essay on economic growth of india

Essay on Indian Economy

India’s economy is described as huge, complex and growing. It is one of the most exciting and emerging markets in the world. Since 1951, India has grown as a planned economy. The first few plans focused on growth with the strengthening of the manufacturing sector, emphasising heavy industries to form the backbone of the economy. Other principal areas of planning were agriculture and social development. During the post-independence period and the period of the “Five-year plans”, efforts were focused on identifying the needs of the economy. Further, the economic reforms in the early 90s opened a new chapter in India’s economic history. It gave India an opportunity to shake off the shackles of its past and emerge on the world stage as a progressive nation. This essay on the Indian Economy will help students know about the Indian economy in detail.

Students can go through the list of CBSE Essays on different topics. It will help them to improve their writing skills and also increase their scores on the English exam. Moreover, they can participate in different essay writing competitions which are conducted at the school level.

500+ Words Essay on the Indian Economy

India is on the high road to economic growth. Since 2020, the world economy has declined due to the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and inflation have created challenging times. Faced with these challenges, the Government of India has taken immediate action so that it has the least impact on the Indian economy.

The Indian economy has been staging a sustained recovery since the second half of 2020-21. However, the second wave of the pandemic in April-June 2021 was more severe from a health perspective. The national lockdown has affected small businesses, common people and everyone in India. Due to this, the Indian economy has gone down. But now, it is slowly rising up and taking its form.

Role of Agriculture in the Indian Economy

Agriculture is one of the most important sectors of the Indian economy. It supplies food and raw materials in the country. At the time of independence, more than 70% of India’s population depended on agriculture to earn a livelihood. Accordingly, the share of agriculture in the national product/income was as high as 56.6% in 1950-51. However, with the development of industries and the service sector, the percentage of the population depending on agriculture, as well as the share of agriculture in the national product, has come down. Agriculture is the source of food supply. Agriculture is also a major source of foreign exchange earnings through export. The share of agriculture in India’s export in the year 2011-12 was 12.3%. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables, etc.

Role of Industry in India’s Economy

Industry is the secondary sector of the economy and is another important area of economic activity. After independence, the Government of India emphasised the role of industrialisation in the country’s economic development in the long run. Initially, the public sector contributed the maximum to economic growth. In the early 1990s, it was found that the public sector undertakings were not performing up to expectations. So, in 1991, the Indian Government decided to encourage the role of the private sector in industrial development. This step was taken to strengthen the process of industrialisation in India.

The progress of the Indian economy after independence was impressive indeed. India became self-sufficient in food production due to the green revolution, and industries became far more diversified. However, we still have to go a long way to become a 5 trillion economy by 2025. But, with government effort and the right policymakers, it can be achieved.

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Essay on India’s Economic Growth

• 1 Introduction
• 2 Historical Overview of India’s Economic Growth
• 3.1 1) Agriculture sector:
• 3.2 2) Manufacturing sector
• 3.3 3) Service sector
• 3.4 4) Foreign Direct Investment (FDI)
• 4.1 1) Poverty and income inequality:
• 4.2 2) Infrastructure gaps:
• 4.3 3) Political instability:
• 4.4 4) Lack of skilled labor force:
• 5.1 1) Reforms in agriculture, manufacturing, and service sectors:
• 5.2 2) Policies to attract foreign investment:
• 5.3 3) Programs for skill development and employment generation
• 5.4 4) Investment in infrastructure development
• 6 Conclusion
• 7.1 What has been the growth rate of India’s economy in recent years?
• 7.2 What are the major drivers of India’s economic growth?
• 7.3 What are the major challenges facing India’s economic growth?
• 7.4 What initiatives has the government taken to promote economic growth in India?
• 7.5 What is the Skill India program?
• 7.6 What is the Make in India program?
• 7.7 What is the Pradhan Mantri Rojgar Protsahan Yojana?
• 7.8 What is the National Investment and Infrastructure Fund?
• 7.9 What is the Pradhan Mantri Jan Dhan Yojana?
• 7.10 What is the future outlook for India’s economic growth?

Explore India’s economic growth in detail through this insightful essay. Understand the factors driving India’s economic progress and the challenges it faces. Read about the country’s economic policies and their impact on businesses and citizens.

Introduction

Economic growth is a crucial aspect of any developing country and plays a major role in improving the standard of living of its citizens. In India, economic growth has been a major focus of policy makers since independence, and has been the driving force behind the country’s progress over the past few decades. This essay will outline the historical overview of India’s economic growth, the key contributors to its economic growth, the challenges it faces, and the government policies aimed at promoting economic growth.

Historical Overview of India’s Economic Growth

The pre-independence era of India was characterized by a stagnant economy, with low levels of investment, poor infrastructure, and limited industrialization. After independence, India adopted a mixed economy model, with the government controlling key industries such as coal, steel, and heavy industries. This model was not very successful, and the economy remained slow-growing until the 1980s, when India adopted reforms aimed at liberalizing the economy and promoting private sector investment.

In 1991, India underwent a major economic reform process, known as the liberalization, privatization, and globalization (LPG) reforms. These reforms aimed to promote entrepreneurship and investment, and to reduce the role of the government in the economy. The reforms led to the growth of the private sector, and the emergence of many new industries. As a result, the economy experienced a period of rapid growth, and India emerged as one of the fastest-growing economies in the world.

Key Contributors to India’s Economic Growth

India’s economic growth has been driven by several key contributors including the growth of the agriculture, manufacturing, and service sectors. The government has also played a major role in promoting economic growth through various initiatives, such as the Make in India program, the Skill India program, and the Pradhan Mantri Rojgar Protsahan Yojana.

1) Agriculture sector:

Agriculture is the backbone of India’s economy, as it employs around 50% of the country’s workforce. The agricultural sector has undergone significant reforms over the past few decades, which have led to an increase in productivity, and the growth of the agribusiness sector. The government has also implemented various programs aimed at promoting the development of the agricultural sector, such as the Pradhan Mantri Fasal Bima Yojana, which provides insurance to farmers against crop losses.

2) Manufacturing sector

The manufacturing sector has been a key contributor to India’s economic growth, and has been growing at a rapid pace since the 1990s. The government has implemented various policies aimed at promoting the growth of the manufacturing sector, such as the Make in India program, which aims to make India a hub for global manufacturing. The growth of the manufacturing sector has also led to the development of the small and medium enterprises (SME) sector, which has become a major source of employment in the country.

3) Service sector

The service sector is one of the largest contributors to India’s GDP, and is growing at a rapid pace. The sector includes a wide range of industries, such as financial services, information technology (IT), tourism, and retail. The growth of the service sector has been driven by the liberalization of the economy, and the growth of the IT industry, which has become a major contributor to India’s economy.

4) Foreign Direct Investment (FDI)

FDI has been a major contributor to India’s economic growth, as it has led to the growth of various industries and the development of the infrastructure sector. The government has implemented various policies aimed at attracting FDI, such as the 100% FDI policy in various sectors, which allows foreign companies to invest in India without any restrictions.

Challenges Facing India’s Economic Growth

Despite the impressive growth of India’s economy, there are several challenges that are hindering further progress. Some of these challenges include:

1) Poverty and income inequality:

Despite the rapid growth of the economy, poverty and income inequality remain major challenges in India. A large proportion of the population still lives below the poverty line, and the income gap between the rich and poor is widening. The government has implemented various programs aimed at reducing poverty, such as the Pradhan Mantri Jan Dhan Yojana, which provides financial inclusion to the poor by providing them with access to bank accounts and other financial services.

2) Infrastructure gaps:

Another major challenge facing India’s economic growth is the inadequate infrastructure. The country still lacks basic facilities, such as electricity, water, and roads, in many regions, which hinders economic growth. The government is working to address this issue through various initiatives, such as the Pradhan Mantri Gram Sadak Yojana, which aims to provide rural areas with all-weather roads, and the Atal Bhujal Yojana, which aims to improve groundwater management.

3) Political instability:

Political instability can have a negative impact on economic growth, as it can discourage investment and reduce the confidence of investors. India has experienced political instability in the past, and the government needs to ensure that the country remains politically stable in order to maintain its economic growth.

4) Lack of skilled labor force:

India faces a shortage of skilled labor, which can hinder the growth of various industries. The government is addressing this issue through various initiatives, such as the Skill India program, which aims to provide vocational training to young people and improve the quality of the workforce.

Government Policies to Promote Economic Growth

The government of India has taken several steps to promote economic growth in the country that includes:

1) Reforms in agriculture, manufacturing, and service sectors:

The government has implemented various reforms aimed at promoting the growth of the agriculture, manufacturing, and service sectors. The reforms include liberalizing trade policies, reducing red tape, and promoting entrepreneurship. The government has also implemented various programs aimed at promoting the development of these sectors, such as the Pradhan Mantri Fasal Bima Yojana, which provides insurance to farmers against crop losses, and the Make in India program, which aims to make India a hub for global manufacturing.

2) Policies to attract foreign investment:

The government has implemented various policies aimed at attracting foreign investment, such as the 100% FDI policy in various sectors, which allows foreign companies to invest in India without any restrictions. The government has also established various institutions, such as the National Investment and Infrastructure Fund, which aims to attract foreign investment and promote infrastructure development.

3) Programs for skill development and employment generation

The government has implemented various programs aimed at developing the skills of the workforce and creating employment opportunities. The Skill India program is one of the major initiatives aimed at improving the quality of the workforce, while the Pradhan Mantri Rojgar Protsahan Yojana aims to provide incentives to companies that employ young people.

4) Investment in infrastructure development

The government is investing heavily in infrastructure development in order to address the gaps in the country’s infrastructure. The Pradhan Mantri Gram Sadak Yojana, which aims to provide rural areas with all-weather roads, and the Atal Bhujal Yojana, which aims to improve groundwater management, are some of the major initiatives aimed at improving infrastructure in the country.

India’s economic growth has been a major focus of policy makers since independence, and has been the driving force behind the country’s progress over the past few decades. The growth of the agriculture, manufacturing, and service sectors, as well as the growth of foreign investment, have been the major contributors to India’s economic growth. Despite these achievements, the country still faces major challenges, such as poverty, income inequality, inadequate infrastructure, political instability, and a shortage of skilled labor. The government is working to address these challenges through various initiatives and policies aimed at promoting economic growth. The future prospects for India’s economic growth are bright, and the country has the potential to become one of the major economic powers in the world.

FAQs related to “India’s Economic Growth”

What has been the growth rate of india’s economy in recent years.

India’s economy has been growing at a rate of around 7% in recent years. In the financial year 2021, India’s economy grew by 11.7%, making it one of the fastest growing economies in the world.

What are the major drivers of India’s economic growth?

The major drivers of India’s economic growth are the agriculture, manufacturing, and service sectors. The growth of these sectors is driven by various factors, such as increased investment, improved infrastructure, and increased exports.

What are the major challenges facing India’s economic growth?

The major challenges facing India’s economic growth include poverty, income inequality, inadequate infrastructure, political instability, and a shortage of skilled labor.

What initiatives has the government taken to promote economic growth in India?

The government has taken various initiatives to promote economic growth in India, such as implementing reforms in agriculture, manufacturing, and service sectors, attracting foreign investment, promoting skill development and employment generation, and investing in infrastructure development.

What is the Skill India program?

The Skill India program is a government initiative aimed at improving the quality of the workforce in India. The program provides vocational training to young people and helps to address the shortage of skilled labor in the country.

What is the Make in India program?

The Make in India program is a government initiative aimed at making India a hub for global manufacturing. The program provides various incentives to companies that invest in India and promotes entrepreneurship in the country.

What is the Pradhan Mantri Rojgar Protsahan Yojana?

The Pradhan Mantri Rojgar Protsahan Yojana is a government program aimed at creating employment opportunities in India. The program provides incentives to companies that employ young people and helps to address the problem of unemployment in the country.

What is the National Investment and Infrastructure Fund?

The National Investment and Infrastructure Fund is a government institution aimed at attracting foreign investment and promoting infrastructure development in India. The institution provides funding for infrastructure projects and helps to address the gap in the country’s infrastructure.

What is the Pradhan Mantri Jan Dhan Yojana?

The Pradhan Mantri Jan Dhan Yojana is a government initiative aimed at providing financial inclusion to the poor in India. The program provides access to bank accounts and other financial services to people who do not have access to these services.

What is the future outlook for India’s economic growth?

The future outlook for India’s economic growth is positive, and the country has the potential to become one of the major economic powers in the world. The continued growth of the economy will have a positive impact on the standard of living of the people of India.

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Essay on The Indian Economy

The Indian economy has experienced a transformation from being a mixed-planned economy to an emergent middle-income social market economy with strong state intervention in key industries. It ranks third in terms of purchasing power parity and fifth overall in terms of nominal GDP (PPP). India is ranked 125th and 142nd in terms of nominal GDP and per capita income, respectively, by the International Monetary Fund (IMF) (PPP). Below are a few sample essays on the Indian economy.

100 Words Essay On The Indian Economy

The Indian subcontinent was the largest economy in the world throughout the bulk of recorded history, up to the beginnings of colonisation in the early 19th century. India's Gross Domestic Product (GDP) makes up 7.5% of the world economy, according to purchasing power parity (PPP). Due to its young population, low dependence ratio, high rates of savings and investments, rising globalisation in India, and interaction with the global economy, the long-term outlook for the Indian economy is still good. The shocks of "demonetisation" in 2016 and the implementation of the Goods and Services Tax in 2017 caused the economy to slow down. India's GDP is powered by domestic private spending to a degree of over 70%. The nation continues to be the sixth-largest consumer market in the globe.

200 Words Essay On the Indian Economy

Before the Covid-19 Pandemic struck in 2020 and had a detrimental effect on trade, India's economy was the world's 14th-largest importer and 21st-largest exporter. India has been a member of the World Trade Organisation since January 1, 1995. It ranks 63 on the Ease of Doing Business Index and 68 on the Global Competitiveness Report. India's nominal GDP swings significantly, which is also a result of the significant fluctuations in the rupee/dollar exchange rate. India has the second-largest labour force in the world, with 50 crores (500 million) workers. India is one of the nations with the highest proportion of billionaires and the widest wealth gaps. Due to several exceptions, just 2% of Indians pay income taxes.

Crisis In 2008 | The GDP somewhat decreased as a result of the global financial crisis in 2008. India started fiscal and monetary stimulus programmes to increase demand and strengthen the economy. Later on, economic growth picked up.

Steps For Sustainable Growth | Indian priorities for achieving sustainable economic growth, according to the World Bank, should be infrastructure development, agricultural and rural development, the abolition of land and labour regulations, financial inclusion, fostering private investment and exports, education, and public health.

500 Words Essay On the Indian economy

For a continuous period of more than 1700 years, starting in the year 1 AD, India was the greatest economy in the world, contributing 35 to 40% of the global GDP . Following the collapse of the British Empire, a combination of protectionist, import-substitution, Fabian socialism, and social democratic policies were used to rule India for a spell. Due to its sluggish growth, extensive regulation, protectionist policies, and government ownership, the economy during the period was referred to as "Drigism." The country has moved closer to a market-based economy since 1991 because of increasing economic liberalisation. Statistics show that by 2008, India's economy was among the fastest-growing in the world.

Ancient and Mediaeval Eras

Let us learn a little about how Indian economy was during the ancient and medieval era.

Indus Valley Civilisation

The Indus Valley civilisation, a stable society, emerged between 2800 and 1800 BC. Its residents engaged in agriculture, domesticated animals, used established weights and measures, made tools and weapons, and conducted trade with neighbouring settlements.

From the beginning of time until about the fourteenth century AD, there was a great deal of maritime trade between South India and Southeast and West Asia. Beginning in the first century BC, both the Malabar and Coromandel Coasts served as the locations of significant commercial hubs that served as transit points between the Mediterranean area and Southeast Asia as well as centres of import and export. As time went on, traders formed organisations with official support.

During the 14th and 18th centuries, there may have been active trade from India to West Asia and Eastern Europe. Surakhani, an area of larger Baku, Azerbaijan, became home to Indian traders at this time.

