: Key factors for India's rapid economic growth in the recent years

: : 2510

Table of contents

1.0 1.1 2.0 2.1 2.2 3.0 4.0 5.0

India Growth now and then Pre Reform India The start of growth Key Reforms Results Criticism of the reform policies The next step Conclusion

1.0 India Growth now and then

Comparing the 20th-century in India to 21st-century in India, we can argue to a large extent about India rising rapidly in the global market. The GDP has been growing from 3,5 percent since the 1980s to 8 percent in 2002.

Rising GDP growth

% average annual GDP growth

1900 1950 1980 2002

1950 1980 2002 2006

1.0 3.5 6.0 8.0

Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 19902000:Census of India (2001), 2000-2005 Finance Ministry

1.1 Pre-Reform India

At independence, India copied the Soviet model, and tried to fit the Soviet model into the so called Five years plan of India The government would control the higher commanding seats directly, while the private sector would be regulated strictly Before 1991 and before reforms everything was regulated: imports, labor markets, even investment : Import tariffs were as much as 400% Firms had to get government permission to lay off workers they had to get permission to expand capacity This policy killed competition and spawned corruption

At 1991, this economic model was bankrupt by an economic view and in a more theoretical view Philosophically, because it didnt meet its goals, because the Chinese had abandoned the system, and the Soviet Union had collapsed From an economic view, because the country ran out of foreign exchange reserves, forcing it to turn to the IMF for funds

To summarize, the major problems for Indias economy were; Monopolistic practices in public utilities Complex tax regime with high rates and High tariff on Imports High fiscal deficits and Public Debt Over control, regulation, licensing and high taxes and duties resulted in : Low efficiency and productivity High transactions cost Low quality but high prices of products and corruption

2.0 Start of growth

The start of growth in India during the 1990s was made possible by a set of free market reform agendas. From 1991 and on a set of key reforms has been introduced and the organizing principle has been straightforward and followed a general guideline with the basic concept being: The private sector should be freed from government controls. Investment licensing was abandoned. Most foreign exchange restrictions were gradually abandoned

2.1 Key Reforms

Opened economy to trade and investment Dismantled controls Lowered tariffs Dropped tax rates Broke public sector monopolies

Key reforms

Domestic consumption: 6.3% of the consumption factors have been used by the country to boost its current economic uses. One of the important factors for the growth of an economy is domestic consumption. Today, its consumer demand ranks 12th in the world and by 2025, it is expected to be within the top five. Mining: 79 different minerals that are exported all over the world Investment boost: real property investments, an average increase of 17 % per year for the last five years. Services : The primary reason for the growth of this service sector is the large English speaking population of the country. This has led to more employment opportunities for young people and has also boosted awareness about education among the rural masses.

2.2 Results

Total foreign investment grew from a minor US$132 million in 199192 to $5.3 billion in 199596. India Cities became centers of rising industries and attracted foreign investment and firms. The liberalization reform strategy results reached their peak in 2007, when India recorded its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China. Factory manufacturing industries of India is considered as the 14th top producer in the world Employment rates , in the country are growing, so does the demand for the professionals and higher education

Criticism of the reform policies

There is low agriculture growth , low quality employment growth, low human development, gender and social inequalities and regional disparities Indias infrastructure is creaking Electricity, more than half of households dont have any Water supply is insufficient A study of 188 government run primary schools found that 59% of the schools had no drinking water and 89% had no toilets. Poverty remain widespread per capital 260 million live on less than $1 a day Increasing Gap between the lower and upper classes

India needs to be more efficient Corruption is still high In the World Bank Governance Indicators, India ranks 108 the of 205 countries on "control of corruption". Political Corruption Judicial Corruption Corruption in the Police

In 2003, on any given day, only about half of school teachers were actually teaching in their classrooms. In the same study, an average 40 percent of health workers were absent.

Employment growth has not improved in the post reform period (1993-94 to 2004-05) as compared to pre-reform period (1983 to 1993-94) Quality of employment is a concern health indicators have not improved much High education percentage in the population is low in india (11% in India, world average 25%) National education budget 2011-12 , was 10.56 billion $ 25% Population Is Still Illiterate 15% of Indian students reach High school

4 The next step

Sustaining rapid growth will require further reforms in a more social way, neoliberal policies where the trigger but in order to maintain the positive outcome a more social economic approve is needed Goals has to meet in a matter of key sectors such as Infrastructure Education Government

Employment (both quantity and quality) should be the focus of inclusive approach. Skill improvement and youth employment need to be the focus areas. Otherwise you can not shift people from agriculture to non-farm sector. Focus on small and farmers, lagging regions, women. Equality of opportunity is important. Even if we do not follow equitable distribution of assets, everyone should get equal opportunity for better education and health. Social inequality has to be reduced.

The Growing Middle Class Their earnings fall roughly between $15,000 and $22,000 per year. Middle class that is likely to account for 40% of the population by 2025. The Growing Younger Generation Youth power of India Average Age by 2050: 29 Years At a time when Japan and Chinas populations are growing old, the majority of Indias population is under 25 years old. It is predicted that India will contribute as much as one-quarter of the worlds workforce over the next half decade.

4. Middle class is growing

% Million People

1980

65

2000
2010

22
32

220
368

Source: The Consuming Class, National Council of Applied Economic Research, 2002

5.0 Conclusion

Establishing property rights, creating a free market, and removing the burden of regulation do not guarantee growth acceleration. In the long run, human capital, physical capital and technology are the permanent sources of growth