News Highlight
India represents one-sixth of the world and is today the world’s third-largest economy in terms of purchasing power parity.
Key Takeaway
- India has come a long way, but much remains to be done.
- India has grown at an average rate of 7% per annum for the past 40 years, growing from a size of $189 billion in 1980 to nearly $3 trillion today.
- This growth rate is about 2% lower than that of China over the same period.
Current status of India
- Third largest economy:
- India currently has the third-largest economy in terms of purchasing power parity and the sixth-largest economy in terms of the nominal exchange rate of the dollar.
- Growth rate:
- It has increased from a size of $189 billion in 1980 to around $3 trillion now, growing at an average rate of 7% per year over the past 40 years.
- Foreign exchange:
- It holds the fifth largest stock of foreign exchange and is a net lender to the International Monetary Fund(IMF), a far cry from having to go with a begging bowl to the IMF on the brink of forex bankruptcy in 1991.
- Extreme Poverty:
- Since 1947, life expectancy has increased by more than double, and the level of extreme poverty has dramatically decreased from almost 50% to probably single digits.
- Strong fundamentals of the economy:
- The foreign investor is confident that even with twin deficits (fiscal and external), the growth of the economy, driven by demography and dynamism, can pay for the deficits.
- Strong democracy:
- India’s robust democracy stands in sharp contrast to the authoritarian regime of its more affluent northern neighbour.
- Many large countries, such as the USSR, broke up into smaller splinters in the meantime.
- High exports:
- India’s trade to GDP ratio (Gross Domestic Product), an indicator of its openness, is higher than the United States. It is now the world’s leading exporter of software and an outsourcing powerhouse.
- High remittances:
- Indian workers send nearly 100 billion dollars in inbound remittance, which strengthens the Indian economy. In an indirect way, it is like India’s labour export income.
Issues and challenges remain
- Unemployment:
- As young people continue to compete for government jobs, unemployment is still a major problem.
- The government recently revealed in Parliament that just seven lakh government positions had received applications from 220 million Indians over the course of the previous seven years.
- Low rate of Labour force participation:
- The rate of women entering the labour force is shockingly low.
- Even though approximately 70% of industrial occupations are at risk of extinction due to automation and robotics, job growth remains the top goal.
- High level of hunger:
- India ranks badly in the global hunger index despite its Public Distribution System (PDS), illustrating the unequal distribution of economic prosperity.
- Inequality:
- Inequality in wealth, income, and access to high-quality institutions of higher learning and medical care is growing.
Way forward
- Managing the Elevated Inflation Levels:
- India is at the risk of inflation.
- India has to walk a very fine line between balancing the growth imperatives and inflation concerns.
- Foreign direct investment:
- Foreign direct investment should be permitted and encouraged mainly in those sectors which would significantly contribute to income generation, employment creation, and net export earnings.
- Infrastructure:
- India should endeavour to strengthen the infrastructure, and human resources covering areas such as universal literacy and health for all, to improve what one may call the social capability of the economy to take advantage of the globally competitive environment.
- Leadership:
- India should take a leadership role on various international economic issues to mobilise support from like minded countries of the world to strengthen the bargaining positions of the developing countries on the current issues of negotiations.
- Increasing income for farmers:
- In India, 40% of the population works in agriculture,, and small-scale farming supports many poverty-level communities.
- When farmers are prospering, they support other sectors of India’s economy through their own consumption.
- Products like fertiliser, working attire and tools are necessary for farmers, especially as they expand their business.
- This increase in expenditure directly creates jobs for others.
- Through government expenditure and investment in infrastructure:
- By spending money on building and repairing roads and bridges, the government will provide citizens with greater ease and efficiency in their work and create jobs in construction.
- Furthermore, by using more funds to pay higher salaries, private consumption will once again increase, promoting higher business investment and improving the market for imports and exports.
- By spending a certain amount of money, the government would benefit from the economic boost created as a result.
- Urbanising India’s rural populations:
- The government can promote migration to urban areas by providing incentives to rural populations, including investing in better infrastructure and urban services, such as transportation and water management.
- In addition, new urban populations would create a resurgence of the housing market and give banks more lending opportunities.
Pic Courtesy: The Hindu
Content Source: The Hindu