The Gangetic plains and the Indus valley both included a large number of centres of river-borne commerce, while the Saurashtra and Bengal coasts significantly influenced marine trade farther north. The Khyber Pass, which links the Punjab area with Afghanistan, the Middle East, and Central Asia, was the primary route used for overland commerce.

How Covid-19 Impacted The Economy

The center's income collection suffered significantly as a result of the disruption in economic activity caused by the spread of the Covid-19 outbreak. Financial resources were under tremendous strain at the same time due to greater spending to lessen the pandemic's effects on society's most vulnerable groups.

Impact | The Covid-19 pandemic invalidated every calculation. According to data from the Controller General of Accounts, the fiscal deficit for the Center will reach 145.5% of the BE for the full year by December 2020.

The Target | By bringing the budget deficit down to 4% of GDP by 2025–2026, the 15th Finance Commission proposed a course for the government to follow to consolidate its finances.

The Numbers | 6.8% of GDP was projected by the government to be the budget deficit year 2021–22. In contrast to the budget forecast of 3.5%, India's government budget deficit for 2020–21 was larger at 9.40% of GDP. This was mostly brought on by increased spending and decreased income collection as a result of Covid-19.

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India’s Highs and Lows in Economic Growth Essay

Introduction, india’s advantages, india’s disadvantages.

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China and India are recognized as the world’s most important developing countries. While the per-capita incomes for citizens of both countries still remains quite low, the two countries have risen considerably with rapid economic growth in recent decades 1 .

India in particular has become one of the fastest growing countries in the world after China and the country shows signs of maintaining the growth momentum in a sustainable manner.

The fact that India’s economy continued to grow even during the global financial meltdown of 2008-2009 has led many to favorably compare this growing economy with rising china. A number of advantages unique to India have positively affected its economic growth.

Even so, India has some disadvantages which impede on its economic well being. This paper will set out to articulate India’s advantages and disadvantages in the economic growth context. Suggestion of how the country can achieve a balance of these factors so as to continue enjoying sustained economic growth will also be made.

Arguably the greatest advantage that has contributed to India’s economic prosperity is its democratic political system. The democratic system has had and promises to have a stabilizing effect on the country. As a result of the economic growth experienced by the country, there have emerged some inequalities between the rich and the poor.

Communities have also begun making increasing demands for a share in the country’s prosperity. Democracy in India has acted as a mechanism for diffusing the smoldering tensions among the country’s disparate population groups 2 .

This is in sharp contrast to the communist rule in china where the government is increasingly finding it hard to politically manage conflicts. As a result of the political system adopted by China, the gap between the rich and the poor has in the past three decades grown excessively.

Income distribution in china is unequal which has led to high social discontent especially among villagers from central China. Academic analysts assert that this rural discontent threatens Chinese stability and hence Future Chinese prosperity is not guaranteed 3 .

In India, the poorest people are the strongest supporters of the country’s democratic process. India therefore has a diverse source of stabilizing legitimization of its political system hence guaranteeing the countries future.

The economic growth experienced in India has been fairly uniform compared to that of China’s. While the Chinese government has made monumental investments in infrastructure, its economic development has been mostly focused on coastal areas 4 .

Other regions have therefore suffered from budget cuts as more money is channeled to these high priority areas. India’s investments have been uniformly distributed among all states since there is representation by the state members in the parliament. India therefore has an advantage since the entire country is experiencing growth while China’s growth is only concentrated in a few key cities.

The entrepreneurial instincts of Indian business and the support of the government for entrepreneurs have led to India’s growth. While the Chinese economy is largely propelled by government-owned companies, the Indian economy is driven primarily by its domestic private sector 5 .

The government of India gives the private sector a relatively free hand which has led to economic growth. The period from 1969 and 1974 was characterized by stringent regulation by the government of private and foreign companies which led to low levels of growth and productivity 6 .

Private sector oriented liberalization in India comprised of gradually removing the controls that the state had previously had over private enterprise. The gradual liberalization of the economy favoring the private sector between 1975 and 1990 resulted in a significant change in this trend 7 .

India’s private sector was freed from significant state control and the subsequent boom by this sector is associated with high levels of economic growth in India. In addition to this, the political structure of India has encouraged people to work hard so as to amass wealth.

The democratically inspired economic policies of India encourage competition and individual enterprise as individuals pursue their self-interest of survival and wealth accumulation 8 . This eventually leads to increased profits for the businesses and overall economic development for the country.

The political freedom afforded to the people of India has resulted in huge gains in the information age. India has emerged as a world leader in information technology software while China has continued to lag behind in this ever increasing key aspect of any modern economy 9 .

In China, the fear by the Communist Party of its own people has resulted in tight controls over Web access; a factor that has constrained information technology growth. Indians have the economic opportunities that the Chinese people are denied by the dictatorial system.

India’s young population is also an advantage in the country’s economic prosperity. Compared to China, India’s population is younger while china is an ageing country with big cities like Beijing having a significant population of old people 10 .

An older population means that China will have a decreasing labor force in the near future. Contrary to this, India will still have an increase in their labor force due to its rising population. Studies document that by 2045, India will have the world’s largest population.

In spite of all of India’s advantages, China has emerged as the power to reckon with in the recent India. Some researchers of comparative studies of the world’s two most populous nations have even concluded that china is a success and India is a failure 11 .

India has been unable to banish illiteracy among its people with a 2001 census noting that illiteracy levels were as high as 40% 12 . This has been blamed on many factors one of which is that the social elite governing the Indian state have tolerated child labor which has fueled factories at the cost of depriving millions of children an education or a decent living.

While steps have been made to increase literally levels in the country, India continues to lag behind in secondary school enrolment when compared to other in East and South East Asia countries 13 .

Research further indicates that human development in areas such as primary education and health have not been impressive 14 . Without investing in its human capital, India will not be able to sustain its economic growth which relies heavily on the county’s labor force.

India’s poor infrastructure is one of the significant setbacks faced by the country since infrastructure plays a major role in a country’s economic growth. Infrastructure development contributes to overall economic development by; creating production facilities and stimulating economic activities, reducing transaction and trade costs hence improving competitiveness, and providing employment opportunities and physical and social infrastructure to the poor 15 .

India and China both suffered from poor infrastructure for decades but there has been increased government investment in infrastructure so as to fuel development. While India has done a spectacular job in reforming its telecommunications sector, airlines, and banks, it has failed to achieve the same levels of success in its ports, airports, and highways.

The Chinese government has made significant efforts by investing huge amounts of money to transport and communication infrastructure in the country 16 . To be globally competitive with developed countries such as the US, India must improve on its infrastructure and especially its transportation facilities.

India’s considerable population growth in recent years may prove to be a setback to its economic development. While both China and India have experienced population increases in the past two decades, India’s growth has been more pronounced.

The United Nations reported that between 1989 and 2005, India’s population grew at almost twice the average annual rate of China’s 17 . China’s relatively lower growth rate is attributed to its strict family planning policies which limit a couple to only one child.

Studies indicate that India is yet to solve the many social problems that are associated with its rapidly growing population. High population has meant that a significant portion of Indians still live in absolute poverty 18 .

In spite of India’s democratic stance, the country has adopted nationalism which has been a hindrance to its economic growth. Indian nationalism has traditionally been based on the rejection of openness which was seen as a dependency on imperialism. India therefore sought to be self reliance; producing shoddy goods and rejecting an opening to world markets that rapidly expanded wealth in East and Southeast Asia 19 .

Nationalism has also resulted in patronage and a tradition of corruption especially within government offices. India’s corruption levels especially in the government are still significantly high.

The Global Corruption Report 2006 fixed India’s Corruption Perception Index at 2.9 which made it position 97 of the 159 countries surveyed. China performed better with a Corruption Perception Index of 3.2 and ranking at 78. Corruption deters investors from coming into the country and it is also detrimental to the country’s economic well being.

India’s manufacturing industry faces major regulatory bottlenecks which impede on the ability of this sector to perform optimally. This is especially the case in the domestic market where Indian companies are unable to function with efficiency due to bureaucracy and stringent regulations 20 .

In spite of the progress made by private Indian firms as a result of liberalization, there is still strong state and central control of firms and Indian firms need to get the government’s permission before making investments.

Such regulations act as bottlenecks for firms that seek a speedy and judicious clearance of their investment proposals. A report by the World Business Environment Survey in 2004 indicated that management in India spends about 16 percent of its time dealing with public officials on regulations and administration 21 .

China on the other hand has removed most logistical and regulatory bottlenecks for her domestic industries to as to make them competitive both locally and on an international platform.

India has not promoted a developmental, transparent, and investment friendly democracy. As it currently stands, there are many regulations that deter foreign investors from making investments in India since the country is not an easy place to begin business especially in manufacturing 22 .

China has managed to attract foreign investment to the country by setting up laws that are favorable to investors. China has also adopted a policy of attracting expatriates to return home and invest in the country.

India has been unable to do the same with its vast number of expatriates who could improve the country’s economy significantly if they decided to invest in it. India needs to improve its investment climate so as to drive growth by creating an attractive business environment.

The rapid economic growth experienced by India has been the result of the various advantages articulated in this paper. The shift of the Indian economy from being under a government-controlled environment to responding to a market-based environment led to significant economic growth for the country.

While economic change in India has been more difficult in India than in China, it is more stable since it has been the result of a social and political consensus that favored change. This is in contrast to the authoritarian political system in China which is predicted to lead to destabilization.

The impressive growth records of China compared to India have been used to argue that authoritarian forms of government are more efficient at achieving economic growth, welfare, and equality than democratic forms of government.

As it currently stands, China has been able to achieve high rates of economic growth despite the absence of democracy. However, this paper has suggested that this growth may not be sustainable due to the tension building up among Chinese citizens and the prospects of future instability. India on the other hand is certain to enjoy future growth due to its democratic form of governance.

Even so, there are some disadvantages that pose a threat to India’s future growth and therefore reduce the chances of India reaching and even exceeding the level of China. Slow progress in human development in areas such as education will make it more difficult for India to grow in the long run.

Growth in human capital results in an improvement of the ability of workmanship as well as productivity; both of which result in economic growth. Massive improvements in public health and education are therefore required to give India a competitive edge over China.

In order for India to maintain its growth momentum, it is imperative that the infrastructure facilities be strengthened. Investment climate surveys on doing business in India repeatedly show that poor quality of infrastructure facilities act as a major hindrance to business growth in India.

This paper set out to highlight India’s advantages and disadvantages in the economic growth context in comparison to China. From the arguments presented, it is clear that India can compete favorably with China due to the many advantages that are as a result of the country’s political system, government policy, and population.

Even so, there are a number of major hindrances to economic growth that must be addressed if India is to keep up its impressive economic growth. As it currently stands, Chinese economy has been more successful at providing for the needs of the population. If India can overcome the negative factors highlighted in this paper, her economic growth can rise to levels equaling and even rivaling those currently enjoyed by china.

Anil, Lal and Clement, Ronald. “Economic development in India: the role of individual enterprise.” Asia-Pacific Development Journal 12, no. 2 (2005): 82-99.

Dash, Ranjan and Sahoo, Pravakar. “Economic growth in India: the role of physical and social infrastructure.” Journal of Economic Policy Reform 13, no. 4 (2010): 373–385.

Friedman, Edward. “Is China a Success while India is a Failure?” World Affairs 167, no.2 (2004): 59-70.

Kunal, Sen. “What a long, strange trip it’s been: reflections on the causes of India’s growth miracle”. Contemporary South Asia 17, no. 4 (2009): 363–377.

Mukherji, Rahuj. “The State, economic growth, and development in India.” India Review 8, no. 1 (2009): 81–106.

Pogge, Thomas. “Growth and Inequality Understanding Recent Trends and Political Choices.” Dissent 54, no. 2 (2008): 66-75.

Prater, Edmund and Patricia, Swafford. “Emerging Economies: Operational Issues in China and India.” Journal of Marketing Channels 16, no.3 (2009): 169–187.

Pucher, John et al. “Urban Transport Trends and Policies in China and India: Impacts of Rapid Economic Growth.” Transport Reviews 27, No. 4 (2007): 379–410.

Ruisheng Cheng. “Reflections from China.” Journal of International Affairs 62, no. 2 (2011): 213-219.

Siggle, Eckhard. “Poverty alleviation and economic reforms in India.” Progress in Development Studies 10, no.3 (2010): 247-259.

1 John Pucher, “Urban Transport Trends and Policies in China and India: Impacts of Rapid Economic Growth,” Transport Reviews 27, no. 4 (2007): 379.

2 Thomas Pogge, “Growth and Inequality Understanding Recent Trends and Political Choices,” Dissent 54, no. (2008): 67.

3 Edward Friedman, “Is China a Success while India is a Failure?” World Affairs 167, no.2 (2004): 65.

4 John, 380.

5 Rahuj Mukherji, “The State, Economic Growth, and Development in India,” India Review 8, no. 1 (2009): 94.

6 Rahuj, 83.

7 Sen Kunal, “What a long, strange trip it’s been: reflections on the causes of India’s growth miracle”, Contemporary South Asia 17, no. 4 (2009): 366.

8 Lal Anil and Clement Ronald, “Economic development in India: the role of individual enterprise,” Asia-Pacific Development Journal 12, no. 2 (2005): 82.

9 Edward, 67.

10 Cheng Ruisheng, “Reflections from China: An Interview with Cheng Ruisheng,” Journal of International Affairs 62, no. 2 (2011): 214.

11 Edward, 59.

12 Rahuj, 99.

13 Ranjan Dash and Sahoo Pravakar, “Economic growth in India: the role of physical and social infrastructure,” Journal of Economic Policy Reform 13, no. 4 (2010), 375.

14 Rahuj, 97.

15 Ranjan and Sahoo, 373.

16 John, 381.

17 John, 382.

18 Eckhard Siggle, “Poverty alleviation and economic reforms in India,” Progress in Development Studies 10, no.3 (2010): 250.

19 Edward, 66.

20 Rahuj, 94.

21 Edmund Prater and Patricia Swafford, “Emerging Economies: Operational Issues in China and India,” Journal of Marketing Channels 16, no.3 (2009): 182.

22 Rahuj, 98.

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What India's extraordinary growth and future can teach global leaders

India and its diverse 1.3bn population can become a $10-trillion economy in the next 15 years Image:  REUTERS/Danish Siddiqui

.chakra .wef-1c7l3mo{-webkit-transition:all 0.15s ease-out;transition:all 0.15s ease-out;cursor:pointer;-webkit-text-decoration:none;text-decoration:none;outline:none;color:inherit;}.chakra .wef-1c7l3mo:hover,.chakra .wef-1c7l3mo[data-hover]{-webkit-text-decoration:underline;text-decoration:underline;}.chakra .wef-1c7l3mo:focus,.chakra .wef-1c7l3mo[data-focus]{box-shadow:0 0 0 3px rgba(168,203,251,0.5);} Børge Brende

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If the 19th century can be characterized by the rise of industrialization and the 20th century by the expansion of the market economy and globalization, the defining characteristics of the 21st century are dramatic and pervasive transformations and a shift from unipolarity towards multipolarity.

Triggered by disruptive technological change, the onset of the Fourth Industrial Revolution has led to fundamental changes in the nature and structure of the economy. With significant redistribution of the level, location and composition of output, our organizations are more global and interconnected than ever. A hastening erosion of trust in extant political frameworks and institutions is driving human societies to be more isolated and divergent. Concurrently, the ecological challenges and climate crisis have never been more existential. In a nutshell, in a fragile world order, the need for a cohesive leadership arrangement to drive positive change is conspicuous in its absence.

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What the private sector can do for india's economic growth, india's women are the secret to a potential economic boom, how can india make sure its growth benefits all citizens.

At the same time as these grave geopolitical and ecological struggles, escalating trade tensions and policy uncertainty have led to a slowdown in investments and business confidence. With global GDP growth in 2019 downgraded to 3.2% with only a modest recovery projected for the next few years and credibility in the existing multilateral rules-based trade system waning, the prospects are worrisome. In fact, with the increasingly strong probability of global growth falling short by at least 1 percentage point from projections, the magnitude of the decline is comparable to the agonizing global recession of the early 2000s.

