What Is India News Service
Tuesday, November 20, 2007


   Indian Economy & Economic Issues


Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century.  For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants - India and China.

The rich countries of Europe have seen the greatest decline in global GDP share by 4.9 percentage points, followed by the US and Japan with a decline of about 1 percentage point each.  Within Asia, the rising share of China and India has more than made up the declining global share of Japan since 1990.  During the seventies and the eighties, ASEAN countries and during the eighties South Korea, along with China and India, contributed to the rising share of Asia in world GDP. 

India is slated to become the third largest economy with a share of 14.3 per cent of global economy by 2015 and graduate to become the "third pole" and growth driver by 2035.

As the share of USA in World GDP falls from 21 to 18 per cent and that of India rises from 6 to 11 per cent in 2025, the latter emerges as third pole in the global economy, according to ADB India Economic Bulletin.

India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.

A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %.  Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record.  Many factors are behind this robust performance of the Indian economy in 2004-05.  High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy.  Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices.  There is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon.  This can be achieved by bringing more area under irrigation and by better water management.

In spite of measures taken to attract Foreign Direct Investment (FDI), the inflow was below expectations in the last five years.  A significant achievement of the economy in the external sector has been the steady and sustained improvement in the balance of payment position.  Another notable development was the decline in the inflation rate during the five years.  

Value-Added Tax (VAT), one of the most radical reforms to be proposed for the Indian economy, has been approved by 21 Indian States.  Over 120 countries worldwide have introduced VAT over the past three decades and India is amongst the last few to introduce it.

The Government has set up several committees with a view to pursue economic reforms that enable higher economic growth and generate more employment, while making the Indian economy more globally competitive. The Government has also taken several steps to revitalize the public sector and increase public investment. Two important institutional innovations have been the creation of the National Committee on Infrastructure, chaired by the Prime Minister, and the Investment Commission, chaired by Shri Ratan Tata. 

The economy is expected to grow at close to 7 per cent. To step up the rate of growth further, requires more investment in infrastructure and in agriculture and an improvement in government finances.

High-energy costs continue to exert pressure on the price front.  While work on the national highways project has been speeded up, port and rail modernization has acquired a much higher profile recently.  Public and private investment in both areas has been stepped up sharply.  A financial Special Purpose Vehicle has been created to channelize funds for investment in the infrastructure sector.

Economic reforms began in earnest only in July 1991.  The reforms of the last 10 years have gone a long way toward freeing up the domestic economy from state control.  Progress has also been made in many areas that were previously off limits to reforms.  Insurance has been opened to private investors, both domestic and foreign.  Diesel oil and gas prices have undergone some increases.  At least symbolic reductions have also been made in fertilizer and food subsidies.  The value-added tax has undergone substantial rationalization.  These reforms have paid handsomely.  The economy has grown at more than 6 percent coupled with full macroeconomic stability. 

Economic reforms of the last decade have virtually bypassed agriculture.  Besides fertilizers among others, farmers need adequate supply of water and electricity.  Financial sector reforms, particularly the reform of banking, remain a distant goal.

While foreign banks are now allowed freely to open branches in India, they have not yet moved in aggressively.  Banking sector privatization will take time but large efficiency gains could be achieved if labor laws are reformed to restore the hire and fire policy.

The most important area of reforms is perhaps India’s power sector.  Virtually no sector of the economy — industry, agriculture, or services — can achieve successful transformation without adequate supply of power.  Infrastructure is another important area of reforms.  Roads, railways, and ports all need expansion as well as improvement in the quality of service.  Fertilizer and food subsidies pose yet another challenge.  As much as 0.7 percent of GDP goes into fertilizer subsidies.  Finally, the reform of bureaucracy is essential.  The problem of a bloated bureaucracy and the need for downsizing it is well recognized.  Moreover, the success of the reforms in delivering growth and poverty reduction must make the road to future reforms less bumpy.

In India for almost four decades the country was pursuing a path of development in which public sector was expected to be the engine of growth.  However, the public sector had overgrown itself and their shortcomings started manifesting in the shape of low capacity utilization and low efficiency due to over manning and poor work ethics, over capitalization due to substantial time and cost overruns, inability to innovate, take quick and timely decisions, large interference in decision making process etc.

The Government started to deregulate the areas of its operation and subsequently, the disinvestment in Public Sector Enterprises (PSEs) was announced.  The process of deregulation was aimed at enlarging competition and allowing new firms to enter the markets.  The market was thus opened up to domestic entrepreneurs / industrialists and norms for entry of foreign capital were liberalized.

Due to the current revenue expenditure on items such as interest payments, wages and salaries of Government employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure. While the Government would like to spend on basic education, primary health and family welfare, large amount of resources are blocked in several non-strategic sectors such as hotels, trading companies, consultancy companies, textile companies, chemical and pharmaceuticals companies, consumer goods companies etc.  Additionally, the continued existence of the PSEs is forcing the Government to commit further resources for the sustenance of many non-viable PSEs.  The Government continues to expose the taxpayers' money to risk, which it can readily avoid.  To top it all, there is a huge amount of debt overhang, which needs to be serviced and reduced before money is available to invest in infrastructure.  All this makes disinvestment of the Government stake in the PSEs absolutely imperative.


Contemporary Issues

Balco Disinvestment
Bonded Labor
Child Labor
Foreign Direct Investment
Illegal Immigration
Intellectual Property Rights
Labor Issues
Population-related Issues
Terrorism from Pakistan
Water Management

General Issues

Economic Reforms
Foreign Affairs
Indo-Russian Relations
Indo-Sino Relations
Indo-US Relations
Jute Industry
Non Resident Indians (NRIs)
Nuclear Power
Power & Electricity Generation
Science & Technology
Space Technology
Sustainable Development
Tourism in India
Transportation in India

Major Companies

Air India
Bharti Group of Companies
Canara Bank
Gas Authority of India Ltd. (GAIL)
Hero Honda Motors
Hindustan Aeronautics Ltd.
Hindustan Lever Ltd.
Infosys Technologies
Jet Airways
Oil & Natural Gas Corp. (ONGC)
Reliance Group
Satyam Computer Services Ltd.
State Bank of India (SBI)
Tata Group
Unit Trust of India (UTI)
Videocon International Ltd.
Wipro Group


Indian Railways
Securities Exchange Board of India (SEBI)


Andhra Pradesh
New Delhi
Tamil Nadu
Uttar Pradesh
West Bengal

Home Page  

Archives | Links | Search
About Us | Feedback | Guestbook

© 2007 Copyright What Is India Publishers (P) Ltd. All Rights Reserved.