Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (Answer in 150 words)

Potential GDP is the maximum sustainable output an economy can produce when labour and capital are efficiently employed without generating destabilising inflation.

• Size and quality of the labour force, labour-force participation and human capital.
• Physical capital formation, infrastructure and access to finance.
• Total factor productivity, technology, innovation and managerial efficiency.
• Institutional quality, macroeconomic stability and ease of doing business.

• Low female labour-force participation, skill mismatches and inadequate health and education outcomes.
• Insufficient private investment, stressed banking assets and limited long-term infrastructure finance.
• Land, labour and regulatory rigidities, delayed contracts and policy uncertainty.
• Low agricultural productivity, logistics bottlenecks and informality.
• Weak research intensity and uneven digital and physical connectivity.

India must raise productivity through human-capital investment, predictable regulation, competitive markets, urbanisation, formalisation, export integration and efficient public investment. Stable inflation and stronger financial intermediation are essential for converting savings into productive capital.

Keywords: sustainable output, output gap, total factor productivity, human capital, capital deepening, structural reforms.