By contrast, the economic outlook for South Asia continues to be strong. In the past half-century, emerging and developing economies have significantly enhanced their contribution to global output from around 15% to well above 50%. Underpinned by strong domestic demand, private consumption and investment, a growth projection of 7% suggests South Asia’s resilience and strength to not only weather the global slowdown but also to contribute to propelling global growth forward.

Especially noteworthy is the economic outlook of the region’s largest economy, India. With its GDP growth projected to again increase by 7.5% in the next few years , India continues to be one of the world’s fastest-growing major economies. India’s has been a dramatic rise, deserving of the global attention that it has commanded. The stage is set for India to realize its vision of becoming a $10-trillion economy in the next decade-and-a-half and to assist in appeasing the woes besetting the world economy.

Steered by decisive leadership, India is rising to the occasion through a significantly enlarged global profile. India’s commitment to renewable energy through voluntary and ambitious renewable power capacity targets, a lead role in the Paris Climate Agreement negotiations and the International Solar Alliance shows its aspirations of becoming a leader in environment security and climate change mitigation.

India has also expanded its global stature in space exploration through widely celebrated breakthroughs such as its recent lunar mission and its distinction of becoming the fourth country worldwide to shoot down a low-orbit satellite with a missile. India, too, is more involved in global humanitarian efforts and development initiatives, including infrastructure development in Afghanistan, the International North-South Transport Corridor, the Ashgabat Agreement, the Chabahar port and the India-Myanmar-Thailand highway. The Indian Prime Minister has articulated his strong vision for an India-Africa cooperative interest and India’s deepened participation in coalitions such as the Shanghai Cooperation Organization, the Asian Infrastructure Investment Bank, the India-Brazil-South Africa Dialogue Forum and the BRICS group demonstrate its growing global influence and appetite for enhanced visibility on a range of global initiatives and multilateral fora.

With half of its population of working age, India has a unique demographic advantage. Climbing to 52nd spot in this year’s Global Innovation Index , India is one of the few countries to have consecutively improved its rank for nine years. Its distinctive demographic advantage, technical prowess and knack for innovation, fused with the leap-frogging opportunities of Fourth Industrial Revolution technologies, can consolidate its position as a dominant force in global economic, political and strategic affairs.

Simultaneously aware that the quest for becoming a great power must begin at home, India has undertaken groundbreaking structural reforms mirroring its growth ambitions and development priorities. Initiatives aimed at revamping India’s restrictive business regulations have already borne fruit. India’s 65-place leap in the World Bank’s Ease of Doing Business rankings demonstrates an improved business climate and expounded investor confidence.

In the past decade, India has witnessed a mushrooming of start-ups, innovating across domains such as digital payments, online retail, education and software. The number of Indian unicorns has also risen every year. Furthermore, in the biggest liberalization to occur in single-brand retail in the past decade, the government has recently permitted retailers to sell goods online to Indian consumers before opening brick-and-mortar stores , significantly expanding the domestic market for global players. In addition, the implementation of the Goods and Services Tax has removed tax barriers across states and unified various central and state tax laws, creating a single common market.

Committed to ensuring that its economic achievements correspond with inclusive development, India has also made big strides in social progress. The expansion of the biometric identification system under the Unique Identification Authority of India has streamlined the delivery of government services and made resource disbursement through welfare programmes more efficient. Devising such a database of more than a billion people is no mean feat. In addition, through the financial inclusion programme Jan Dhan Yojana, it has provided bank accounts for 300 million hitherto unbanked people , creating new opportunities for them to access credit and state subsidies and bringing them into the formal economy.

Initiatives such as the Ayushman Bharat for universal health coverage in India, the world’s largest LED programme to improve energy efficiency, a sweeping rural electrification drive and a strong push towards broad-based energy access and security through the Ujjwala and Saubhagya schemes, among others, show India’s ability to devise and implement a reform agenda that balances global aspirations with critical development imperatives at home.

Under the theme, Innovating for India: Strengthening South Asia, Impacting the World , the World Economic Forum's India Economic Summit 2019 will convene key leaders from government, the private sector, academia and civil society on 3-4 October to accelerate the adoption of Fourth Industrial Revolution technologies and boost the region’s dynamism.

Hosted in collaboration with the Confederation of Indian Industry (CII), the aim of the Summit is to enhance global growth by promoting collaboration among South Asian countries and the ASEAN economic bloc.

The meeting will address strategic issues of regional significance under four thematic pillars:

• The New Geopolitical Reality – Geopolitical shifts and the complexity of our global system

• The New Social System – Inequality, inclusive growth, health and nutrition

• The New Ecological System – Environment, pollution and climate change

• The New Technological System – The Fourth Industrial Revolution, science, innovation and entrepreneurship

Discover a few ways the Forum is creating impact across India.

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Looking ahead, India must continue on its journey toward holistic structural reforms that are conducive to boosting the sustainability and resilience of its economy, while also ensuring that the progress reaches a broad base. It is important that India arms itself with modern infrastructure, social services and the connectivity becoming of a developed economy. It must simultaneously create jobs, wealth and value to accommodate the aspirations of a young and upwardly mobile population and to help it eradicate poverty. Policy solutions inspired by a vision of a regenerative, inclusive and sustainable economy will ensure that the milestone of a $10-trillion economy coincides with a stronger India at the global, national and grassroots level, with ameliorated living outcomes for all.

Achieving that scale of change in a country with more than 1.3 billion people who speak dozens of different languages and dialects and have different customs and cultural practices is monumental. But with its geographic and demographic size and extensive diversity, India has a unique opportunity to shape global agendas. It can establish itself as a role model and inspiration for the world through its response to these opportunities, with a resounding impact on our collective future. India can tap its own sphere of influence and emerge as a global leader by providing the world with replicable and scalable models for solutions to critical global challenges.

A version of this article was first published on https://www.narendramodi.in.

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Essay on Indian Economy for Students and Children

500+ words essay on indian economy.

India is mainly an agricultural economy . Agricultural activities contribute about 50% of the economy. Agriculture involves growing and selling of crops, poultry, fishing, cattle rearing, and animal husbandry. People in India earn their livelihood by involving themselves in many of these activities. These activities are vital to our economy. The Indian economy has seen major growth in the last few decades. The credit for this boom largely goes to the service sector. Agriculture and associated activities have also been improvised to match the global standards and the export of various food products has seen an upward trend thereby adding to the economic growth. The industrial sector does not lag behind a bit. A number of new large scale, as well as small scale industries, have been set up in recent times and these have also proved to have a positive impact on the Indian economy.

Government’s Role in Economic Growth

Majority of the working Indian population was and is still engaged in the agriculture sector. Growing crops, fishing, poultry and animal husbandry were among the tasks undertaken by them. They manufactured handicraft items that were losing their charm with the introduction of the industrial goods. The demand for these goods began to decline. The agricultural activities also did not pay enough.

The government identified these problems as hindering the economic growth of the country and established policies to curb them. Promotion of cottage industry, providing fair wages to the laborers and providing enough means of livelihood to the people were some of the policies laid by the government for the country’s economic growth.

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The Rise of the Industrial Sector

The government of India also promoted the growth of small scale and large scale industry as it understood that agriculture alone would not be able to help in the country’s economic growth. Many industries have been set up since independence. A large number of people shifted from the agricultural sector to the industrial sector in an attempt to earn better.

Today, we have numerous industries manufacturing a large amount of raw material as well as finished goods. The pharmaceutical industry, iron and steel industry , chemical industry, textile industry, automotive industry, timber industry, jute, and paper industry are among some of the industries which have contributed a great deal in our economic growth.

The Growth in Service Sector

The service sector has also helped in the growth of our country. This sector has seen growth in the last few decades. The privatization of the banking and telecom sectors has a positive impact on the service sector. The tourism and hotel industries are also seeing a gradual growth. As per a recent survey, the service sector is contributing to more than 50% of the country’s economy.

Indian Economy after Demonetization

The worst affected were the people in the rural areas who did not have access to internet and plastic money. This affects many big and small businesses in the country very badly. Several of them were shut down as a result of this. While the short term effects of demonetization were devastating, this decision did have a brighter side when looked at from long term perspective.

The positive impact of demonetization on the Indian economy is a breakdown of black money, the decline in fake currency notes, increase in bank deposits, demonetization stopped the flow of black money in the real estate sector to ensure a fair play, increase in digital transactions, cutting monetary support for terrorist activities.

Many of our industries are cash-driven and sudden demonetization left all these industries starving. Also, many of our small scale, as well as large scale manufacturing industries, suffered huge losses thereby impacting the economy of the country negatively. Many factories and shops had to be shut down. This did not only impact the businesses but also the workers employed there. Several people, especially the laborers, lost their jobs.

The Indian economy undergoes several positive changes since independence. It is growing at a good pace. However, the rural regions of our country are still under-developed. The government must make efforts to improve the economic condition of these areas.

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The history of economic development in india since independence, the background.

The task that the democratically elected leaders of newly independent India embarked on in the early 1950s was not for the faint of heart. It was to lift living standards of a people accounting for one-seventh of the world’s population who earned an average income that was one-fifteenth of the average American income of the time. 1 Three-fourths of the Indian people were engaged in agriculture working with primitive tools and techniques, as either destitute landless laborers, highly insecure tenants-at-will, or small-plot holders eking out subsistence living from their meager plots. The literacy rate stood at 14 percent, and the average life expectancy was thirty-two years.

How successful has the country been in fulfilling the task over sixty years later? The charts in this article, using World Bank data, show how some of the country’s development indicators have changed in the last half-century. The country has experienced an increase in per capita income—especially since the 1980s—as well as reductions in poverty and infant mortality rates. These improvements are not insignificant and mark a sharp break from the near stagnation that the country experienced during British rule. But a comparison with the later superior performance of China and South Korea, countries with a comparable level of development in the 1950s, reveals that India’s performance remains below its potential. How did that come about? This essay provides an account of India’s strategy of economic development, its achievements, shortfalls, and future challenges.

The Initial Strategy

The government in the 1950s adopted a very particular strategy of economic development: rapid industrialization by implementing centrally prepared five-year plans that involved raising a massive amount of resources and investing them in the creation of large industrial state-owned enterprises (SOEs). 2 The industries chosen were those producing basic and heavy industrial goods such as steel, chemicals, machines and tools, locomotives, and power. Industrialization was pursued because leaders believed, based in part on the beliefs of some economists, that the industrial sector offers the greatest scope of growth in production. It was not that the Indian agricultural sector offered no scope for growth. Crop yields in India were quite low compared to other countries, and the recent famine in 1943 had underscored the need to increase food production. Still, Indian leaders did not want to make agriculture the mainstay of their strategy. The preeminence of agriculture they believed was characteristic of a backward economy, and growth in agriculture eventually runs up against the problem of insufficient demand. There is only so much, after all, that people are willing to eat.

Investments in the creation of public enterprises were chosen because one goal of the government was to establish a “socialistic pattern of society,” i.e., using democratic methods to bring large swathes of the country’s productive resources under public ownership. Industries producing basic and heavy goods were chosen for investment over consumer goods because the government wanted to reduce the country’s reliance on imports of basic and heavy industrial goods in line with their belief in the goodness of national self-reliance. “To import from abroad is to be slaves of foreign countries,” the first Prime Minister, Jawaharlal Nehru, once declared. 3 The production of consumer goods such as clothing, furniture, personal care products, and similar goods was left to small privately run cottage industry firms that had the added advantage of being labor-intensive and therefore a potential generator of mass employment.

Another strategy could have been to rely on private enterprise for industrial development while the government focused its resources on investments in infrastructure, public health, and education—sectors that are not served well by the private sector. Though leaders were cognizant of the dynamism of the private sector and the existence of India’s vibrant entrepreneurial class, they rejected the strategy that involved a prominent role for the private sector out of a commitment to establishing the socialistic pattern of society that they believed was morally superior. As things eventually turned out, the country came around in the 1990s to adopting this previously rejected strategy.

In order to assure the success of the government’s chosen strategy in the 1950s, complementary measures were put in place. Most industries were given significant trade protection so that their growth was not hampered by competition from more efficient foreign producers. An industrial licensing system was set up to ensure that private enterprises would not expand beyond the bounds that national planners had set for them. The system required all private firms beyond a certain small size to obtain a license whenever they wanted to expand capacity, produce new products, change their input mix, import inputs, or relocate plants. The system put the activities of the private sector under significant control of the government. Pundits and students of political economy who were not socialists derisively nicknamed this stifling system “the license Raj,” comparing this economic format of oppression to the political control of the imperialist British Raj.

Their strategy of increasing agricultural production was based on plans to reform agrarian institutions. According to the thinking of the planners, the poor performance of Indian agriculture was due to the fact that tillers did not own the land they worked, so they had little incentive to make land improvements that would increase long-term productivity. The government planned to implement legislation to redistribute land from large landlords to actual tillers and improve the terms under which tenant cultivators leased land from the landowners. The government also planned to organize small farmers into cooperative societies so that their resources could be pooled in order to buy modern tools and implements and the strength of their numbers could be used to obtain higher crop prices. In addition to increasing agricultural production, such reforms were also expected to alleviate the poverty of the huge class of peasants.

The Initial Results

Industrialization was a moderate success. The newly created public enterprises, albeit after major cost overruns and several delays, turned out steel, chemicals, and other products that were generally associated with developed countries. A British colonial official in the early twentieth century once scoffed that he would be willing to eat all the steel than the Indians would produce. 4 If alive in 1960, he would have eaten 6,300 tons of steel. 5

Still, by the late 1950s several problems resulting from the planners’ chosen strategy of economic development were coming to the fore, and such problems intensified in the 1960s and the 1970s. Many SOEs were run on political rather than economic considerations, so they produced losses that drained government resources rather than—as the planners had hoped—augmenting them. The SOEs could also not be counted on to generate mass employment due to their capital and skill rather than labor-intensive character. Several enterprises were overstaffed and faced insufficient demand for what they produced, forcing them to render idle some of their capacity. The case of the Haldia fertilizer plant is an extreme but illustrative example. The plant was set up in the 1970s and employed 1,500 people. The workers and managers showed up regularly, kept the machine facilities clean and in working condition, and often received annual bonuses and overtime. They lived in a nearby spanking-new township built specially for them, one that had excellent roads, schools, and homes. There was only one thing missing. Because of numerous problems, the plant never produced even an ounce of fertilizer. Yet the government kept Haldia’s lights on for twenty-one years. 6

One government method for financing expenditures was the creation of new money, which resulted in significant inflation.

The plans for the reform of agrarian institutions did not pan out. The push for land redistribution ran into political opposition and clashed with the requirements of due process, so as little as 5 percent of the land was actually redistributed. The creation of agricultural cooperatives also did not materialize due to difficulties of organization and lack of enthusiasm on the ground. Agricultural production barely kept pace with population growth, and the country’s food security remained precarious. The drawback of prioritizing industry over agriculture for public investments became glaringly apparent when the country experienced a food crisis in the mid-1960s, necessitating urgent large-scale imports of subsidized grain from the United States. The crisis undermined the government’s claim that its strategy of prioritizing industry over agriculture for public investment would increase national self-reliance.

The drawback of prioritizing industry over agriculture for public investments became glaringly apparent when the country experienced a food crisis in the mid-1960s, necessitating urgent large-scale imports of subsidized grain from the United States.

Under the fixed exchange rate regime that existed in the country, high inflation in the 1960s reduced the country’s exports while increasing its imports, resulting in a shortage of foreign exchange. The shortage was exacerbated by the food imports made necessary by a drought and a war with Pakistan. Foreign exchange became one of the items the government had to resort to rationing. The reverberations were felt throughout the economy. Several new factories lay idle for want of foreign exchange to import some necessary inputs, while others hoarded foreign exchange to starve their competitors or earn a premium in the black market. Holding foreign exchange without a license became an offense punishable by jail time. Ultimately, the rupee had to be devalued, which generated further disruptions in the economic lives of most people.

