Major Challenges Before Indian Economy

Custom Student Mr. Teacher ENG 1001-04 1 October 2016

Major Challenges Before Indian Economy

This report has been an honest and dedicated attempt to make the analysis on marketing material as authentic as it could. And I earnestly hope that it provides useful and workable information and knowledge to any person reading it. During this period, I had the pleasure of working closely with accomplished organization people who shared with me their experience and helped me in completion of my research. I express my sincere thanks to my project guide Mr. Pranav Nagpurkar Lastly I am grateful to my parents who been my mentors and motivators.

I am also thankful to all my batch mates who have been directly or indirectly involved in successful completion of this project. Indian economy is the tenth largest economy in the world by nominal GDP and third largest by purchasing power. India is one of the G-20 major economies and member of BRICS. According to IMF India ranked 134th by nominal GDP on the basis of per capita income in 2012. Its GDP is about $1. 824 trillion and per capita income is about $1491. Its GDP contribution by sector wise is agriculture 17. %, industry 26. 4% and services 56. 4% in 2011. Its population is about 1. 2 billion and labour force is 498. 4 million in 2012. Labour force by occupation: agriculture 52%, industry 14% and services 34%. Unemployement rate in India is 9. 9%. Its investment is about 30% of GDP. Revenue of India is $171. 5 billion and expenditure over $281 billion. It has deficit budget of 5. 6% of the GDP. Main industries are textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, and pharmaceuticals.

Its export is about 309. 1 billion and import is about 500. 3 billion. The independence-era Indian economy (from 1947 to 1991) was based on a mixed economy combining features of capitalism and socialism, resulting in an inward-looking, interventionist policies and import-substituting economy that failed to take advantage of the post-war expansion of trade. This model contributed to widespread inefficiencies and corruption, and the failings of this system were due largely to its poor implementation.

In 1991, India adopted liberal and free-market oriented principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P. V. Narasimha Rao the then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control on setting up new industry. By 2008, India had established itself as one of the world’s fastest growing economies. Growth significantly slowed to 6. % in 2008–09, but subsequently recovered to 7. 4% in 2009–10, while the fiscal deficit rose from 5. 9% to a high 6. 5% during the same period. India’s current account deficit urged to 4. 1% of GDP during Q2 FY11 against 3. 2% the previous quarter. India’s public debt stood at 68. 05% of GDP which is highest among the emerging economies. However, inflation remains stubbornly high with 7. 55% in August 2012, the highest amotrade (counting exports and imports) stands at $ 606. 7 billion and is currently the 9th largest in the world.

During 2011–12, India’s foreign trade grew by an impressive 30. 6% to reach $ 792. 3 billion (Exports-38. 33% & Imports-61. 67%). India has the world’s third largest road network, covering more than 4. 3 million kilometers and carrying 60% of freight and 87% of passenger traffic. Indian Railways is the fourth largest rail network in the world, with a track length of 114,500 kilometers. India has 13 major ports, handling a cargo volume of 850 million tonnes in 2010. India has a national teledensity rate of 74. 15% with 926. 3 million telephone subscribers, two-thirds of them in urban areas. But Internet use is rare, with around 13. 3 million broadband lines in India in December 2011. However, this is growing and is expected to boom following the expansion of 3G. * India’s current account deficit- The deficit has increased to a record 5. 6 percent of GDP in 2011-12, far above what the Reserve Bank of India considers to be a sustainable level, namely 2. 5 percent of GDP.

The key reason for the large current account deficit is the trade deficit increasing due to India’s relatively poor competitiveness and high dependence on oil and gold imports, which alone account for virtually half of total imports. Boosting merchandise exports through greater diversification across destinations and products are essential to bridge the trade deficit but this cannot be achieved without boosting labour productivity and enhancing transportation infrastructure, especially ports. With regards to gold, dematerialization, and introduction of inflation linked bonds would help reduce its physical imports of gold.

Meanwhile, for oil, achieving greater energy efficiency, aligning domestic oil prices to international ones are a key or to find out different alternative/ substitute for it. * Qualitative and quantitative fiscal consolidation: Together with the current account deficit, the stubbornly high fiscal deficit (5. 8 percent of GDP in 2011-12) makes the Indian economy more vulnerable to shocks than most emerging markets. India’s twin deficits have adversely affected macro stability by pushing up inflation, undermining growth and leaving limited room for monetary accommodation.

India’s fiscal policy has been too loose for too long. The government must focus on quality spending by channeling resources towards infrastructure and human capital investments while reducing unproductive spending, particularly on food, fertilizer and fuel subsidies. Furthermore, the government must implement revenue enhancing reforms by making the tax system more efficient and improving compliance. * Lowering high and sticky inflation- India’s persistently high inflation is fallout of myriad factors that are both cyclical and structural in nature.

