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Strengths of Indian Economy

After several decades of sluggish growth, the Indian economy is now amongst the fastest growing economy in the world. Economic growth is currently 8-9%, second only to China.

Despite several problems facing the Indian economy many economists point to potential strengths of the Indian economy which could enable it to continue to benefit from high levels of economic growth in the future. 1. Demographics of India are favourable. India still has a positive birth rate meaning that the size of the workforce will continue to grow for the foreseeable future. (unlike India) A rising workforce helps to increase saving and investment. It also enables increased productivity. 2. There is much scope for increases in efficiency. The infrastructure of India is so bad in places that even moderate improvements could lead to significant improvements in the productive capacity of the economy. 3. India is well placed to benefit from globalisation and outsourcing. A legacy of the British Empire is that India has one of the largest English speaking populations in the world. For labour intensive industries like call centres India is an obvious target for outsourcing. This is an economic development likely to continue in the future. 4. Positive Growth Forecasts A recent study from Goldman Sachs, forecast that India could growth at a sustainable rate of 8% growth until 2020.However it is worth noting that this assumed Indian would make several supply side policies such as labour market deregulation and improvements in education and training. See also:

Problems facing Indian Economy State of Indian Economy 2007

References

Indian on Fire at Economist

Problems Facing Indian Economy

1. Inflation. Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 6-7%. A record 98% of Indian firms report operating close to full capacity (2)With economic growth of 9.2% per annum inflationary pressures are likely to increase, especially with supply side constraints such as infrastructure. The wholesaleprice index (WPI), rose to an annualised 6.6% in Janu 2007 (1) 2. Poor educational standards. Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate 3. Poor Infrastructure. Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiencys facing the Indian economy. 4. Balance of Payments deterioration. Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months. This deterioration is a result of the overheating of the economy. Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports. Excluding workers remittances Indias current account deficit is approaching 5% of GDP

5. High levels of debt. Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property

prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased. It is hoped that economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of Indias rural poor are yet to receive any tangible benefit from the Indias economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3)

7. Large Budget Deficit. India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.

8. Rigid labour Laws. As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws. See also:

An overview of Indian Economy


The Indian Economy is among the largest economies of the world ranking ninth position in terms of GDP and ranking fourth in terms of PPP. India is part of the BRICS and of the G-20 nations, moreover, to being participants of the ASEAN. In India, the per capita GDP was $3,408 in 2010, turning it a low-income group countries. The Indian economy in the pre independence era (before August, 1947) was following the economic policy of the Soviet Union having socialist practices, high import duties, large public sectors and less private participation typifying it, contributing to huge inefficiencies and rampant corruption. However, on the later part, India implemented principles of free market and liberalized its economic policies to global trade under the leadership of Manmohan Singh, the then Finance Minister of Indian under the guidance of the then Prime Minister P.V.Narashha Rao. After these strong measures of economic reforms, the economic growth of India accelerated at a quick pace achieving high growth rates and huge enhancement in the incomes of inhabitants. India recorded the biggest ever growth rates in 2000s, and turned into one of the quickestgrowing economies in the global front. The growth was visible mainly owing to a massive in the population size of the middle class consumer, a huge workforce consisting of non-skilled and skilled workers, considerable foreign investments and better education standards. India is the eleventh largest importer and seventeenth largest exporter in the world. Projected economic growth rates for India during the financial year 2011-12 is about 7.5% to 8% Policies of social democratic kind governed India for some period after Independence of India from the rule of British. Then Indian economy was characterized by protectionism, extensive regulation, slow growth rate, public ownership and pervasive corruption. After 1991, adaptation of economic liberalization has helped moving the country into a market-based economy. A revival of better economic policy and economic reform in the first decade of twenty-first century gathered momentum in economic growth rate of India. Lately, Indian cities have been undergoing liberalize business regulations. India had been able to establish itself as the secondfastest growing economy of the world, by 2008. However, owing to financial crisis during the year from 2007 to 2010, along with insufficient monsoon, GDP of India slowed down to 6.7% in the year 2008-2009, however, recovered subsequently to 7.4% in the year 2009-10, whilst the fiscal deficit increased from 5.9% to 6.5% at the same time. Current account deficit of India rose to 4.1% of Gross Domestic Product during second quarter of financial year 2011 compared to 3.2% in the last quarter.