Meanwhile, the industrial licensing system, designed to ensure that the private sector operated according to the five-year plans, became a source of much inefficiency and corruption. The micromanagement of the private sector called for much more knowledge and technical ability than government bureaucrats possessed. The system descended into a mechanism for rewarding political supporters of the rulers, which undermined the confidence of the people in the integrity of their governmental institutions.

Perhaps the most unfortunate legacy of prioritizing industry at the expense of other alternatives for investment was that scarce public resources were diverted away from health and education. The meager resources expended on these in India stand in marked contrast to the plentiful attention paid to them in China and other Asian countries. Seventy years after independence, India has still to catch up on these fronts; one-half of its children are malnourished, one-half of women are illiterate, and twothirds of its people lack basic sanitation. As a result, a large fraction of Indians today are unable to directly take advantage of the opportunities opened up by the country’s recent tilt toward a market economy and globalization.

The Change in Strategies

In response to the food crisis of the mid-1960s, the government changed its agricultural strategy. Rather than holding out for the reform of agrarian institutions, it began to guarantee higher crop prices to farmers and utilize subsidies to promote use of modern inputs such as chemical fertilizers and high-yielding varieties of grain developed in other parts of the world. The resulting surge of production—the so-called “green revolution” of the late 1960s—made the country self-sufficient in food grains. The strategy was controversial because it increased economic disparities among the farmers. For the greatest chance of success, the government had to focus its strategy on the irrigated sections—the very parts of the country that were already doing relatively well. The uptake of subsidized inputs was also the highest among large landowners, owing to their greater education, creditworthiness, and the ability to bear the risk posed by adopting new methods. The strategy did not do much to alleviate the economic condition of the agrarian poor, other than providing the indirect benefit of living in a country with better overall food security that has not since experienced famine. Micronutrient deficiencies (not caloric) such as anemia are today a bigger problem among the poor, and the country’s health indicators lag behind those of other countries with comparable levels of income.

The strategy toward industry, however, turned more interventionist after 1965. Elaboration of all the reasons for this need not detain us here; there is a strong case that the interventionist turn was a cynical ploy by new Prime Minister Indira Gandhi for consolidating her power in response to certain political developments. The new policy stance displayed a suspicion of large firms and a preference for the small. The licensing system imposed additional restrictions on the activities of large firms, curtailing their growth. Under a policy that was one of a kind, consumer goods such as apparel, footwear, furniture, sporting goods, office supplies, leather goods, and kitchen appliances were reserved by law for production by small firms. Foreign firms were asked to dilute their ownership stake in their Indian subsidiaries and in response, multinationals such as IBM and Coca-Cola closed their operations and left the country.

To the extent that the success of the large firms was due to their superior technical or organizational capacity, the curtailment of their growth meant that such capacity remained underutilized. Delays and arbitrariness in the issuing of industrial licenses resulted in supply bottlenecks and shortages of many consumer goods. For example, in the 1970s, there was an eight-year waiting list for people wanting to buy a scooter, the preferred vehicle for middle-class Indians.

Thirty-five years after independence, India’s leadership had yet to achieve, to any significant degree, its pledge of lifting living standards.

The reservation of consumer goods for small enterprises meant that the benefits of economies of scale were forgone, resulting in the production of poor-quality and high-priced goods that foreigners shunned and domestic consumers had no choice but to accept. Meanwhile, countries such as South Korea and Taiwan were growing rich by exporting this very category of goods. It was during this time that Indians developed a craze for foreign products, the imports of which were restricted, and the term “imported” became synonymous with “high-quality.” The result of such policies was economic stagnation. The country’s per capita income grew by an average of less than 1 percent a year between 1966 and 1980, a rate that was too low to make a dent in the country’s massive poverty. Thirty-five years after independence, India’s leadership had yet to achieve, to any significant degree, its pledge of lifting living standards.

Also, years of rhetoric about creating rapid development had heightened people’s expectations for their quality of living. Economic stagnation, combined with high inflation caused by the government’s printing of massive amounts of money, bred political unrest and popular agitation, to which Indira Gandhi responded by declaring a national emergency in 1975. Taking advantage of the suspension of democratic procedures and requirements of due process brought on by the emergency, the Prime Minister attempted strict interventions that included rapid land redistribution and forced sterilization as a part of population control. The programs were poorly administered, contributed to incidents of human rights violations, failed to improve the economic situation, and caused a number of unintended consequences. For example, the government’s attempts to liquidate debts of poor farmers led to the virtual drying up of informal sources of credit and the banks were not up to the task of picking up the slack. The chaos generated by the haphazard and poorly administered interventions generated a popular backlash and tainted in many minds the whole interventionist approach to economic development.

By the 1980s, a substantial number of influential people had come around to the conclusion that the government did not have the political and administrative capacity to successfully run a controlled economy that delivered on economic growth. Gandhi, chastened by the political defeats that followed her earlier attempts to impose strict controls, acquiesced to relaxing some of them. Her Cambridge-educated son, Rajiv Gandhi, who succeeded her as Prime Minister, enacted further liberalization. Certain industries and business activities were exempted from licensing requirements. Such measures helped to cause robust industrial growth in the late 1980s.

The About Turn

When a foreign exchange shortage threatened a crisis again in 1991, the government made a clear break with past policies. By then, the intellectual consensus in favor of state-led, import-substituting development strategies had greatly weakened. The breakup of the Soviet Union had substantially discredited central planning, and the export-led success of East Asian countries had thrown into light the drawbacks of an inward-looking model of development. Also, cultural changes in India, consisting of a deemphasis of asceticism and a greater acceptance of the pursuit of material gain, had made extensive economic controls untenable. 7 At the behest of the International Monetary Fund (IMF), which provided rescue during the foreign exchange crisis, but also of its own accord, the government announced major economic reforms. It dismantled the license Raj almost overnight, slashed tax rates and import duties, removed controls on prices and entry of new firms, put up several SOEs for sale, and rolled out the welcome mat for foreign investors. Rather than socialism, the guiding principles of policy now were liberalization, privatization, and globalization.

The country’s share in world trade increased from 0.4 percent on the eve of the reforms to 1.5 percent in 2006, and foreign exchange shortages, once a chronic headache for policymakers, have now been replaced by reserves upward of US $350 billion . . .

The economy responded with a surge in growth, which averaged 6.3 percent annually in the 1990s and the early 2000s, a rate double that of earlier time frames. Shortages disappeared. On the eve of the reforms, the public telecom monopoly had installed five million landlines in the entire country and there was a seven-year waiting list to get a new line. In 2004, private cellular companies were signing up new customers at the rate of five million per month. The number of people who lived below the poverty line decreased between 1993 and 2009 from 50 percent of total population to 34 percent. The exact estimates vary depending on the poverty line used, but even alternative estimates indicate a post-1991 decline of poverty that is more rapid than at any other time since independence. The country’s share in world trade increased from 0.4 percent on the eve of the reforms to 1.5 percent in 2006, and foreign exchange shortages, once a chronic headache for policymakers, have now been replaced by reserves upward of US $350 billion—prompting debates about what to do with the “excess reserves.” 8

Several significant economic challenges remain for India. The economy has polarized into a highly productive, modern, and globally integrated formal sector, employing about 10 percent of the labor force, and a low-productivity sector consisting of agriculture and urban informal activities, engaging 90 percent of the labor force. The sectors that have experienced the most growth are services and capital-intensive manufacturing. It is illustrative that IT and pharmaceuticals are the two sectors of the economy with international renown. Such industries tend to be urban and employ mainly skilled workers. Yet to come India’s way are millions of lowskill manufacturing jobs that have allowed the poor in East Asian countries to climb into the middle class. Companies are loath to set up labor-intensive manufacturing because Indian labor laws are some of the most restrictive in the world. For example, a manufacturing unit hiring more than 100 workers cannot lay off any of them without seeking government permission, which is rarely granted. 9 Liberalization of labor laws tends to run into fierce political opposition. The second reason for the dearth of manufacturing jobs is that the country’s infrastructure is relatively deficient, and so companies increasingly practicing just-in-time inventory management do not find it cost-effective to include India in their global supply chains. 10

The provision of public services in India is appallingly poor. Government schools and clinics are underfunded and inadequately supervised, and their workers display low morale and high absenteeism. Yet such public institutions are rarely held accountable for their performance. 11 The middle class has largely opted out of the system in favor of private health care, schools, and transportation so there is little political pressure from them to improve the system. Most middle-class Indians now even own a power generator to cope with everyday power cuts. The poor take the brunt of the derelict public services. Two million children die in India every year from easily preventable diseases, according to the United Nations Children’s Fund (UNICEF), and immunization rates in India are amongst the lowest in the world. Air pollution levels in urban areas pose a severe public health crisis. According to a survey by the World Health Organization (WHO), thirteen out of the twenty most polluted cities in the world are Indian. 12 The country still relies heavily on inexpensive coal to generate power and has shown very little willingness to move toward alternative energy sources.

Given the current policies and state of governance in India, it is hard to see an obvious path into the middle class for the multitudes still remaining in poverty. Global demand for low-wage, low-skill labor to sew T-shirts or assemble TVs is not what it used to be, because production is now becoming increasingly mechanized and some of it is being “reshored” back to the rich countries. For several hundred million poor people in delicate health and with little education, the country will have to find a way to overcome the technical, institutional, and economic barriers to developing the capabilities necessary for functioning in a twenty-first-century economy. It is not a task for the faint-hearted.

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1. The figure is calculated from the estimated per capita income of the two countries. See The Madisson-Project (2013) database at http://tinyurl.com/pvqeuay.

2. Francine Frankel provides a detailed study of how such a strategy came to be chosen is in India’s Political Economy: 1947-2004 , 2nd ed. (Oxford: Oxford University Press, 2005).

3. Arvind Panagariya, India: An Emerging Giant (New York: Oxford University Press, 2008), 25.

4. Wolfgang Messner, Working with India (Berlin: Springer Publishing, 2009), 49.

5. The tonnage statistic comes from the Handbook of World Steel Statistics (1978), published by the International Iron and Steel Institute.

6. This and many other cases of economic dysfunctions of the era are recounted by a former CEO and public intellectual, Gurcharan Das, in his memoirs, India Unbound: From Independence to Information Age (New Delhi: Penguin Books India, 2000).

7. For an elaboration, see Nimish Adhia, “The Role of Ideological Change in India’s Economic Liberalization,” The Journal of Socio-Economics 44, issue C (2013): 103– 111.

8. Panagariya provides a detailed academic reference on Indian economic policies and their effects in India: An Emerging Giant .

9. Jagdish Bhagwati and Arvind Panagariya give a fuller account of Indian labor laws in India’s Tryst with Destiny (New York: Harper Collins, 2012).

10. Robyn Meredith well describes the twenty-first-century multinational supply chains in chapter 5 of her book, “The Disassembly Line,” in The Elephant and the Dragon (New York: W. W. Norton & Company, 2007).

11. Good accounts of the lives of India’s poor and the causes of the dysfunction in the country’s public services are given by Jean Dreze and Amartya Sen in An Uncertain Glory: India and its Contradictions (Princeton: Princeton University Press, 2013), and Esther Duflo and Abhijit Banerjee in Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (New York: PublicAffairs, 2011).

12. “Thirteen of the Twenty Most Polluted Cities in the World Are Indian,” Quartz India , last modified December 7, 2014, http://tinyurl.com/nyekwwk .

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• Essay on Indian Economy

Introduction to Essay on Indian Economy

Indian Economy is a concept which deals with the system which manages all Economic activities of a country. It covers different sectors like agriculture, industry, and services along with their sub-segments.

Importance of Indian Economy:

The Indian Economy is important to study because it is the seventh-largest in terms of purchasing power parity and the third largest in terms of nominal GDP. Inflation in the Indian Economy is a major concern. The growth and development sector of the Indian Economy is an important area of focus. The Foreign exchange reserves of India are also an important aspect to study. Employment generation is an important area of focus for the Indian Economy.

Investment is another major concern when it comes to the Indian Economy. The balance in trade and budget deficit are other aspects that need attention from people studying the Indian Economy. Every year, a lot of research papers on India's Economy are written by various students all over India.

Some Tips to help You write Your Own Essay on the Indian Economy:

First Step: Collecting Information/ Data:

You must collect as much information related to your topic as possible. If necessary, ask experts or professionals who work in that particular field and get their opinions too if required. This would give you more authentic data rather than just reading out general stuff available online or through books.

Second Step: Sorting Information/ Data:

In this step, you must sort out all your collected data and information into separate sections. For example, if the essay is on the Indian Economy then divide it into different parts like Agriculture, Industry, or Services sector, etc. You can also use sub-heads for each of these main divisions to make things easier for yourself while writing down the final draft of your work.

Third Step: Analysis & Research Plan:  

In this part, start by researching a particular topic thoroughly so that you have a clear idea as to how to proceed with it in detail before actually starting off with the actual writing process itself. This way there would be no loose ends left at the end of the whole thing and your essay would be complete and well-structured.

Fourth Step: Drafting the Essay:

Start by writing an introduction to your topic, explaining what it is all about in detail. After that, start discussing different points one by one with proper evidence backing up everything you say. Make sure each paragraph flows smoothly into the other so that the reader does not lose focus at any point while reading through it. The conclusion should summarize all your findings and leave a lasting impression on the mind of the reader.

Fifth Step: Editing & Proofreading:

This is an important step where you must check for grammar mistakes, punctuation errors, etc. Also, make sure that the structure of your essay is perfect and there are no loose ends left at the end of it. It is better to ask someone else to proofread your work too if you are not very confident about yours.

Sixth Step: Finalizing & Presenting Your Work in the Form of an Essay/ Paperwork etc.:

Finally, present your paper with proper references and bibliography so that every statement made in the essay has a source backing it up. Make sure everything looks neat and clean before actually sending off this final piece for assessment or assignment purposes.

Conclusion: So these were some tips on how one can write their own essay on Indian Economy which would be useful for students studying it or anyone interested in knowing more about India's Economy.

FAQs on Essay on Indian Economy

1. How much time does it take to write an essay on the Indian Economy? How long should my essay be?

It totally depends on the length of your topic and how much information you have collected for writing it. Usually, an essay takes around four to six hours to complete depending upon its size.

2. Where can I get authentic data regarding the Indian Economy?

There are various websites like IMF (International Monetary Fund), World Bank, etc which provide useful data on the Indian Economy.

3. Is there a specific thesis statement that I should focus on when writing my essay?

Yes, there should be a clear thesis statement that you must mention at the beginning of your essay. It can also follow throughout the entire course of it so as to maintain a good flow and structure in your work.

4. Who is my audience? How do I write an authentic essay for them?

Your audience would mostly comprise students and researchers who are interested in knowing more about the Indian Economy. So make sure your language and tone are appropriate for them, and all the information you provide is accurate and backed up by authentic sources.

5. What are some good transition words that I can use to connect my ideas?

There are many transition words that can be used. For example, you could start off with "firstly", "next" or even use phrases like "in the second place" to make your sentence flow smoothly into another one.

6. How will I know if my essay is well-structured? What does it need?

Your essay should be well-structured and organized according to the points you are discussing. Each paragraph must flow smoothly into another one, starting with a topic sentence that summarizes the main point of that particular section in your work. After every point is discussed there needs to be some sort of conclusion at the end which sums up all your findings.

7. What are large-scale industries?

The industries with large capital requirements engaging strong manpower. These organizations have a fixed asset worth more than 10 crore rupees and are considered to be large-scale industries. In India, the large-scale industries are those industries that have a fixed asset which is more than one hundred million rupees or Rs. 10 crores.

8. In India which place is known as the Industrial Hub?

Tamil Nadu is the state with the largest number of factories situated overall in India. Tamil Nadu is the capital city Chennai with the largest industrial and commercial centre in the whole of South India. India has 13 minor industrial regions located in 15 industrial districts.

9. How is the Indian Economy in recent times?

India's GDP was estimated at Rs. 33.14 trillion in the year 2011 and 2012, US＄452.74 billion for the second quarter of the FY2020-21, against Rs. 35.84 trillion US＄489.62 billion in the second quarter of FY2019-20.

Your Article Library

Essay on india’s economic growth (with statistics).