These include supply side bottlenecks, very high reliance on imported energy and lax fiscal policy. While a loose fiscal policy has boosted aggregate demand, particularly across rural areas, an enabling environment to enhance supply response is missing, thus aggravating inflation pressures. Containing inflation near the RBI’s comfort zone of 4 to 5 percent is crucial to facilitate sustainable growth. * Rebalancing the growth mix in favor of investment: India’s GDP growth is mainly consumption driven in good part due to consumption subsidies.

Eliminating such subsidies will, thus, actually have three positive outcomes: reducing the fiscal deficit as well as excessive consumption which should also help reignite a virtuous savings investment cycle. In fact, since the global financial crisis of 2008-09, India’s savings rate has declined (to near 29 percent from a peak of 37 percent in 2009) amid high inflation and fiscal slippages. Given that India’s investment upturn during the golden years between 2004-2008 was largely financed by domestic savings, a revival in India’s domestic savings is critical for aiding a sustainable upturn in investment.

In this regard, the Indian government needs to improve further on reforms execution and policy clarity so as to underpin foreign investor confidence. * Manufacturing sector- Being a primarily services driven economy, the share of manufacturing has been stagnant at a mere 16 percent of total GDP. India’s Asian peers, such as China, South Korea and Taiwan, have immensely benefited from a strong manufacturing sector, which enables greater employment creation, attracts higher and stable foreign direct investment and bolsters infrastructure development.

However, bottlenecks in land acquisition, archaic labor laws, poor physical infrastructure, less favorable tax rules and tight regulations deter manufacturing sector growth in India. Reassuringly, the Indian government has approved a national manufacturing policy aimed to increase the manufacturing’s share in GDP from the current 16 to 22 percent in a decade and in turn create millions of jobs and add capacity to sustain the pace of economic growth. That said, effective implementation of such policy drive will clearly prove difficult given past records.

Population- India’s population is about 1. 2 billion in 2012 which is a major challenge for the economy of India. For the developing countries like India, population explosion is a curse and is damaging to the development of the country and it’s society. The developing countries already facing a lack in their resources, and with the rapidly increasing population, the resources available per person are reduced further, leading to increased poverty, lack of food, malnutrition, and other large population-related problems.

The literal meaning of population is “the whole number of people or inhabitants in a country or region” , and the literal meaning of population explosion is “a pyramiding of numbers of a biological population”. As the number of people in a pyramid increases, so do the problems related to the increased population. The main factors affecting the population change are the birth rate, death rate and migration. The birth rate is the ratio between births and individuals in a specified population and time. The death rate is the ratio between the number of deaths and individuals in a specified population and time.

Migration is the number of people moving in (immigration) or out (emigration) of a country, place or locality. Immigration from the neighboring countries of Bangladesh and Nepal is also one of the causes of increasing population in India. The Population density (people per sq. km) in India was last reported at 411. 89 in 2010, according to a World Bank report published in 2012 which is very high. Measures to overcome from it. For limiting the population increase and we have to spend money on controlling the birth rate.

Some of the programs have been successful, and the rate of increase has also reduced, but has still to reach the sustainable rate. The major factors affecting the population increase of India are the rapidly increasing birth rate and decreasing death rates. We can follow strict birth control measures like China to decrease the birth rate, but we cannot go and decrease our technological advancements to decrease the death rate. Thus, our main emphasis falls on decreasing the birth rate. Several government-funded agencies like the Family Planning Association of India spend hundreds of thousands of dollars on promoting family planning.

These organizations aim to promote family planning as a basic human right and the norm of a two-child family on a voluntary basis, to achieve a balance between the population size and resources, to prepare young people for responsible attitudes in human sexuality, and to provide education and services to all. The family planning methods provided by the family planning program are vasectomy, tubectomy, IUD, conventional contraceptives(that is condoms, diaphragms, jelly/cream tubes, foam tables) and oral pills.

In addition, induced abortion is available, free of charge, in institutions recognized by the government for this purpose. However, the success of the family planning program in India depends on several factors like literacy, religion and the region where the couple live. * Poverty- It is a situation in which a person is unable to get minimum basic necessities of life, i. e.. food, clothing and shelter for his or her living. In economic terms they are called poverty ridden and are people living below poverty line (BPL).

MASS POVERTY: When a large section of the people in an economy is deprived of the basic necessities, that economy is said to be in mass poverty. Since it is the responsibility of the state to remove poverty, it has to take certain steps. -Developing an appropriate mechanism to identify the poverty – ridden people. -Estimate the total number of poverty-ridden persons with the help of that mechanism. In the first approach, expenditure incurred by a family on various items is used. In the second, the income earned by a family is used.


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  • Date: 1 October 2016

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