Economic Analysis of India

India is one of the most populated countries in the world with a population of about 1.3 billion people as well as one of the key economies in Asia. Sandwiched between Nepal, Pakistan, and Bangladesh, agriculture forms a significant part of the country’s economy. There are four main categories of crops grown by the Indian people including:

• Food crops- maize, wheat, rice, millet, etc.
• Cash crops- tobacco, cotton, oil seeds, sugarcane, etc.
• Plantation crops- coconut, coffee, rubber, tea, etc.
• Horticulture crops- a wide range of vegetables and fruits (FirstPost, 2014)

They have a GDP (PPP) of $8 trillion and a growth rate of 7.3% with a per capita income of $6,162. They have managed a sustained growth rate of 7% over the last five years, but issues like poor infrastructure, mismanagement of public funds and corruption are the main hindrances to development (Ibef.org, 2017).

            India is a democratic country, and the Hindu community makes up 80% of the country’s population, and it is home to a vast number of Muslims. The leader of the Bharatiya Janata Party who is also the Prime Minister, Narendra Modi has been involved in reinvigorating the foreign policy since he took office in 2004 (Kar, 2016). The Prime Minister has been bolstering political ties with the U.S. particularly in the areas of defense cooperation. Manufacturing and technology are highly advanced in India, but some of the traditional sectors still bear the characteristics of a lesser developed economy. As the nation struggles for rapid modernization, there are both extremes of wealth and poverty within the vast and diverse population. 

 India gained independence from colonial rule in the year 1947, and they went on to begin the process of rebuilding their economy (Cgijeddah.mkcl.org, 2012). They used the Five Year Plan as a tool to inspire development around the country. There exists a significant gap between the rich and the have-nots in this democratic state. A nationalist movement erupted in India in the early twentieth century, and Mahatma Gandhi appeared as the leader. Successive campaigns forced the British out in 1947, but they had already partitioned it by carving out Pakistan. Today, India is a thriving parliamentary democracy.

            After independence, India was hit by an acute shortage of resources and widespread poverty (Ibef.org, 2017). In the early 50s, they applied a mixed economic growth model that balanced the role of the state with that of the market. It seemed like a good response to the development of communism in China (Zhong, 2014). The model was slow, and it discouraged investors due to the complex bureaucratic processes that were involved (Kattumuri, 2016). The growth rate was slow, and the majority of Indian people remained destitute showing an underlying social crisis in the country. At the turn of the new millennium, India overhauled her economic policies, and the potential was evident to see. They had a per capita income of $100 in 1947, but that figure has grown ten times as the democracy continues to mature and thrive (Cgijeddah.mkcl.org, 2012).

Rule of Law

 In India, there is a right to ownership of property but there is a problem with the titling in most city centres. There exists an enormous backlog of cases in the judiciary that they lack the necessary workforce and technology to explain. Consistent pressure from local and international sources have forced the government to adopt legislations for fighting corruption but the move is yet to bear fruit.

Government

The average tax rate for corporates is 34.6% while that of individual income is 30.9%. The overall, tax burden is 16.6% of all the domestic income (Ey.com, 2015). Government spending is 27.4% of the GDP over the last three years, and they have a budget deficit of 7.3% of the GDP. The public debt of the country is estimated at 67.2% of the GDP.

Regulation

The legal framework is weak, and the regulatory framework is a burden. Labor regulations are still evolving, and the informal economy creates a crucial source of employment (Subramanian, 2013). In 2016, IMF reported that the significant subsidies on fertilizer and fuels had fallen below 2% of the GDP (Ey.com, 2015). A new basic foods grant has been introduced by the government to cater to around two-thirds of the population.

Open Markets

Trade is important to any country and India is no exception since the value of imports and exports is equivalent to 49% of GDP. 6.2% is the average tariff rate. Foreign investments are screened, but some economic sectors have encouraged investors after ownership restrictions were reduced (Singh, Shrivastava, & Prasad, 2003). Despite all the modernization and liberalization, state-owned institutions still dominate the capital markets and the banking sector thereby distorting the economy (FirstPost, 2014).