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In the last seven years or so (i.e., since 2004) India has emerged as one of the fastest growing economy of the world. In fact, next to China, India’s growth rate since 2004 is the highest in the world. This is often referred to as India’s growth miracle.

Before Eighties of the last century India’s average growth rate stuck around 3.6 per cent per annum which Late Prof. Raj Krishna called Hindu rate of growth. In the eighties India’s average rate of economic growth rose to 5.6 per cent per annum and further in the nineteenth and up till 2002-03 (i.e. in 12 years period). India’s average growth rate went up to 6.2% per annum under liberalisation and globalisa­tion of the Indian economy.

Rates of saving and capital formation and GDP growth are given in Table 42.3 Prior to 2003-04 rate of saving in India since 1991 when economic reforms were initiated was in the range of 24 to 26% of GDP. But, as will be seen from the Table 42.3, from 2003-04 to 2007- 08 (that is, prior to global financial crisis) average rate of saving rose to 33.3 per cent of GDP which pulled up the rate of investment or capital formation. As a result, average growth rate of GDP for the five years period (2003-08) rose to 9 per cent. With this India became the second fastest growing economy of the world, next only to China.

In keeping with the higher saving rate from 2004-05 onwards, average rate of fixed capital formation (FCF) rose to 33 per cent of GDP in 2007-08 (see 5th row in the Table 42.3) and is still around 32.0% in 2010-11 and 2011-12.

This higher growth rate of fixed capital formation caused 9 per cent average growth in GDP during 2004-05 to 2007-08. In 2008-09 and 2009-10 global financial crisis (2007-09) and consequently global meltdown caused fall in saving rate to 32.0% and 30.8% of GDP respectively.

This was due to the substantial increase in consumption expenditure under the fiscal stimulus measures to keep the growth momentum which caused drop in public saving rate to 1.0 per cent of GDP as compared to 5.0 per cent in 2007-08. This financial crisis which caused negative growth of India’s exports in 2008-09 slowed down rate of economic growth in 2008- 09 to 6.7 per cent.

However, while advanced developed countries of the US, Japan, European countries experienced worst ever recession since the Great depression of 1930s. India was successful in attaining the growth rate of 6.7 per cent in 2008-09 and 8.4 per cent in both 2009- 10 and 2010-11.

With the saving rate going up to around 33.8 per cent in 2009-10 and 32.3 per cent in 2010-11 and revival of positive growth in exports from the second half of 2009-10, rate of growth of GDP rose to 8.4% in both 2009-10 and 2010-11.

Reasons for Substantial Rise in Saving Rate since 2003-04:

Now, what has caused saving rate in India to rise substantially since 2004.

Components of saving rate are:

(1) Household savings,

(2) Private corporate sector saving and

(3) Public saving.

It will be seen from Table 39A.2 that white household savings has stuck to around 23 per cent of GDP and therefore it cannot explain remarkable rise in overall saving rate in the Indian economy since 2004. It is the private corporate sector which registered a substantial rise in saving rate from 4.7 per cent of GDP in 2003-04 to 8.87 per cent of GDP in 2007-08, that is, the private corporate sector saving doubled in the four-year period.

Even in the crisis years of 2008-09 and 2009-10, the saving of private corporate sector was around 8 per cent of GDP. It is this significant increase in corporate sector saving that resulted in higher rate of fixed capital formation which contributed to a big jump in growth rate in these years.

Besides, large increase in public saving since 2004 contributed a lot to the increase in the overall saving rate and capital formation since 2003-04. The public sector saving which was negative prior to 2003-04 turned positive and rose to 5 per cent of GDP in 2007-08. (See 4th row in Table 42.3).

Thus private corporate sector and public savings together increased by around 10 per cent from 2003-04 to 2007-08, which brought about higher rate of overall saving and capital formation and ensured higher rate of economic growth. It will be seen from Table 42.3 that fixed capital formation which was 24.8 % of GDP in 2003-04 rose to 33% of GDP in 2007-08 and 2008-09. No wonder that with such a high rise in fixed capital formation that the average growth rate in GDP in three successive years, 2005-08 rose to over 9%.

How do we explain the large increase in saving of the private corporate sector? It is primarily due to the increase in profitability of private corporate sector as measured by the ratio of profit after tax (PAT) to sales, which rose from 3.6% to 8% in the six years period, 2003-09.

Besides the rise in profitability of the corporate sector, the companies also reduced dividend rate from half of profits to 1/4 the of them. That is, the corporate companies retained (i.e. saved) a greater amount of profits for their expansion or capital formation. Thus, the profits of the corporate sector not only increased faster on account of higher economic growth but also distributed less of them as dividends that resulted in doubling of corporate sector saving.

As regards the public sector savings they rose from negative rate in 2003-04 to 5 per cent of GDP in 2007-08. It occurred due to increase in tax revenue, especially from the corporate sector. Thus, revenue from corporate tax rose from 1.9 per cent of GDP to 3.6 per cent during this period.

Indeed, as a result of it since 2004 overall tax-GDP ratio rose from 8.9 per cent in 2003-04 to 10.7 per cent in 2007-08. This better tax performance along with Government control of its public expenditure under the Fiscal Responsibility Budget Management (FRBM) Act resulted in the fall in Central government’s fiscal deficit to 2.8 per cent of GDP in 2007-08.

Thus, the improved performance of both the private corporate sector and the public sector in the liberali­sation era has become the significant driver of faster economic growth of the Indian economy.

It may be further noted the rapid growth of some new sectors such as Telecom and IT which hardly existed before 2000 contributed a good deal to rapid economic growth since 2004. Besides, low interest rate policy of the Reserve Bank of India made borrowing from the banks cheaper which created large demand for consumer durables such as cars and housing. This ensured relatively higher growth of consumer durables since 2003-04.

Lastly, it is important to note that despite opening up of the Indian economy since 1991, from the demand side, India’s growth has been driven mainly by increase in domestic demand. Both the increase in households’ consumption expenditure and Government’s consumption expenditure has contributed to the higher rate of economic growth since 2004.

The Current Economic Situation and Future Growth Scenario:

It may be noted that again in 2011-12 and 2012-13, the global environment has again changed for the worse and impacted the Indian economy adversely. Eurozone crisis caused by sovereign debt crisis, especially in Greece and Spain, has created a lot of risk and uncertainty affecting investor confidence in the world.

As a result, capital flows into the Indian economy are highly uncertain and are not coming in adequate quantity, even to meet our current account deficit. Besides, due to slack world demand growth of our exports has slowed down and further rise in world oil prices has caused a large current account deficit in our balance of payments in 2011-12 and 2012-13.

Besides, due to persistent inflation, especially food inflation in the last some years has adversely our saving and investment. Our gross domestic saving rate has fallen to 32 percent in 2011-12 and 2012-13 compared to 36.8 per cent in 2007-08. To check inflation the RBI tightened its monetary policy by raising its repo rate (i.e., rate of interest at which it lends to the banks).

This raised the borrowing costs of private corporate sector which as a result private sector deferred undertaking new investment projects. As a result, gross fixed capital formulation as per cent of GDP during 2011-12 fell to 30 per cent and the same rate is expected for 2012-13. This has contributed to slowdown in economic growth rate to 6.5 per cent in 2011-12 and around 6 per cent in 2012-13.

However, it may be noted that by world standards 6.5% is very high growth rate and despite this, India still remains second fastest growing economy of the world, next only to China whose growth rate like that of India in recent years has also slowed down.

However, we think that current slowdown in economic growth (that is, during 2011- 12 and 2012-13) is a temporary setback caused, as pointed out above, by Eurozone debt crisis and rise in world oil prices, sluggish growth in the United States and stagna­tion in the European Countries.

Besides, increase in interest rates by RBI has adversely affected investment by the private corporate sector that has resulted in the drastic fall in output of capital goods in the last two years (2011-12 and 2012-13). In our view the Indian economy will soon start growing faster once these short-run problems are resolved.

Once inflation is brought under control, RBI will cut its interest rates which will give push to investment that will boost industrial growth. If investment in physical infrastructure such as construction of roads and ports and in expansion in power facilities increases, as is now planned, will lead to the demand for capital goods.

This will ensure around 8 per cent growth in future years. It is important to note that fundamentals of the Indian economy are quite strong to ensure 8 per cent growth. Our high saving and investment rates even at present (2011-12) are still 32.5 and 35.0 per cent of GDP respectively. Besides, on the demand side our domestic market is expanding due to rise in rural incomes which will boost industrial growth.

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Essay on Economic Development in India

Here is an essay on ‘Economic Development in India’ for class 8, 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Economic Development in India’ especially written for school and college students.

Essay # 1. Meaning of Economic Development (Traditional View) :

No distinction was drawn between economic growth and development in the beginning of the evolution of economics of development. However, since the seventies it has been thought necessary to distinguish between economic growth and economic development. There are two views even about the concept of economic development. The traditional view has been to interpret it in terms of planned changes in the structure of national product and the occupational pattern of labour force and also the institutional and technological changes that bring about such changes or accompany such changes.

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It may be noted that Kuznets in his study of Modern Eco­nomic Growth interpreted the process of modern economic growth which involves these structural changes. In this view during the process of economic growth share of agriculture in both national product and employment of labour force declines and that of industries and services increases. Vari­ous strategies of development which were suggested until ‘seventies’ generally focused on rapid industrialization so that structural transformation could be achieved.

For this purpose appropriate institutional and technological changes were recommended to bring about such structural changes. Thus C.P. Kindleberger writes, Economic growth means more output and economic development implies both more output and changes in the technical and institutional arrangements by which it is produced.

Thus, according to traditional view, economic development implies growth plus structural change. Structural change refers to changes in technological and institutional factors which cause shift of labour from agriculture to modern manufacturing and services sectors and also generate self-sustaining growth of output. An aspect of structural change which is of special mention is that during the process of economic development there occurs a shift of working population from low productivity employment in agriculture to the modern industrial and services sectors having higher levels of productivity of labour.

That is, during the process of economic development percentage share of working population in agriculture sharply falls whereas percentage shares of working population employed in modern industrial and services sectors substantially increase. Along with this change in sectoral distribution of labour force there occurs a change in sectoral composition of national in­come in which percentage contribution of agriculture to national income and declines and percentage contributions to national income of industrial and services sectors increase. This occurs due to the change in pattern of consumption of the people as economy grows and people’s income increases as well as due to the changes in levels of productivity in the different sectors of the economy.

It is worth mentioning that in this view causal references were made to the role of some social factors such as growth of literacy, education and good health in economic development but they were considered to be of secondary importance. On the whole, in this view of economic development which generally prevailed till seventies, development was considered to be an economic phenomenon in which benefits from growth in overall GNP or per capita GNP and the structural changes accompa­nying it would trickle down to the poor and unemployed. No separate or special attention was paid to eliminate mass poverty and unemployment and to reduce inequalities in income distribution.

Essay # 2. The Concept of Economic Development (Modern View) :

The experience of the developing countries during the sixties and seventies showed that whereas target rates of economic growth were in fact achieved trickle-down effect in the form of creation of more employment opportunities, rise in wages and improvement in income distribution did not operate. The problems of poverty, unemployment and income inequality further worsened instead of getting reduced during the process of growth in the nineteen fifties and sixties in the developing countries.

For instance, in India, Dandekar and Rath found that 40 per cent of rural population in India lived below the poverty line in 1968-69. Using somewhat different approach, B.S. Minhas estimated that 37 per cent of rural population in India lived below the poverty line in 1967-68. Similarly, the magnitude of poverty and unemployment and the extent of income inequalities also increased in many other developing countries.

Thus, due to the failure of traditional strategies of development in solving the problems of poverty, unemployment and inequality, it was realised in the seventies that the concept of development should be broadened so that it should signify that well-being of the people has increased. This led to the view that economic development should not be judged on the basis of growth in GNP alone. Therefore, when we regard the well-being of the masses as the ultimate objective of development, we have to see whether poverty and unemployment are decreasing and how the increases in gross national product or national income are being distributed among the population.

Economic devel­opment will take place in true terms only if the poor people are raised above the poverty line. Late Prof. Sukhamoy Chakravarty rightly writes, “The rate of growth strategy is by itself an inadequate device to deal with the problems of generating employment opportunities and for reducing economic disparities. Much depends on the composition of the growth process and how growth is financed and how benefits from growth process are distributed,”

It is worth mentioning that there is no guarantee that when there is increase in GNP, employment will also increase. It can happen that with the use of more capital-intensive technique while produc­tion may be increasing at a rapid rate, employment may be falling instead of rising.

According to the modern perception of economic development, rapid increase in GNP secured through displacing labour by machines and thus causing rise in unemployment and underemployment cannot be called true economic development.

Professor Dudley Seers makes the meaning of economic development according to the new perception in the following words-“The questions to ask about a country‘s development are therefore- What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result development even if per capita income doubled. ”

Recently, the concept of economic development has been further widened so that it now in­volves not only reduction in poverty, inequality and unemployment but also requires improvement in quality of life which includes cleaner environment, better education, good health and nutrition. Thus World Development Report 1991, published by the World Bank, asserts- “The challenge of develop­ment is to improve the quality of life, especially in the world’s poor countries, a better quality of life generally calls for higher incomes but it involves much more. It encompasses as ends in themselves better education, higher standards of health and nutrition, less poverty, a cleaner environment, more equality of opportunity.”

Thus the concept of economic development has been greatly broadened. Today economic development is interpreted as not only in more growth in Gross Domestic Product (GDP) but also in terms of good quality of life which, according to Prof. Amartya Sen,’consists in enlargement of opportunities for people and freedom of human choices’.

This new concept of devel­opment includes achievement of freedom from servitude to ignorance and illiteracy. It also includes enjoyment of human rights. Thus United Nations ‘Human Development Report’ of 1994 in the writing of which Prof. Amartya Sen made a significant contribution, asserts, “Human beings are born with certain potential capabilities. The purpose of development is to create an environment in which all people can expand their capabilities, and opportunities can be enlarged for both present and future generations. Wealth is important for human life, but to concentrate on it exclusively is wrong for two reasons. First, accumulating wealth is not necessary for the fulfillment of some important human choices. Second, human choices extend far beyond economic well-being.”

On the basis of various ingredients of good quality of life and other criteria such as enlargement of human choices and freedom a human development index is prepared by United Nations Development Programme (UNDP). This human development index is considered as a better indicator of economic development index.

ADVERTISEMENTS: (adsbygoogle = window.adsbygoogle || []).push({}); Essay # 3. The Objectives of Economic Development:

From the study of Sen’s capability approach to development and Goulet’s core values of development we are in a position to explain the objectives of development. The basic objective of development is broad-based improvement in the economic and social conditions of our people so as to achieve better quality of life for them.

Important Objectives of Development:

1. To Achieve a Higher Rate of GDP Growth:

The first and foremost objective of development is to achieve a higher rate of GDP growth so as to raise the living standards of our people. Rapid growth of total GDP or per capita income is considered necessary because it ensures an expansion in the productive capacity of the economy without which broad based improvement in living standards of the people is not possible. However, it should be recognized that faster economic growth, though necessary, is not a sufficient condition for raising the living standards of our teeming millions. This is because one can easily imagine a growth process which may not be sufficiently inclusive to ensure a spread of benefits to the mass of our population.

There are three reasons why GDP growth is necessary for raising the living standards of the population. First, rapid growth of GDP ensures a higher expansion in total income and production which, if growth process is sufficiently inclusive, will make available a larger output of goods and services to be consumed by the people and thus raise their living standards.

Secondly, rapid economic growth generates more employment opportunities and income enhancing activities of the people, provided labour-saving technologies are not used for production of goods both in the industrial and agricultural sectors.

Third, higher GDP growth is important because it generates higher revenues for government which help to finance anti-poverty programmes started by the government.

2. To Eradicate Poverty and Unemployment:

The second important objective of development is to eradicate poverty. In Amartya Sen’s approach to development, poverty should be viewed as deprivation of basic capabilities rather than merely as low income. The existence of poverty or deprivation of basic capabilities is reflected in hunger, significant undernourishment/ especially of children premature mortality, permanent morbidity, widespread illness, and lack of basic education and other failures. Though economic growth is necessary for elimination of poverty but is not a sufficient condition for it because it is related to income distribution in a society as well.

