Growth Performance of India over the Last 10 Years - Case Study Example

Growth performance of India over the last 10 years India is one of the countries which faced lots of ups and downs in its economical growth, after the year 1947 (that is independence). India has progressed tremendously in all its sectors, including industrial and IT, as also shown spontaneous increase in its GDP from past many years. India has one of the most interesting economic history in the world. Its growth in the last 2-3 decades has been unprecedented. And it has now reached a stage where the world has learned and quickly adapted to the fact that the Indian Economy is here big time. It has arrived. It is a force every other country has to face. “Goldman Sachs in its report predicted that India would become the third largest economy by 2035 based on a predicted growth rate of 5.3 to 6.1%. With 54% of the 1.1billion population in the age group of 15 - 35 years, India has one of the youngest working populations in the world. This percentage is expected to rise to 70% by 2030 - the largest in the world, according to a report titled Destination India- from the Investment Commission of India.” (Hood, 2008). We all know that for more than a century, United States has been one of the largest economy in the world. However past few years showed major development in all fields, and the focus has moved on to Asian countries like India and China which were progressing very fast. According to the experts, share of US in the total world GDP will be falling down from 21% to 18% whereas India will rise from 6% to 11% by the year 2025. India will stand in 3rd position amongst global economy after US and China. The GDP of India raised to 9.0% during the year 2005-06 again to 9.4% in 2006-07. The projection reports say that India will be 60% the size of US economy by the year 2025. And within the next 10 years, India will be overtaking Japan, and becoming the 3rd major economic power in terms of purchasing power. India - a growing economy (Indian Economy Overview, 1999-2008). India: In a nutshell 1. Economic reforms are stable and firm with consensus by all political parties 2. India is the world’s largest democracy for over half a century now. 3. No fundamental conflict between its political and economic systems like many of the developing countries. 4. A free economic enterprise that encourages entrepreneurship and individual thinking under a stable social setup. 5. Time tested institutions that offer foreign investors a transparent environment. 6. A free press that’s enjoying a vibrant, tolerant environment. 7. A judiciary which has the authority to and does overrule the government 8. World class legal and accounting system 9. A user friendly intellectual infrastructure. 10. A dynamic and competitive private sector which accounts for over 75% of its Gross Domestic Produce. Today, India is one of the most exciting emerging markets in the world. Skilled managerial and technical manpower that match the best available in the world and a middle class whose size exceeds the population of the USA or the European Union, provide India with a distinct cutting edge in global competition. Economy of India Though India is 7th largest country in the world by in terms of land area, it’s the 2nd largest when measured by population and arable land. It is the 10th largest in the world, when measured in USD exchange-rate terms, with a GDP of over crossed US $1.0 trillion (2007). When measured by Purchasing Power Parity (PPP) it ranks as high as 3rd in the world. With the rate of growth of around 8% to 9% consistently over the past 5years India is on the way to become the 3rd largest economy all the way from the 10th largest position by 2025 the first and second being US and China respectively. (Butalia, 2008). After India’s independence in 1947 till about the end of 1980’s India grew at pace that was what economists would call a “normal rate” for such a huge country with a massive part of its population below poverty level. India seemed destined never to grow out of the 3.5% that it had managed for about 4 decades. Low growth led to low savings and low capital deployment led to low growth which was like a vicious circle India was in. It all started in 1990 when circumstances forced the government to begin the process of reforms in its fiscal policies. It made slow progress initially with protests of opposition parties and strong trade union lobbies working against it. But progress it did, and now after more than 15 years, India is the second fastest growing major economy in the world in terms of growth. India’s GDP grew at a world high of 9.4% for the fiscal year 2006–2007. There is increasing awareness and agreement among the world economic community that India and China will have the worlds leading economies of the 21st Century, replacing the US and Europe which has been the leading force for the last 50 years. Let’s now see some of the factors that show how India has grown since 1990 Table 1: Indian Rates of Economic Growth Period 1950-1980 1980-1990 1990-2000 2001- 2007 Annual Real GDP Growth 3.7% 5.9% 6.2% 8% Annual Real GDP per Capita Growth 1.5% 3.8% 4.4% 7% Source: IMF (DeLong, 2001). The growth indicators 1. The average growth of the economy since 1990 is a healthy 6%. 2. Poverty has decreased by 10% 3. Industry has turned around from being a state monopoly to a vibrant happening one with private sector participation in almost all the sectors. 