Indian Economy

By Dhruv sharma CSE

Introduction:-

The Economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity(PPP).  The country is one of the G-20 major economies and a member of BRICS. In 2011, the country's per capita income stood at $3,694 IMF, 129^th in the world, thus making a lower-middle income economy.

After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption.

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labour force and considerable foreign investments. India is the nineteenth largest exporter and tenth largest importer in the world. Economic growth rates are projected at around 7% for the 2011-12.

History:-

The known Economic history of India begins with the Indus Valley civilization. The Indus civilization's economy appears to have depended significantly on trade, which was facilitated by advances in transport. Around 600 BC, the Mahajanapadas minted punch-marked silver coins. The period was marked by intensive trade activity and urban development. By 300 B.C., the Maurya Empire united most of the Indian subcontinent. The political unity and military security allowed for a common economic system and enhanced trade and commerce, with increased agricultural productivity.

For the next 1500 years, India produced its classical civilizations such as the Rashtrakutas, Hoysalas and Western Gangas. During this period India is estimated to have had the largest economy of the ancient and medieval world between the 1st and 17th centuries AD, controlling between one third and one fourth of the world's wealth up to the time of the Marathas, from whence it rapidly declined during European rule.

History is divided into four periods:-

Ø Pre-colonial period (up to 1773):-

The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well-planned streets, a drainage system and water supply reveals their knowledge of urban, which included the world's first urban sanitation systems and the existence of a form of municipal government.

Ø Colonial period (1773–1947):-

Company rule in India brought a major change in the taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines. The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment. After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term showed an upward trend. The result was a significant transfer of capital from India to England, which, due to the colonial policies of the British, led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy.

Ø Pre-liberalisation period (1947–1991):-

Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to British social democracy as well as the progress achieved by the planned economy of the Soviet Union. Domestic policy tended towards protectionism, with a strong emphasis on import substitution industrialisation, economic interventionism, a large public sector, business regulation, and central planning, while trade and foreign investment policies were relatively liberal. Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s.

Ø Post-liberalisation period (since 1991):-

In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for non-communist economies. However, the subsequent government policy of  Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms.

SECTORS OF THE INDIAN ECONOMY

·      Primary Sector

When the economic activity depends mainly on exploitation of natural resources then that activity comes under the primary sector. Agriculture and agriculture related activities are the primary sectors of economy.

Agriculture:-

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 2009–10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world. Indian states  Uttar Pradesh,  Punjab,  Haryana,  Madhya Pradesh,  Andhra Pradesh,  Bihar,  West Bengal and Maharashtra are key agricultural contributing states of India.

·      Secondary Sector

When the main activity involves manufacturing then it is the secondary sector. All Industrial production where physical goods are produced come under the secondary sector.

Industry and service:-

Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is 12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods. Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes.

·      Tertiary Sector

When the activity involves providing intangible goods like services then this is part of the tertiary sector. Financial services, management consultancy, telephony and IT are good examples of service sector.

Banking and finance

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies. The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.

Information technology

The Information technology industry in India has gained a brand identity as a knowledge economy due to its IT and ITES sector. The IT–ITES industry has two major components: IT Services and business process outsourcing (BPO). The growth in the service sector in India has been led by the IT–ITES sector, contributing substantially to increase in GDP, employment, and exports. The sector has increased its contribution to India's GDP from 1.2% in FY1998 to 7.1% in FY2011. According to NASSCOM, the IT–BPO sector in India aggregated revenues of US$88.1 billion in FY2011, where export and domestic revenue stood at US$59 billion and US$29 billion respectively. The top seven cities that account for about 90% of this sectors exports are Bangalore, Chennai, Hyderabad, Mumbai, Pune, Delhi, Kolkata and Coimbatore.

Income and consumption:-

India's gross national income per capita had experienced astonishing growth rates since 2002. India's Per Capita Income has tripled from Rs.19,040 in 2002–03 to Rs.53,331 in 2010–11, averaging 13.7% growth over these eight years. It further grew by 14.3% to reach Rs.60,972 during 2011–12 fiscal. Indian official estimates of the extent of poverty have been subject to debate, with concerns being raised about the methodology for the determination of the poverty line. As of 2005, according to World Bank statistics, 75.6% of the population lived on less than $2 a day (PPP), while 27.5% of the population was living below the new international poverty line of $1.25 (PPP) per day. However, data released in 2009 by the Government of India estimated that 37% of the population lived below the poverty line.

Housing is modest. According to The Times of India, a majority of Indians had a per capita space equivalent to or less than a 100 square feet (9.3 m²) room for their basic living needs, and one-third of urban Indians lived in "homes too cramped to exceed even the minimum requirements of a prison cell in the US. The average is 103 sq ft (9.6 m²) per person in rural areas and 117 sq ft (10.9 m²) per person in urban areas. Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa. However, India has not had any major famines since Independence.

Employment:-

Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10. While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in the organised sector, two-thirds of which are in the public sector. The NSSO survey estimated that in 2004–05, 8.3% of the population was unemployed, an increase of 2.2% over 1993 levels, with unemployment uniformly higher in urban areas and among women. Growth of labour stagnated at around 2% for the decade between 1994–2005, about the same as that for the preceding decade. Avenues for employment generation have been identified in the IT and travel and tourism sectors, which have been experiencing high annual growth rates of above 9%.

Economic disparities:-

A critical problem facing India's economy is the sharp and growing regional variations among India's different states and territories in terms of poverty, availability of infrastructure and socio-economic development. Six low-income states – Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh – are home to more than one third of India's population. Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.