Related to issue of poverty is the question of unemployment which exists on a large scale in developing countries, especially in labour-surplus countries such as ours. Chronic and long-term unemployment exists in the developing economies because due to higher population growth relative to capital formation it has not been possible to absorb the increasing number of workers in productive employment resulting in large-scale unemployment in developing countries.

Gainful employment is the means of livelihood for the masses of the population. The growth of employment opportunities needs to be accelerated both in manufacturing and services sectors to provide employment to increasingly educated population which has high expectations and aspirations. Unemployment leads to the feelings of worthlessness and frustration among the youth leading to the increase in incidence of crime in the society.

3. To Expand The Freedoms Enjoyed by The People:

The other important objective of development, as has been explained in Amartya Sen’s approach to development and Goulet’s core values, is to expand the freedoms that people of a society enjoy. Growth of GDP or of individual incomes or industrialization or technological progress are merely means to expanding human freedoms but freedoms depend on other factors as well. As Sen Stresses viewing development as expansion of substantive freedoms directs attention to end or objective of development rather than means such as GDP growth or industrialization which play an important role in the process of development.

If the objective of expansion of freedoms is to be achieved, the various sources of unfreedom such as lack of public facilities of education and healthcare, denial of political liberty and basic civil rights (such as liberty to participate in public discussion) and denial of equal rights to women in the society have to be removed. It is worth mentioning here that some have supported the denial of political liberty and basic civil rights to the people on the ground that they promote economic growth.

However, Amartya Sen has rightly pointed out that there is little evidence that authoritarian politics actually helps economic growth. Indeed, empirical evidence very strongly suggests that economic growth is more a matter of friendly economic climate than of a harsher political system.

Essay # 4. Evolution of Economic Development:

The study of development economics as a separate discipline is relatively new as about 65 years ago in 1950s the study of the problem of economic development of poor developing countries did not constitute an important distinct branch of economics. This is despite the fact that classical economists such as Adam Smith, Ricardo, Malthus, and Marx extensively dealt with the study of development of the economies. However, with the appearance of neoclassical economics propounded among others by Alfred Marshall and A.C. Pigou who were mainly concerned with explaining efficient allocation of resources in a free market economy, development economics dealing with the developing economies found no place in their works.

Believing in Say’s law of markets they assumed that full employment of resources would prevail in the economy and further that the working of price mechanism would ensure sufficient incentives to save and invest to bring about appropriate growth of GNP. It was generally believed that neoclassical economics applied to developed and developing countries alike. Therefore the need for a special theory to explain economic growth and development for developing countries was not felt. In the 1930s and 1940s, the economists led by J.M. Keynes remained occupied with the problem of involuntary unemployment and depression as severe depression causing huge unemployment took place in 1929-33 in the industrialized countries.

The renewed interest and public concern with the development of poor countries began only after the Second World War when the poverty of the underdeveloped countries of Asia, Africa and Latin America posed a great challenge to the peace and progress of the world as a whole and also many underdeveloped countries got freedom from the colonial rule.

It was felt that Keynesian economics which was concerned with the short-run problem of depression caused by fall in aggregate effective demand did not apply to the underdeveloped economies which faced a long-run and chronic problem of unemployment and mass poverty due to deficiency of cooperating factors (such as capital) and low productivity of resources. It was therefore felt that there was need for a distinct and separate branch of special economic theory which explains perpetuation of underdevelopment and general poverty and also the adoption of appropriate development strategies to initiate and accelerate economic growth in the developing countries.

It was pointed out that the problems of poverty, underemployment of underdeveloped economies were quite different and required special analysis. Therefore, development economics which is concerned with the economic growth, capital accumulation and underemployment in the developing countries became a special and distinct discipline. During 1950s and 1960s development policies in underdeveloped countries required acceleration of economic growth and eradication of poverty and chronic underemployment.

For this, economists laid stress on capital accumulation, mobilization of surplus labour for growth and industrialization based on import-substitution through economic planning and with active role of the government. It was thought that due to market failures, development through free market, as emphasized by neoclassical economics, would neither achieve efficient allocation of scarce resources nor brings about desired GDP growth rate to remove poverty and employment. Since rate of domestic saving in these underdeveloped countries was inadequate to bring about a desired rate of growth, the need for foreign aid to supplement domestic saving was emphasized in early approaches to development based on application of Harrod-Domar growth model.

Furthermore, it was suggested in the early approaches to development in the 1950s and 1960s that since demand for primary products was inelastic by advanced industrialized countries, as explained by Prebisch, Singer and Myrdal, to accelerate growth through expansion of primary exports by developing countries would cause deterioration of terms of trade. This led to export pessimism, that is, little prospects of acceleration of growth through promotion of exports. Therefore, those economists who laid stress on limitations of development based on expansion of primary exports, advocated for import-substituting industrialization to promote economic growth and solve the problems of poverty and unemployment in developing countries.

Much of the thinking about development in this early period was how to break out of poverty trap or vicious circle of poverty or ‘low level equilibrium trap’. For this purpose Ragnar Nurkse put forward a balanced ‘growth strategy’ in which he suggested undertaking of simultaneous investment in a wide range of industries so that the workers employed in different industries could generate demand for each other’s products so as to ensure balanced growth by overcoming the problem of demand deficiency.

Hirschmanm, on the other hand, laid stress on the scarcity of decision-making enterprise and also emphasized forward and backward linkages of different industries and to take advantage of them he proposed ‘unbalanced growth strategy’ by concentrating investment in a few industries of strategic importance from the viewpoint of economic growth. Leibenstein and Nelson considered rapid population growth as a retarding factor of economic growth and recommended a certain ‘critical minimum effort’ in terms of investment so as to break out the low level equilibrium trap.

Besides, Arthur Lewis proposed a model of growth of a dual economy with surplus labour in which he emphasized industrialization of underdeveloped countries by mobilizing disguisedly unemployed labour in agriculture or subsistence sector and ploughing back of profits so earned for further capital accumulation and industrial growth. In India Mahalanobis growth model on which Second Five Year and Third Five Year Plans were based gave a high priority to basic heavy industries producing fixed capital goods (i.e., machines) and basic intermediate goods such as steel, fertilizers and emphasised impor-substituting industrialisation to accelerate rate of growth of the Indian economy.

Harrod-Domar model of growth based on Keynesian framework which dealt with the problem of steady growth was applied to the growth problem of developing countries. Harrod-Domar model suggested that growth depends on the rate of saving and capital-output ratio, (g=s/ν), where s represent ratio of saving to national income and ν is rate of growth of GDP).

Unlike the neoclassical economics which assumes smoothly working market mechanism, the early development economists adopted a more structural approach to development. They emphasise rigidities, lags, shortages and surpluses and low elasticities of demand and supply in developing countries. Prebisch and Singer have been prominent economists who laid stress on the limitations of development based on expansion of primary exports because of the adverse effects on terms of trade.

In the early 1970s there was realisation by economists that growth in terms of GDP, though a necessary condition is not a sufficient condition for the reduction of poverty, inequality and unemployment. Therefore, in the second phase of the evolution of development economics when the emphasis on growth of GNP was downgraded, the focus of analysis shifted directly to the removal of poverty, unemployment and inequality in the developing countries.

Mahboob ul Haq, an eminent economist of World Bank who along with Amartya Sen was pioneer in the development of the concept of Human Development Economics Index (HDI) wrote, “The problem of development must be defined as a selective attack on the worst forms of poverty. Development goals must be defined in terms of progressive reduction and eventual elimination of malnutrition, disease, illiteracy, squalor, unemployment and inequalities. We were taught to take care of our GNP because it would take care of poverty. Let us reverse this and take care of poverty because it will take care of the GNP. In other words, let us worry about the content of GNP even more than its rate of increase “.

Thus in the seventies, the reliance on GDP growth alone to solve the problems of poverty and unemployment was challenged. It was pointed out by several economists that benefits of growth were not trickling down to the poor and the number of people living below the poverty line had increased in developing countries. Even the meaning of economic development was questioned. It was suggested that economic development was not the same thing as economic growth.

According to the new view, economic development means not only the increase in GNP (or GNP per capita) bat also the reduction in poverty, unemployment and inequalities of incomes. A World Bank study titled ‘Redistribution with Growth laid stress on redistribution of incomes with reduction of poverty along with GDP growth for development to be meaningful. Besides, in the 1970s and 1980s ILO emphasised that for true development to take place basic human needs must be fulfilled. These basic human needs are food, clothing, shelter, healthcare and availability of drinking water. According to this, without these basic needs being met, development cannot be said to have taken place.

Another important change in the approach to development during 1970s and 1980s was a shift in the emphasis from industrialisation to agriculture. It was proposed that agriculture-led growth strategy would ensure higher growth rate, larger amount of employment generation without causing inflation. Further, during 1970s and 1980s role of human capital (i.e., education and health) instead of physical capital began to be emphasised for boosting economic development.

Besides, in view of the low labour intensity of technologies imported from abroad, the need for development of appropriate technologies suited to the factor endowments of developing countries was highlighted. In this connection, it was pointed out that a developing country should not blindly import foreign capital- intensive technologies but should use discretion as to what technology could or should be imported.

The most significant change in the thinking of development economists came during the decade of 1980s, especially in the mid-eighties. This change was resurgence of neoclassical economics which gives important role to private sector and market mechanism in the process of development.

It was felt that centralised planning and excess regulation and control over the private sector by the State and higher importance given to the public sector was obstructing growth due to its inefficiency in the use of resources. Besides, under the controlled regime, the twin crises of high fiscal deficit and external balance of payments crisis made the growth unsustainable. The policy framework of neoclassical economics such as liberalisation, privatisation and globalisation was suggested by prominent economists, I.M.D. Little, Jagdish Bhagwati, Bela Balarsa who were the advisors to the World Bank and IMF argued that free markets and greater role of private sector (including foreign investors) would ensure efficiency by encouraging competition.

Thus the advocates of the adoption of policy framework of neoclassical economics emphasised government failures to obstruct rapid development. Similar to the neoclassical economists’ approach to development Dr. Manmohan Singh who initiated economic reforms in India in 1991 in his first budget speech as Finance Minister on July 24, 1991, said, “Over-centralisation and excessive bureaucratisation of economic process have proved to be counterproductive. We need to expand the scope and the area of operations of market forces. A reformed price system can be a superior instrument of resource allocation and qualitative control”.

Further, advocating for the adoption of export orientation of development strategy instead of import-substituting industrialisation can be redefined as “the vision of self-reliant economy as one which can meet all its requirements through exports without undue dependence on artificial external sops such as foreign aid.”

As a step towards economic reforms the neoclassical economics recommended the removal of price distortion introduced by government controls and getting all prices right to achieve efficient resource allocation. As Gerald Meier writes, “Markets, prices and incentives became central. Inward- looking strategies of development were to give way to liberalisation of foreign trade regime and export promotion. Inflation was to submit to stabilisation programmes. State-owned enterprises were to be privatised. A poor country was now considered poor because of inappropriate policies, and good economics, that is, neoclassical economics – was good for the developing country”.

Development Economics as a Separate Discipline:

In the 1950s and 1960s the pioneers in development economics had asked why underdeveloped countries were poor and backward and put forward the grand theories and development strategies for starting and accelerating economic growth so as to lift them out of poverty trap. In propounding the various theories and strategies to accelerate economic growth in developing countries, the pioneers in development economics abandoned the use of neoclassical economies which involves free working of market mechanism and role of material incentives and profit motive guiding allocation of resources and economic growth in an economy.

The pioneers in development economics considered the neoclassical economics as a special case applicable to developed countries having not much relevance for the underdeveloped countries as the latter are structurally different from the developed economics. These pioneers investigated the factors that perpetuate underdevelopment and poverty in underdeveloped countries and for initiating and boosting economic growth not only rejected the principles of neoclassical economics but also found theories of development of classical economists such as Adam Smith, Ricardo, Malthus and Marx not fully applicable to the present-day developing economies. Prominent contributors to development economics are Arthur Lewis, Ragnar Nurkse, Albert Hirshman, Hans Singer, Rostow, Michael Todaro, Amartya Sen among many others.

However, as explained above, from the early eighties there has been greater reliance on neoclassical economics which gives greater role to market mechanism and profit motive for efficient resource allocation and economic growth in developing countries. Further, as this neoclassical economics applies equally to rich developed countries and poor developing countries.

Therefore, it has been asserted by some economists prominent among whom is Albert Hirshman, that the development economics which was thought to be a separate and distinct subject, different from the principles of neoclassical economics has collapsed and that there is no any distinct or special subject of development economics applicable to developing countries alone.

To quote Hirshman, “The sub-discipline of development economics has achieved its considerable lustre and excitement through the implicit idea that it could slay the dragon of backwardness virtually by itself or at least that its contribution to this task was central. We know that this is not so.”

Hirschman’s view has been challenged by Prof. Amartya Sen. According to him, the original themes with which development economics has been concerned “while severely incomplete in coverage did not point entirely in the wrong direction and the discipline of development economics does have a central role to play in the field of economic growth in developing countries”.

Hirschman pointed to the main themes or ideas which formed the basis of development economics.

(1) Rural underemployment including disguised unemployment that prevailed in underdeveloped countries which became the focus utilisation of surplus labour for industrial growth or capital accumulation;

(2) The subject of late industrialisation of underdeveloped countries which, according to the standard development economics required active role and guided efforts by the State and also economic planning and protection measures by the state to overcome the disadvantages of late industrialisation.

While there have been differences about certain issues in development strategies to be adopted to break out of the low-level equilibrium trap but, as has been mentioned by Amartya Sen, the following three are the strategic themes in terms of economic policy with which standard development economics has been concerned to achieve rapid economic growth:

1. Industrialisation.

2. Capital accumulation.

3. Mobilisation of underemployed or disguisedly unemployed labour for bringing about economic growth.

4. Planning in an economically active State.

As explained by Amartya Sen, the above themes used for planning and active role of the State in promoting industrialisation (or capital accumulation) and the use of surplus labour for it are parts of the standard development economics on account of which neoclassical economics has been said to be inapplicable for acceleration of economic growth in developing countries.

Hirschman who explained the rise and decline of development economics hold the view that the neoclassical economics as applicable to both developed and developing countries alike. In other words, he talked of the relevance of ‘mono-economics’ for both developed and developing countries and argued against the development economics as a separate and distinct subject.

The resurgence of neoclassical economics has drawn its support from the high growth performance of East Asian countries such as South Korea, Taiwan, Hong-Kong and Singapore in which higher economic growth rates have been achieved based on market mechanism, private enterprise, profit motive and material incentives, and liberal foreign trade.

On the other hand, the lower growth in developing countries of South East Asia, Africa and Latin America has been cited as a result of the intervention in market by the government and role of planning in resource allocation in the growth process. Similarly, failure of development experience in Soviet Russia and China under activist state and centralised planning played a significant role has been cited as a proof of collapse of standard development economics with its emphasis on role of State and economic planning.

The sum and substance of the critique of development economics has been that neoclassical economics with its role of free market mechanism, private enterprise, material incentives ensure higher economic growth as against State-guided industrialisation through centralised planning.

However, the above mentioned defence of neoclassical economics and critique of development economics has been challenged, among others, by Amartya Sen. To quote Sen, “I believe that contentious and simplistic though development economics might have been in some respects, the main themes that were associated with the origin of development economics and have given its distinctive character are not rejectable for that reason”.

It is worth mentioning that traditional development economics has concentrated on economic growth as against economic development which is a broader concept than economic growth.

However, so far as economic growth is concerned, the strategic themes such as role of capital accumulation, industrialisation and role of State and planning for acceleration of economic growth is concerned Amartya Sen using World Bank data of GNP per capita, gross domestic investment, (i.e., capital formation) as per cent of GDP and percentage share of industry in GDP and growth rate during 1960-80 pertaining to 14 low-income countries and 18 middle income countries has shown that capital accumulation and industrialisation have played an important role in achieving higher GDP growth rate.