4. From what was before a “License Raj” ( the rule of licenses), India has improved by abolishing industrial and import/export licenses 5. Duties, which were as high as 400% prior to 1990 have been rationalized to international levels. As a result, India’s growth rate for the last 5 years has averaged at a whopping 8.5% . What makes this interesting reading is the fact that India was almost written off as poor country with no real prospects for exponential growth. In terms of Foreign direct investment (FDI) the growth has been astounding. In 1990 when the reforms began FDI stood at 200m per annum. In 2007, the first 10 months itself shows a FDI of in excess of $15.7 billion. Foreign exchange reserves have climbed rapidly from USD 40 billion in March 2001 to 290 billion now. The latest figures declared by the Reserve Bank of India, shows the country’s foreign exchange reserves at $290.8 billion for the first week of February 2008, up 57% the same time last year. Just a decade and a half ago the figure stood close to zero level. Composition of GDP The sector wise composition of India’s GDP has been changing which is natural for a growing economy. However Agriculture GDP has declined from 85% to almost 20% levels. Services sector which was not in the picture at any significant levels now account for more than 50%. The major part of the services sector has been the Indian software exports explosion. The Indian software industry has achieved international recognition for its quality in software development and has caught the imagination of the world. Indias software and services exports have been rising rapidly, which today makes 20% of total export revenue for India, which was only 5% in year 1997. IT-enabled services, Business Process Outsourcing ( BPO) and other administrative support operations are together predicted to grow at 25% pa for the foreseeable future. “The middle class constitutes some 250 million people and their purchasing power is growing. This is also the fastest growing segment among the economic classes. Rural consumption patterns too are changing with growing exposure”. India’s principal industries are that of “textiles, chemicals, food processing, steel, transportation equipment, cement, mining and petroleum and the main agricultural crops are - rice wheat, oilseeds, cotton, jute, tea, sugarcane, potatoes and livestock” India is supposed to be one of the largest tea producer in the world. The Gross Domestic Savings of the country are as much as 32% of the GDP, and can even grow higher if the public sector are improved. Population India is considered to be second most populated country in the world, and the population growth can be controlled only by better education and improved standards of living, in the country 70% of the population still dwells in rural areas and receive less attention from the Government, and the matter has to be looked into seriously. Savings The economy traditionally enjoys a high savings rate primarily because of the contribution of the household sector. Gross Domestic Savings are a high 32 per cent of GDP. This can go up if public sector savings are pushed up. The process of privatization and reforms that has been launched for the public sector should facilitate the savings rate. Household financial saving approximates 10% of GDP. Poverty In can be argued that the reduction of poverty has not kept in tune with India’s all round development. Official figures estimate that the poverty ratio has reduced considerably in the last 10 years. But since it is so widespread it will take a lot of special efforts and fund mobilization to combat poverty more efficiently. A recent estimate shows about one - fourth of the population i.e 250 million people below the poverty line. Percentage wise its still considerable improvement but the growing population keeps the number alarmingly high. It is notable that about 10% of the population has risen above the poverty line in the past decade. Inflation With increased stability and diversification of the economy, post- reforms, the rate of inflation has drastically come down to around 4%. Telecommunication Tele-density is one factor that has shown tremendously improvement in the past decade. The introduction of internet and cellular phones has set revolution taking place in these segments. It was just 10 years ago that cell phones were launched in the country. At that time Tele density was 66 per 1000. This has more than doubled to 15% in 2007 and expected to reach 18% in 2009. The mobile handset has now become the highest selling consumer good in India. The top slot was occupied by bicycle hitherto. Areas of Concern Long neglected, the infrastructure sector needs to be the focus of attention. The Government has entrusted the national highways authority the job of developing expressways and four-lane highways. A grand expressway from Mumbai to Pune is the first of these to go on stream. The Govt. is working on a National Highway project of Rs.170,000 crore. The deadline for widening of 50,000 km of road and constructing 1000 kms. of expressways is 5 years. All major cities, state capitals, ports and strategically important centres are expected to be connected through this network. The economic stimulus expected from the backward and forward linkages is expected to be huge. The Government of India played an important role in development of India during all these years, and today also continues to play a lead role in infrastructure development, which is an important factor for development. In the growing economy, infrastructure constraints have to be taken care of, which can effect the overall performance. Here the Indian Government has allowed the private sector to enter into this sector changing the legal framework. “The Economic Survey 2007-08 tabled in Parliament today, states that accompanying the recent moderation in industrial growth, the growth performance of some segments of the infrastructure such as power generation and movement of railway freight and also the production of universal intermediates like steel, cement and petroleum have shown a subdued performance during April-December 2007-08 as compared to the corresponding period last year.” (Lead Role of Government for Infrastructure Development to Continue, 2008). PIB, Government of India, Feb-2008. http://pib.nic.in/release/release.asp?relid=35708 Works Cited Hood, Nadeem. India Chalo - An Anecdotal Look at the Indian Economy. Chowk. 4 Feb. 2008. 04 Mar. 2008 . Indian Economy Overview. Economy Watch. 1999-2008. 04 Mar. 2008 . Butalia, Rajiv. Passage to India. Economy. India Travelogue. Feb. 2008. 04 Mar. 2008. . DeLong, J. Bradford. Abstract. Jul. 2001. 04 Mar. 2008. . Lead Role of Government for Infrastructure Development to Continue. PIB, Government of India, 28 Feb. 2008. 04 Mar. 2008. . Read More