Agricultural inefficiency

A big proportion of the economic output is derived from agricultural sources. In India, 51% of the workforce is in agriculture yet it is one of the most inefficiently run sectors (Subramanian, 2013). Agricultural reforms have proved to be slow and ineffective so far. There are trade barriers encountered by farmers where some cartels put restrictions on the market for Indian farmers. Cooperatives are no help since they are controlled by political families who get rich at the expense of farmers. The solution is a total liberation of the economy to open up the market for Indian farmers. 

Corruption

It costs India 6.3% of the GDP every year (Barnejee, 2013). A survey showed that the biggest disadvantage to entrepreneurship is corruption, delays and bad business practices that slow down the growth of the corporate sector. Competing bureaucracy in government, a lack of clear regulations and a complex tax system are responsible for the damaging practice. There is no immediate solution since the problem is deeply ingrained in Indian culture and it is not helped by the fact that there are widespread poverty and a shortage of employment opportunities for the huge population.

 India has become as a major economic power. One of the main reasons is the GDP which has been growing at an average annual rate of 6-8%. The nominal GDP grew from $27 billion in 1992- $1.85 trillion in 2012. The country is hub of foreign investors and one of the fastest growing economies in the world. The major industries include mining, information technology, textiles, machinery, pharmaceuticals, and a thriving agricultural sector with four categories of crops. The main trading partners of India are Switzerland, United States, China, and the United Arab Emirates. The fact that the GDP consists of a high contribution from the service and manufacturing sectors indicates the huge strides made by the Indian economy since independence when the bulk of their economy was primarily agrarian (Ibef.org, 2017). The service industry, especially in science and technology, has grown big in India. There is now an abundance of skilled workforce and innovative knowledge. India has become a global hub for manufacturing outsourcing especially in the area of electronic goods and small cars. The vast population coupled with an abundance of cheap skilled labor have made the country a magnet for international manufacturers (Kattumuri, 2016). The government aims to increase manufacturing portion of GDP to 25% and inject 100 million jobs into the economy by 2025. It is clear that a lack of incentives was holding India back from realizing her full potential.

 One of the actions would recommend a thorough improvement in governance (Bloomberg, 2013). Having the largest democracy in the world is not sufficient in itself if it is run inefficiently. Maximizing in governance means cutting back severely on the bureaucratic red-tape to allow ease of interaction and doing business. The government should then break down the cartels that control whole economic sectors and allow genuine liberalization so as to help the economy achieve its tremendous potential. I would also recommend them to liberalize the capital market system and allow greater access to capital for the huge population in the country. Increased ease of capital acquisition will bring investments and more growth. Corruption is a major problem that they should eliminate to enable better governance,.

            India would benefit greatly if manufacturers from North America and other countries decided to outsource their operations (Kar, 2016). If more companies were to come to India, it would be a great boost to her economy since the same thing has happened with China. If the film industry in America, which is highly advanced, were to partner with their Indian counterparts, they would learn a lot from the more experienced Americans.

 In the next decade, India will solidify her position as a leading global manufacturer. Since they have been investing in making reforms in various sectors, it has led to increased confidence for the investors. I expect this to translate to increased foreign investment and the GDP growth rate will increase to 7.5% (Ey.com, 2015). The government aims to encourage skill development and education. There are 1.3 billion people in India, and if their skill level is increased, there will be a huge market for skilled labor which is going to attract more manufacturers (Riley, 2017). The proposed National Institute of Design will make India a global leader in world class designing of products by improving the skills and empowering human capital. I think they have the potential to be an economic superpower in coming years due to the potential of their population. As one of the fastest growing economies in the world, it is certain they are going to become a major economic force.

                                                                References

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Kattumuri, R. (2016). Top 10 economic and development challenges for India in 2016. London School of Economics. Retrieved from http://blogs.lse.ac.uk/southasia/2016/01/13/5689/

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