As regards role of mobilisation of surplus labour he points out that high growth performance has distinguished record of labour-using growth particularly in case of China and South Korea mobilisation of labour for bringing about rapid growth is quite outstanding.

Lastly, he points out that in China, Romania, Yugoslavia and South Korea State intervention and planning have played a significant role in fostering economic growth. Thus, in conclusion, Sen writes- “Despite these average achievements the performance of various countries is highly different. There is still much relevance in the broad policy themes which traditional development economics has emphasized.”

Further, in defence of traditional development economics, he writes – “The general policy prescription and strategies in this tradition have to be judged in terms of the climate of opinion and overall factual situation prevailing at the same time these theories were formulated”. Development economics was born at a time when government involvement in deliberately fostering economic growth in general and in industrialisation in particular, was very rare, and when the typical rates of capital accumulation were very low.

It may be further noted that despite the revival of importance of neoclassical economics which emphasises liberalisation and privatisation for accelerating economic growth, role of State or Government is still in two important respects:

First, the Government has to play a significant role in making arrangements for the expansion of education, healthcare for the advance of human capabilities on which growth depends.

Secondly, the government has an important role in building up physical infrastructure such as power, roads, railways, ports and telecommunication as lack of these facilities is holding back economic development.

Thirdly, the Government has a special role in starting schemes for alleviation of poverty and unemployment in the developing countries as the free working of market mechanism will not ensure this.

Essay # 5. Obstacles to Economic Development:

1. Lack of Infrastructure :

Economic growth in the developing countries has been impeded by inadequate availability of infrastructure. Infrastructure includes power, irrigation, transport and communication. It may also include credit facilities available from banks and other financial institutions and also the facilities for the education and training of labour.

The availability of these infrastructures facilitates production in industry, agriculture and other productive sectors of the economy. These infrastructures give rise to external economies and thereby cause reduction in costs, facilitate production and increase efficiency in all productive sectors of the economy. Thus power (electricity) is used in the production process these days both in industry and agriculture.

It is now too well known in India that non-availability of adequate amount of power lowers industrial and agricultural development. Likewise, the existence of the means of transport is essential for transportation of raw materials to the place of production and to sell the goods produced too far off places. In fact, the availability of transport widens the market for goods and thereby encourages their production. Likewise, the availability of adequate irrigation facilities is necessary to raise agricultural output.

One of the most important hurdles in the growth of investment in developing countries is the acute lack of external economies which, as has been stated above, are provided by basic infrastructures such as transport, communication and power. In a developed country the economic system being highly diversified there are tremendous amounts of external economies which a new enterprise can draw upon. The various types of infrastructure in developed countries were generally built up by private enterprise although with the liberal help of the Government in the form of grants and loans.

In contrast, the contemporary developing countries lack an adequate system of transport, communication and power. For instance, the inadequacy of railway network in most of the newly independent countries of Africa and Latin America is a bottleneck in the expansion of national market and growth of industries.

Since development of power, transport, communication involves lumpy investment, has long gestation period and the returns accrue mainly in the form of external economies, the private enterprise is not attracted to build this infrastructure. The Government should therefore play an important role in undertaking the task of building up adequate infrastructure to speed up economic growth.

Likewise, there is a lack of adequate credit facilities or funds. For an entrepreneur who wishes to undertake business or set up some factory he should have sufficient funds to finance it. Credit facilities are also badly needed by farmers for agriculture. The growth of agriculture suffers if adequate credit facilities are not available. Therefore, the Government in the developing countries should give high priority to develop the facilities of providing adequate credit and finance for the development of industry and agriculture.

2. Demonstration Effect and Economic Growth :

In raising rate of capital formation, the developing countries have to contend against one problem which arises from demonstration effect on consumption. Demonstration effect leads to initiation and imitation of superior consumption standards stimulates consumption among the middle and upper middle class which increases their propensity to consume and consequently reduce their capacity to save.

Nurkse laid great stress on this new theory of consumption and saving. We ordinarily think that a man’s consumption depends on his income. But that is not quite correct. A person’s consumption does not merely depend on his own income but also on the incomes and therefore the consumption behaviour of his friends and relations with whom he maintains social contacts.

A man finds some of his friends using colour televisions, luxury cars, costly mobiles, refrigerators, air-conditioners, electric hot plates, and electric washing machines and so on and experiences a sort of restlessness and a craving is generated in his mind to enjoy these amenities some immediately and others some later days. These desires for conspicuous consumption generally outrun the consumer’s means. Thus consumption behaviour of individuals depends not on absolute real income but on relative levels of real incomes. It does not depend on what we can afford but what the others afford and enjoy. This is what Duesenberry calls ‘demonstration effect’.

The intensity of this demonstration effect on saving seriously impairs a person’s capacity to save. He may save less even if his income has gone up; the ability to save may have increased but the willingness to save has decreased. It has been estimated that 75 per cent of the Americans do not save. The reason is not that they are too poor to save but that they are adopting better ways of living seen among the upper classes. It is thus the interdependence of consumer’s preferences which determines the choice between consumption and saving. This is Duesenberry’s relative theory of consumption and saving.

What is true of individual applies also to nations. The disparities in the real incomes of nations have a profound effect on the economic development of nations. Whereas the rich nations can help the poor nations develop economically and break the vicious circle of poverty, they also pass on to them their consumption patterns. The poor countries may not find it easy to increase productivity and raise income but it is easy to imitate costly consumption standards. Thus, there is international demonstration effect which lowers the propensity to save of the less well-off developing countries.

The demonstration effect aggravates propensity to consume and reduces capacity to save which is a serious impediment to economic development. The relative aspect of the problem needs to be emphasized again. It is not the absolute level of income which determines consumption pattern but the relative levels of national income of connected countries which affect consumption of a less prosperous country.

It follows therefore that even if the national income of a developing country goes up, it may not be able to save more than before simply because the income gap between this country and the other countries with which it has commercial or political intercourse has increased. The ability to save may have gone up but the willingness to save would have gone down on account of a keen desire to consume luxury goods which are consumed in the richer countries.

Thus, the interpersonal and international consumption functions are interrelated and not independent. The consumption and saving habits of the economically backward countries are greatly influenced by those of the prosperous countries. As Nurkse puts it, “When people come into contact with superior goods or superior patterns of consumption, with new articles or new ways of meeting old wants, they are apt to feel after a while a certain restlessness and dissatisfaction. Their knowledge is extended, their imagination stimulated, new desires are aroused, the propensity to consume is shifted upward.”

It is not merely the superior consumption prevalent in rich countries which exercises influence on the consumption in the poor countries but also the knowledge of it. First, we know and then we imitate. Knowledge opens eyes to the future possibilities. “It widens the horizons of imagination and desires.” New products or new patterns or designs of old products are constantly being advertised and brought irresistibly to the notice of the consumer at home and abroad. These new goods enter into the standard of living of the poorer communities. “The presence or the mere knowledge of new goods and new methods of consumption tends to raise the general propensity to consume.”

The movies, the radio and television, spread of education and modern travel facilities are the powerful media through which new goods or new and better ways of living are communicated far and wide. In the present state of the world attraction of advanced living standards have a fairly wide influence on the consumption of the people of low-income countries.

Propensity to save is directly influenced by propensity to consume. When the poor countries copy living standards from the rich, they must pay the price. The price is that their capacity to save must diminish. This no doubt adds to the difficulties of bringing about economic development. We have already said that this saving potential can be mobilised only if consumption is kept at the same level as before. But we have seen that when such a country comes in contact with a rich country, its propensity to consume is likely to go up. The potential domestic sources of capital are seriously impaired by the impatience and dissatisfaction, which the demonstration effect tends to generate.

This impatience to raise living standards curtails the capacity to save. The conflict between the need to save and the desire to consume is intensified by the demonstration effect. Thus the small rate of saving in poor developing countries may not be altogether due to low level of real income. It may also be due to allurement of superior levels of living. This throws new light on international economic relations. Prosperity in one country may breed prosperity in another but it may also create difficulties by provoking consumption that it cannot afford and which it should avoid for some time at any rate. The high consumption of a rich country in this manner hinders capital formation in developing economies.

We may conclude in Nurkse’s words – “The great and growing gaps between the income levels and therefore living standards of different countries, combined with increasing awareness of these gaps, may tend to push up the general propensity to save”. The entrepreneurial class in India is, in fact, aping western modes of living and squandering away profits which they should plough back into investment. The country is poorer for this senseless consumption behaviour.

How to Overcome Demonstration Effect :

Curtailing the Consumption of Luxury Goods:

The working of demonstration effect in developing economies implies that wants should be regulated or curtailed. If wants of the people go on multiplying under the influence of demonstration effect, the demand for luxuries or non-basic consumption goods will increase. This will raise the propensity to consume of the economy resulting in a low ratio of saving to income. Further, the increased wants for luxuries and their consumption will divert the basic resources such as steel, cement, machines etc., towards their production.

As a result, the production of basic consumption goods will be starved of essential resources’. The use of scarce national resources to satisfy the non-basic wants of the people when millions who live below poverty line are unable to meet their basic wants for subsistence is purely a wastage of resources.

Thus, according to Prof. A. K. Dass Gupta, “The implication of luxury consumption for an underdeveloped country is more obvious and direct. The underdeveloped countries will need a high rate of growth for quite some time to come. Their level of per capita income is too low. In India, for example, the per capita income is hardly adequate to afford a man his minimum subsistence. Even with a stationary population, the country will thus require years of capital accumulation for it to attain a civilized standard. Luxury consumption slows down the rate of accumulation and thus hampers growth.”

Limitation of Wants:

Mahatma Gandhi had warned long ago against multiplication of wants. He thus stated, “I do not believe that multiplication of wants is taking the world a single step nearer its goal. I whole-heartedly detest this and desire to increase animal appetites and go to the ends of the earth to satisfy them. If modern civilization stands for all this and I have understood it does, I call it satanic.”

It may be noted that Mahatma Gandhi was not against the satisfaction of wants for consumption goods which are absolutely needed for maintenance of health and promotion of productivity. It is the multiplication of wants for non-basic consumption goods, that is, luxuries against which Mahatma Gandhi wrote. According to him, there is no end to the multiplication of wants and efforts ought to be made to reduce them. To quote him again, The mind is a restless bird, the more it gets, the more it wants and still remains unsatisfied. Therefore, the ideal of creating an unlimited number of wants and satisfying them seems to be delusion and snare. Civilization in the real sense of the term consists not in multiplication but in the deliberate and voluntary reduction of wants.

One may not entirely agree with Mahatma Gandhi regarding the limitation of wants, but in the context of poor underdeveloped economies in which glaring inequalities of income prevail, the restraint on the multiplication of wants of the richer sections of the society is essential if economic surplus is to be generated and used for productive investment. Consumption of luxury and semi-luxury goods should therefore be controlled if rate of capital accumulation is to be stepped up.

Japan and South Asian countries were able to raise the level of their saving and investment to 30 per cent and above of their national income and achieve a high rate of economic growth by cutting consumption to the minimum. Now, the question is how to regulate wants and curtail consumption of luxury goods. One way is the adoption of fiscal measures under which heavy taxes should be imposed on luxurious consumption expenditure by individuals and business companies. Heavy excise duties and sales taxes should also be imposed on luxury goods so as to curtail their consumption by the rich people. Physical controls can be imposed on the production and distribution of luxury goods such as cars, air conditioners. These goods should be distributed to the individuals on functional basis rather than on the basis of money power.

Restricting the Production of Luxury Goods:

But the most effective method to curtail consumption of the affluent is to suitably restrict the production of luxury goods and a much high priority should be accorded to the production of basic consumption goods needed by the masses. This will raise the rate of capital accumulation on the one hand by releasing resources from the production of luxury goods and reduce inequalities between the rich and the poor on the other by raising the living standards of the latter. But the restriction on the production of luxury goods is easier said than done.

This is because luxury consumer goods are produced by the private sector in mixed economies of underdeveloped countries. Guided as they are by the market or effective demand, the private capitalists prefer to produce luxury goods since there is ample market for them by the richer sections. Prof A.K. Dass Gupta rightly states- “The Industrial Policy Resolution of 1956 gives private capitalists the complete sway over the production of consumer goods. Restrictions on imports protect them from international competition. A sheltered market is created in the country for luxury goods. These industries thus receive high priority from India’s capitalists”.

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India’s 2024 economic growth projection revised upwards by U.N. to nearly 7%

The 6.9% economic growth projections for India in the mid-year update is an upward revision from the 6.2% GDP forecast made by the U.N. in January. | Photo Credit: B. Jothi Ramalingam

The United Nations has revised upwards India’s growth projections for 2024, with the country’s economy now forecast to expand by close to 7% this year, mainly driven by strong public investment and resilient private consumption.

The World Economic Situation and Prospects as of mid-2024, released Thursday, said, “India’s economy is forecast to expand by 6.9% in 2024 and 6.6% in 2025, mainly driven by strong public investment and resilient private consumption. Although subdued external demand will continue to weigh on merchandise export growth, pharmaceuticals and chemicals exports are expected to expand strongly.”

The 6.9% economic growth projections for India in the mid-year update is an upward revision from the 6.2% GDP forecast made by the U.N. in January this year. The U.N. World Economic Situation and Prospects (WESP) 2024 report that was launched in January had said that growth in India was projected to reach 6.2% in 2024, amid robust domestic demand and strong growth in the manufacturing and services sectors. The projection in January for India’s GDP growth for 2025 remains unchanged at 6.6% in the latest assessment of the economic situation.

The update said that consumer price inflation in India is projected to decelerate from 5.6% in 2023 to 4.5% in 2024, staying within the central bank’s two to six per cent medium-term target range. Similarly, inflation rates in other South Asian countries declined in 2023 and are expected to decelerate further in 2024, ranging from 2.2% in the Maldives to 33.6% in Iran. Despite some moderation, food prices remained elevated in the first quarter of 2024, especially in Bangladesh and India.

In India, labour market indicators have also improved amid robust growth and higher labour force participation, it said. India’s government remains committed to gradually reduce the fiscal deficit, while seeking to increase capital investment.

South Asia’s economic outlook is expected to remain strong, supported by a robust performance of India’s economy and a slight recovery in Pakistan and Sri Lanka. Regional GDP is projected to grow by 5.8% in 2024 (an upward revision of 0.6 percentage points since January) and 5.7% in 2025, below the 6.2% recorded in 2023. However, still tight financial conditions and fiscal and external imbalances will continue to weigh on South Asia’s growth performance. In addition, potential increases in energy prices amid geopolitical tensions and the ongoing disruption in the Red Sea pose a risk to the regional economic outlook, it said.

The world economy is now forecast to grow by 2.7% in 2024 (an increase of 0.3 percentage points from the forecast in January) and 2.8% in 2025 (an increase of 0.1 percentage points).

The upward revisions mainly reflect a better outlook in the United States, where the latest forecast points to 2.3% growth in 2024 (an upward revision of 0.9 percentage points since January), and several large emerging economies, notably Brazil, India and Russia.

It noted that several large developing economies – Indonesia, India and Mexico – are benefiting from strong domestic and external demand. In comparison, many economies in Africa and Latin America and the Caribbean are on a low-growth trajectory, facing high inflation, elevated borrowing costs, persistent exchange rate pressures and lingering political instability. The possible intensification and spreading of conflicts in Gaza and the Red Sea add further uncertainties to the near-term outlook for the Middle East, the mid-year update said.

Global trade is expected to recover in 2024. The early boost to trade flows in the first months of the year can be attributed to destocking of the inventory that piled up amid supply-chain disruptions in 2021-22. “China’s foreign trade grew faster than expected in the first two months in 2024, driven largely by exports to emerging markets, particularly to Brazil, India and Russia,” it said.

However, persistent geopolitical tensions in the Middle East and disruptions in the Red Sea, and escalating cost of freight continue to pose challenges to global trade, it added.

The mid-year update said global economic prospects have improved since January, with major economies avoiding a severe downturn, bringing down inflation without increasing unemployment. However, the outlook is only cautiously optimistic. Higher-for-longer interest rates, debt sustainability challenges, continuing geopolitical tensions and ever-worsening climate risks continue to pose challenges to growth, threatening decades of development gains, especially for least developed countries and small island developing states.