Indian Economy Overview


Last Updated: May 2012

India is projected to see a faster growth of 7.5 per cent this fiscal, on the back of higher savings and investment rates, even as most of the Asia-Pacific economies are likely to expand at a slower pace, as per a United Nations (UN) report. "We expect it to expand by about 7.5 per cent in 2012-13," said Nagesh Kumar, Chief Economist, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). "Today India is among the most attractive destinations globally, for investments and business and FDI had increased over the last few years," according to Ms Pratibha Patil, President of India. The Indian economy has continuously recorded high growth rates and become an attractive destination for investments, highlighted Ms Patil. Meanwhile, India continued its ascent as a top destination for private clean energy investment, according to a research report released by The Pew Charitable Trusts. "Clean energy investment, excluding research and development, has grown by 600 per cent since 2004," according to Phyllis Cuttino, Director, Pew's Clean Energy Program. India's clean energy sector continued to flourish in 2011, with private investment increasing 54 per cent to US$ 10.2 billion, placing the country at sixth position among the G-20 nations. This was the second highest growth rate among the G-20 nations. The World Economic Forum (WEF) plans to establish permanent physical presence in India by setting up an office in the next twelve months. "Today, India is amongst the most important G-20 economies and this underscores Forum's commitment to the country as a partner," according to Mr Sushant Palakurthi Rao, Senior Director, WEF.
The Economic Scenario

Tata Consultancy Services (TCS) has been named as the world's fourth most valuable information technology (IT) services brand by leading global brand valuation company, Brand Finance. "With a strong brand strategy and a refined sponsorship portfolio, TCS has been able to improve both brand awareness and its profile globally," as per David Haigh, Chief Executive Officer and Founder, Brand Finance The Union Ministry of Science and Technology has selected three consortia that will receive a grant of Rs 125 crore (US$ 23.58 million) from the Centre. The funding will be over five years, under the Indo-US Joint Clean Energy Research and Development Centre. The Joint Clean Energy is part of the US-India Partnership to Advance Clean Energy, announced by the Indian Prime Minister, Dr Manmohan Singh, and the US President, Mr Barack Obama, in November 2011, which aims to accelerate the transition to high performing, low emissions, and energy secure economies Non-resident Indians (NRIs) deposited US$ 11 billion into bank deposits during 2011-12, three times more than in the previous year, according to data released by the Reserve Bank of India (RBI). The highest accretion was in the non-resident (external) rupee account, at US$ 7.46 billion, against an outflow of US$ 280 million in 2010-11 The Government of India has approved 14 Foreign Direct Investment (FDI) proposals amounting to US$ 288.05 million, based on the recommendations of Foreign Investment Promotion Board (FIPB)

India's foreign exchange (Forex) reserves increased by US$ 1.4 billion in the week ended April 20, 2012, according to data released by the RBI. The reserves have increased US$ 205 million since the start of this financial year FDI inflows worth US$ 341.49 million were recorded in the drugs and pharmaceuticals sector between April 2009 to February 2012. At present, the Government of India allows 100 per cent FDI for both greenfield and existing projects in the sector, according to Mr Jyotiraditya Scindia, Minister of State for Commerce and Industry India is the global leader in the IT-business process outsourcing (BPO) industry with half of the world's back office being located here. Indian outsourcing revenue at US$ 59 billion for 2011, accounts for 51 per cent of the global offshore market share, as per a report by Tholons Research. The total direct employment by Indian IT-BPO sector (as of 2011) was 1.98 million and indirect employment was 7.5 million

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