes revising interest rates and adjusting bank reserve requirements.
●​ When inflation is demand-driven, the RBI should increase interest rates to curb
excessive borrowing and spending.
●​ When inflation is supply-driven, the RBI can sell government bonds to absorb
excess liquidity, reducing inflationary pressure.

2.​ Fiscal Policy Measures:​

These policies can help avoid expansionary economic effects and can influence the
economy by government spending and taxation policies. The government should
prioritize selective and productive spending (infrastructure, technology ,etc.) while
reducing non-essential subsidies. Targeted subsidies (e.g., food) should be implemented
only for vulnerable sections to avoid excess liquidity in the market.
3.​ Tax Reforms:​
In order to maintain inflation levels, the government must make tax reforms that broaden
the tax base, simplify the taxation structure, and reduce tax rates. A broader tax base
improves the efficiency of GST and helps reduce fiscal deficits, which in turn contributes
to long-term inflation control (Ministry of Finance, 2023).
 4.​ Gross Domestic Savings

Savings play a critical role in economic growth, as they determine the availability of capital for
investment and reduce dependence on external borrowings (Mankiw, 2020). Gross domestic
savings represent the share of GDP that is not consumed and is essential for financing
infrastructure, business expansion, and long-term development (Reserve Bank of India, 2022). A
sustained savings rate ensures financial stability and helps mitigate risks during economic
downturns. However, India’s savings rate declined significantly between 2010 and 2019,
fluctuating post-pandemic, requiring a closer examination of causes and policy interventions.

Fig 4.1: Graphical Representation of India's Gross Domestic Savings as a Percentage of GDP
(2010–2023)

India’s gross domestic savings as a percentage of GDP declined from 34.3% in 2010 to 28% in
2019, followed by a dip during the COVID-19 pandemic and a partial recovery to 29.3% by
2023 (RBI, 2023).

2010–2015: The decline was driven by high fiscal deficits, increasing household consumption,
and inflationary pressures that reduced real returns on savings (International Monetary Fund
[IMF], 2015).

2016–2019: The savings rate continued its downward trend due to demonetization (2016),
increased credit dependence, and a slowdown in investment-led growth (Economic Survey of
India, 2019).

2020–2021: The COVID-19 crisis caused a steep fall in savings due to job losses, lower
disposable income, and government dissaving (RBI, 2021).
2022–2023: Savings recovered slightly due to improved fiscal discipline and financialization of
household savings, with increased participation in mutual funds and insurance (Ministry of
Finance, 2023).

Despite the partial rebound, India’s savings rate remains lower than high-growth economies
such as China (~40% of GDP) and lags behind its own peak levels of the mid-2000s (World
Bank, 2023).

Policy Recommendation:

Increasing the amount of savings increases the total investments, which helps in the growth of
the economy and helps raise the amount of capital. The accumulation of capital creates greater
opportunities for production and provides additional income. As countries with higher rates of
savings have had faster economic growth. India must seek to increase the level of savings to
improve the overall health of the economy. In order to do so. The government must implement
policies that incentives savings. This includes offering tax benefits and higher interest rates.
Strengthening the public savings platforms by revamping post office schemes and initiatives
such as the Public Provident Fund by making it easier to access and providing better returns, can
encourage households to save more. Along with these policies, they can also implement the
following to incentivise savings.

1.​ Strengthen Fiscal Discipline to Boost Public Savings ​

Reducing fiscal deficits is crucial for improving national savings. Countries like Germany
and Singapore maintain high savings rates due to controlled public spending (OECD,
2021). India’s fiscal deficit fell from 6.7% in 2020 to 2.3% in 2023, which helped
improve savings (RBI, 2023). A balanced budget approach with higher revenue
mobilization and lower subsidies can further enhance savings.

2.​ Expand Mandatory Pension and Provident Fund Schemes​

Singapore’s Central Provident Fund (CPF) and Malaysia’s Employee Provident
Fund (EPF) have been instrumental in sustaining savings rates above 35% of GDP
(Asian Development Bank [ADB], 2022). India can expand mandatory pension schemes
to informal workers and introduce auto-enrollment features to boost long-term savings.
The National Pension Scheme (NPS) should be incentivized through tax breaks and
employer contributions (Ministry of Finance, 2023).
 3.​ Strengthen Financial Inclusion and Digital Savings Platforms​
Countries like Kenya (M-Pesa) and China (Alipay, WeChat Pay) have successfully
integrated digital banking to improve household savings (World Bank, 2022). India’s
Pradhan Mantri Jan Dhan Yojana (PMJDY) opened 530 million new accounts, but
financial literacy and active savings behavior remain low (RBI, 2022). Expanding
mobile-based savings solutions and rural banking penetration can mobilize unbanked
household savings.

4.​ Introduce Targeted Incentives and Behavioral Nudges​

The UK’s auto-enrollment pension reform increased retirement savings participation
from 42% to 86% within a decade (OECD, 2023). India can adopt tax-free savings
accounts, default savings schemes, and commitment savings plans to encourage
long-term financial discipline. Nudging households to save by matching small
contributions or rewarding regular deposits has proven successful in Mexico and Chile
(IMF, 2023).​
​

CONCLUSION
Between 2010 and 2023, India's macroeconomic environment witnessed levels of sustained
growth interspersed with pockets of instability, necessitating apt strategic interventions for
long-term sustainability. Whilst initiatives such as Make in India, Digital India, Goods and
Services Tax (GST), etc. helped incentivise and boost domestic activities which stimulate the
economy, challenges still remain in job creation, price stability, and financial inclusivity. Further
initiative on the part of the government needs to be made in order to ensure a stable and
productive economy. This can be achieved through monetary and fiscal coordination and
leveraging high-growth sectors that can enhance the labour market and the formation of capital.
India needs to maintain a balanced macroeconomic approach, and focus on reform, fiscal
policies, and sectoral diversification. ​

​
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