The outlook for China registers a small uptick with growth now expected to be 4.8 per cent in 2024, from 4.7 per cent projected in January. China’s growth is projected to moderate to 4.8% in 2024, from 5.2% in 2023. Pent-up consumer demand – released after the lifting of pandemic-related restrictions – has largely dissipated. While enhanced policy support is expected to boost investments in public infrastructure and strategic sectors, the property sector poses a significant downside risk to the Chinese economy, it said.

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India’s economic growth, the way forward

India now stands at  6th position in terms of GDP  (Gross Domestic Product). It is poised to become 8 trillion-dollar economy,  third largest by 2030 . India is already third largest, only behind USA and China in terms of PPP (purchasing power parity). National Statistical Office, estimated GDP growth rate of 9.2% in real terms in 2021-22. According to estimates of  IMF , India will be fastest growing economy at least for coming couple of years with a growth rate of 8-8.5 %. Various indicators, including data from Economic Survey 2021-22, shows that the economy has  surpassed pre-pandemic level  of 2019-20 and is showing strong signs of tremendous recovery.

In globalized world, India cannot grow in isolation while rest of the nations is undergoing one or other kind of issues. COVID-19 has impacted supply chains, global trade etc like never before. This grim situationhas negative impact on India’s exports which are essential component of nation’s growth story . Intense competition from other emerging economies and few least developed countries also needs to be addressed to increase our exports. Moreover, formation of various Regional Trade Blocks such as  RCEP  (Regional Comprehensive Economic Partnership),  CPTPP  (Comprehensive and Progressive agreement for Trans-Pacific Partnership) are also throwing challenges to increase India’s exports. On the other hand, supply chain disruptions are adding to the burden. For example, deficiency  of semi- conductor devices has negatively impacted  Automobile sector .

Infrastructure development has to precede growth. For example, roads need to be built to increase connectivity for seem less travel of goods and people. This will enhance the efficiency of logistics sector. Facilities for electricity, water, internet connection etc has to be kept ready for industrial growth. On the other hand, in India, these needs are taken care after months of requesting officials for the lack of funding or bureaucratic apathy. Government has put in a lot of efforts to address many of these issues as mentioned below.

Insolvency and Bankruptcy Code (IBC), Simplification of Labor Codes  are done to improve “Ease of doing business”, which further improve investments in to the country accounting for financial needs.  National Monetization Pipeline, Infrastructure Development funds are announced for the development of infrastructure .Corporate Tax Incentives, Performance Linked Incentive scheme is to increase the efficacy of manufacturing there by increasing exports. In budget 2022-23, government has considerably increased  capital expenditure  as it has higher multiplier effect on economic growth. To increase liquidity, RBI has been keeping interest rates considerably low.  RBI has reduced repo rate by more than 200 basis points  and kept so for more than a year despite inflationary fears, to keep robust economic growth growing. However, much more need to be done.

Way Forward:

The intention of executive to become third largest economy by 2030 will become reality only if the above suggestions and measures were implemented with heart and soul. India has also committed to achieve “net zero emissions target by 2070”. Instead of viewing it as obstacle, Indian economy should be more on sustainable growth – through investments in  solar, wind, nuclear energy etc . Along with IBC, faster judicial proceedings will further increase investments into India, aiding growth.

The biggest criticism the Indian economy faced after the  LPG  (Liberalization, Privatization, Globalization) reforms of 1991 is  jobless growth . This has increased the inequality drastically with the top 1% of the population holding more than 50% of the wealth, according to “Oxfam International”. Hence there is an urgent need to shift towards labor-intensive sectors such as  textile, leather, food processing  as suggested by previous Economic Surveys. Traditional industries such as  toy making  can be encouraged. There must be more focus on human resource development through skill development etc. Schemes such as “Pradhan Mantri Kaushal Vikas Yojana” are a great impetus to such efforts.

Government must  increase funding to Research and Development  – as history shows only such countries have become superpowers – for example-USA and China. This will bridge the gap between employer requirements and employee capabilities. This step on the one hand will address the issue of unemployment, on the other hand,  will stop the brain drain .  MSMEs (Micro Small and Medium Enterprises) contribute more than 48% to Indian exports and 29% to Indian GDP . MSMEs were the most affected due to the COVID-19 pandemic. Hence there must be extra careful to make government incentives accessible to all MSMEs. Credit Guarantee Fund  for MSMEs is a step in the right direction.

Similarly, start-ups are going to be the future of any economy. India witnessed the emergence of  Unicorn start-ups  during the pandemic, which are hubs of knowledge. India is also the  third-largest  start-up ecosystem in the world. There might be an emergence of future Facebook/Apple/Google from these startups. Hence special assistance must be given to them in terms of  extended tax holidays, easing compliance requirements,  etc. India can take advantage of its  demographic dividend  through start-ups. Once all these steps are followed in letter and spirit India can be as rich as USA and China by the time, we celebrate 100 years of independence in 2047.

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Un revises india's 2024 growth forecast to 6.9%.

“India’s economy is forecast to expand by 6.9 per cent in 2024 and 6.6 per cent in 2025,29 mainly driven by strong public investment and resilient private consumption,” the UN Department of Economic and Social Affairs said.

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Women in India's Economic Growth

Annette Dixon, World Bank South Asia Vice President The Economic Times Women's Forum Mumbai, India

As Prepared for Delivery

I am delighted to be here today and to have the opportunity to share my thoughts on a very important topic: how India can accelerate its growth through encouraging greater economic participation by women. 

An impressive 133 million Indians rose out of poverty between 1994 and 2012, an achievement that India and the world can be proud of. While worthy of celebration, the success could have been even more dramatic if a greater number of women could contribute to the work force.

In 2012, only 27 percent of adult Indian women had a job, or were actively looking for one, compared to 79 percent of men. In fact, almost 20 million women had dropped out of the workforce between 2005 and 2012. This is equivalent to the entire population of Sri Lanka.

Worryingly, India’s rapid urbanization has not yet encouraged more women to join the labor force. Rural jobs have been decreasing and not enough rural women have been able to make the transition to working in urban areas. This makes the need for greater public safety and safe transport more significant. By any measure, the gap is particularly large and has been widening.

India ranks 120 among 131 countries in female labor force participation rates and rates of gender-based violence remain unacceptably high. It’s hard to develop in an inclusive and sustainable way when half of the population is not fully participating in the economy. At 17% of GDP, the economic contribution of Indian women is less than half the global average, and compares unfavorably to the 40% in China, for instance. India could boost its growth by 1.5 percentage points to 9 percent per year if around 50% of women could join the work force.

This is not to say that India has not had some success. Some young women are staying in school longer, and others are choosing to leave work as circumstances change and incomes rise, but India must turn the tide to realize its development potential. What will it take to reverse this trend and embark on the next chapter of India’s success story?

Valuing girls and women is critical factor in making societies more prosperous and my experience of working in other countries shows this. Women’s economic empowerment is highly connected with poverty reduction as women also tend to invest more of their earnings in their children and communities.

For its part, the World Bank ensures that its projects are structured to foster greater economic participation by women. For example, we have invested over $3 billion over the past 15 years to support state governments to empower poor rural women through self-help groups. These projects have supported 45 million poor women access skills, markets and business development services. Some of them have become successful entrepreneurs and inspiration for others. As a result, the evidence shows that these women experience greater food security, better access to finance, and higher incomes that benefit their families and communities.

The Skill India Mission that we are supporting not only provides women relevant skills sought by employers, it also ensures that training programs are sensitive to their needs through helping to provide safe transport, flexible schedules and childcare support. In Jharkhand, the World Bank is investing in adolescent girls to help them complete their secondary education and providing mentoring services for them to succeed in the job market. 

However, these projects and interventions alone are insufficient. Research shows that even women that have completed skills programs and get jobs tend to drop out in response to family pressures. Changing social norms around marriage, work and household duties will have to be part of the agenda.

Let’s spark the interest of young girls in subjects like science and mathematics, and convince them that they are just as capable as boys; that they too can build on careers in engineering, scientific research, IT, and fields that are in demand with prospective employers. We must also raise our sons to respect girls and women, and make it clear that there is zero-tolerance for gender-based violence.

In the home, we need families to see their girls as capable future professionals. Household responsibilities can be equitably divided between men and women.  It is an opportune time to revisit and reform outdated legislation and policies that act as deterrents to women entering or staying in the labor market. Fostering the creation of better jobs, providing support for child and elder care, and ensuring mobility to and from work can remove significant structural barriers for women to access employment.

Employers need to walk the talk and commit to supporting diversity in the workplace by hiring women and paying them the same wages as men for similar jobs. We need safe transportation and zero tolerance of sexual harassment in the office. The private sector should take a leading role in expanding women’s share of employment and firm ownership in emerging industries.

We can accelerate progress by working together. Gender-focused planning is more effective when it’s incorporated into everything that we do. Today the World Bank thinks about gender based development in a range of areas and incorporates it in our project design and implementation across different areas.

Last year, I travelled on the Mumbai suburban train from Churchgate to Dadar station. There I met a cross-section of Mumbai’s working women – those with jobs in banking and finance, as well as those carrying baskets of fish for sale. Each woman, in her own way, was an invaluable part of this great big bustling city, contributing to its dynamism and vibrancy.

The women I spoke with appreciated the new trains we had helped introduce, with higher speeds, more comfortable seats and better ventilation systems. But they wanted more to be done to make the trains safer, as well as better connectivity between stations and their often-distant homes. Recognizing these challenges, we are working closely with the Government of Maharashtra to ensure that the next project addresses these concerns with gender-based planning at the core of its design.

I saw the difference a safe working environment can make in encouraging women to work in Tamil Nadu. There, I saw young women working in garment manufacturing, far from their village homes. They had become the main breadwinners for their often-impoverished families. Many girls were now helping family members with education and other expenses. They told me that had they remained at home, their lives would be very different. What helped change the lives of these girls, and turned their families’ fortunes around, was the availability of safe hostel facilities for them nearby. 

There are many examples and indications that the government is acting to turn the trend around. Some promising signs are the government’s program for skills development, subsidized loans for businesses led by women, and recent legislation doubling maternity leave, and requiring childcare facilities in companies that employ more than 50 people. If implemented and respected, these policies could remove some of the barriers women face and offer a significant boost to India’s economy.

As the examples and anecdotes show, success will hinge on collaboration between stakeholders, ranging from government ministries, to education providers, to public sector and especially private sector employers down to the actions of each of us.

In the end, Indian women themselves will have to play a key role in claiming a space for themselves in India’s work force. Personally, I will continue to advocate for them. I hope you will join me.

Let’s all pledge together today to increase women’s participation in the work force, and realize a higher level of growth and development for India that is more inclusive and sustainable.

UN revises India's 2024 GDP growth upwards to 6.9% from 6.2% projected in Jan

T he United Nations has revised India’s growth projections for 2024, and has projected the economy to expand by close to 7 per cent this year. The agency’s World Economic Situation and Prospects (WESP) report as of mid-2024, released on Thursday, stated that India’s economy is forecast to expand by 6.9 per cent in 2024 and 6.6 per cent in 2025. 

“India’s economy is forecast to expand by 6.9 per cent in 2024 and 6.6 per cent in 2025, mainly driven by strong public investment and resilient private consumption. Although subdued external demand will continue to weigh on merchandise export growth, pharmaceuticals and chemicals exports are expected to expand strongly,” the report stated. 

The UN in January had projected a growth rate of 6.2 per cent, which has now been revised upwards. The projection for 2025 at 6.6 per cent remains unchanged. 

The update projected a deceleration of consumer price inflation from 5.6 per cent in 2023 to 4.5 per cent in 2024. This is in line with the Reserve Bank of India’s (RBI’s) 2-6 per cent medium-target range. 

Labour market indicators have improved too amid a robust growth and higher labour force participation. The government is also committed to gradually reduce fiscal deficit, and increase capital investment. 

The UN projection comes after Moody’s Ratings pegged the growth of the Indian economy at 6.6 per cent in the current fiscal year, which is lower than the RBI and other agencies’, but at par with Deloitte’s, which also projected a growth of 6.6 per cent.

The RBI, on the other hand, projected a growth of 7 per cent in the current fiscal, while S&P Global Ratings and Morgan Stanley projected a growth rate of 6.8 per cent. Asian Development Bank (ADB) and Fitch Ratings each also estimated growth at 7 per cent. 

WORLD ECONOMY GROWTH

Pakistan and Sri Lanka exhibited slight recovery, and along with India’s robust performance the economic outlook of South Asia is expected to remain strong. The regional GDP was also projected upwards to grow at 5.8 per cent in 2024, a revision of 0.6 per cent since January, and 5.7 per cent in 2025. 

The world economy, meanwhile, is projected to grow by 2.7 per cent, an increase of 0.3 percentage points from the January forecast, and 2.8 per cent in 2025, an increase of 0.1 percentage points. 

The latest forecast points to 2.3 per cent growth in 2024, an upward revision of 0.9 percentage points for the US. China’s growth rate was also revised to 4.8 per cent in 2024, from 4.7 per cent projected in January. 

Several large developing countries like Indonesia, India and Mexico are benefiting from strong domestic and external demand, but many economies in Africa, Latin America and Caribbean are on a low-growth trajectory facing high inflation, elevated borrowing costs, persistent exchange rate pressures and lingering political instability. 

Global trade is expected to recover in 2024, but persistent geopolitical tensions in the Middle East, disruptions in the Red Sea, and escalating cost of freight continue to pose challenges.

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UN reports improved prospects for the world economy and forecasts 2.7% growth in 2024

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UNITED NATIONS (AP) — The United Nations reported improved prospects for the world economy since its January forecast on Thursday, pointing to a better outlook in the United States and several large emerging economies including Brazil, India and Russia.

According to its mid-2024 report, the world economy is now projected to grow by 2.7% this year – up from the 2.4% forecast in its January report – and by 2.8% in 2025. A 2.7% growth rate would equal growth in 2023, but still be lower than the 3% growth rate before the COVID-19 pandemic began in 2020.

“Our prognosis is one of guarded optimism, but with important caveats,” Shantanu Mukherjee, director of the U.N.’s Economic Analysis and Policy Division, told a news conference launching the report.

The report pointed to interest rates that are higher for longer periods, debt repayment challenges, continuing geopolitical tensions and climate risks especially for the world’s poorest countries and small island nations.

Mukherjee said inflation, which is down from its 2023 peak, is both “a symptom of the underlying fragility” of the global economy where it still lurks, “but also a cause for concern in its own right.”

“We’ve seen that in some countries inflation continues to be high,” he said. “Globally, energy and food prices are inching upward in recent months, but I think a bit more insidious even is the persistence of inflation above the 2% central bank target in many developed countries.”

The U.N. forecast for 2024 is lower than those of both the International Monetary Fund and the Organization for Economic Cooperation and Development.

In mid-April, the IMF forecast that the world economy would continue growing at 3.2% during 2024 and 2025, the same pace as in 2023. And the OECD in early May forecast 3.1% growth in 2024 and 3.2% in 2025.,

The latest U.N. estimates foresee 2.3% growth in the United States in 2024 , up from 1.4% forecast at the start of the year, and a small increase for China from 4.7% in January to 4.8%. for the year.

Despite climate risks, the report by the U.N. Department of Economic and Social Affairs forecasts improved economic growth from 2.4% in 2023 to 3.3% in 2024 for the small developing island nations primary due to a rebound in tourism.

On a negative note, the report projects that economic growth in Africa will be 3.3%, down from 3.5% forecast at the beginning of 2024. It cited weak prospects in the continent’s largest economies – Egypt, Nigeria and South Africa – along with seven African countries “in debt distress” and 13 others at “high risk of debt distress.”

Mukherjee said the lower forecast for Africa “is particularly worrying because Africa is home to about 430 million (people) living in extreme poverty and close to 40% share of the global undernourished population” and “two-thirds of the high inflation countries listed in our update are also in Africa.”

For developing countries, he said, the situation isn’t “as dire” but an important concern is the continuing fall and sharp decline in investment growth.