Economic development in India

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Main article: Economy of India
Major improvements in educational standards across India has helped its economic rise. Shown here is the Indian School of Business at Hyderabad, ranked number 15 in global MBA rankings by the Financial Times of London in 2009[1]

The economic development in India followed a socialist-inspired policies for most of its independent history, including state-ownership of many sectors; extensive regulation and red tape known as "Licence Raj"; and isolation from the world economy. India's per capita income increased at only around 1% annualized rate in the three decades after Independence.[2] Since the mid-1980s, India has slowly opened up its markets through economic liberalization. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a market-based system.[2]

In the late 2000s, India's growth has reached 7.5%, which will double the average income in a decade.[2] Analysts say that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's 2011 target of 10%.[2] States have large responsibilities over their economies. The annualized 1999-2008 growth rates for Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were significantly higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%).[3] India is the twelfth-largest economy in the world and the fourth largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks 128th in the world or 118th by PPP.

Although living standards are rising fast, 75.6% of the population still lives on less than $2 a day (PPP, around $0.5 in nominal terms), compared to 73.0% in Sub-Saharan Africa.[4] In terms of occupation, two-thirds of the Indian workforce earn their livelihood directly or indirectly through agriculture in rural villages. As a proportion of GDP, towns and cities make over two thirds of the Indian economy.

The progress of economic reforms in India is followed closely. The World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labor regulations, reforms in lagging states, and HIV/AIDS.[5] India ranked 120th on the Ease of Doing Business Index in 2008, compared with 83rd for China and 122nd for Brazil.

Agriculture

Main article: Agriculture in India
Composition of India's total production (million tonnes) of foodgrains and commercial crops, in 2003–04.

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce[6] and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in 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.[citation needed]

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.[7] It also has the world's largest cattle population (193 million).[8] It is the second largest producer of wheat, rice, sugar, groundnut and inland fish.[9] It is the third largest producer of tobacco.[9] India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.[9]

The required level of investment for the development of marketing, storage and cold storage infrastructure is estimated to be huge. The government has implemented various schemes to raise investment in marketing infrastructure. Among these schemes are Construction of Rural Go downs, Market Research and Information Network, and Development / Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization.[10]

Main problems in the agricultural sector, as listed by the World Bank, are:[11]

  • India's large agricultural subsidies are hampering productivity-enhancing investment.
  • Overregulation of agriculture has increased costs, price risks and uncertainty.
  • Government interventions in labor, land, and credit markets.
  • Inadequate infrastructure and services.
Research and development

The Indian Agricultural Research Institute (IARI), established in 1905, was responsible for the research leading to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex body in agriculture and related allied fields, including research and education.[12] The Union Minister of Agriculture is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for the design of agricultural experiments, analyses data in agriculture, and specializes in statistical techniques for animal and plant breeding. Prof. M.S. Swaminathan is known as "Father of the Green Revolution" and heads the MS Swaminathan Research Foundation.[13] He is known for his advocacy of environmentally sustainable agriculture and sustainable food security.

Industrial output

India is fourteenth in the world in factory output. Manufacturing sector in addition to mining, quarrying, electricity and gas together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms introduced after 1991 brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.[14]

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.[15]

Services

India is fifteenth in services output. Service industry employs 23% of the work force and is growing quickly, with a growth rate of 7.5% in 1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950.[6] Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialisation and availability of a large pool of low cost. Highly skilled, educated and fluent English-speaking workers on the supply side and on the demand side, has increased demand from foreign consumers interested in India's service exports or those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of payments, accounts for only about 1% of the total GDP or 1/50th of the total services.[16]

The ITES-BPO sector has become a big employment generator especially amongst young college graduates. The number of professionals employed by IT and ITES sectors is estimated at around 1.3 million as on March 2006. Also, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect and induced employment.[17]

Banking and finance

Main articles: Banking in India and Insurance in India
The RBI headquarters in Mumbai

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.[6][18]

Currently, in 2007, banking in India is generally mature in terms of supply, product range and reach-even, though reach in rural India still remains a challenge for the private sector and foreign banks.[19] In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies of Asia.[19] The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate.[20]

Currently, India has 88 scheduled commercial banks (SCBs) — 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks.[21] They have a combined network of over 53,000 branches and 17,000 ATMs. The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[21]

Companies

34 Indian companies have been listed in the Forbes Global 2000 ranking for 2007.[22] The 10 leading companies are:

World Rank Company Logo Industry Revenue
(billion $)		 Profits
(billion $)		 Assets
(billion $)		 Market Value
(billion $)
239 Oil and Natural Gas Corporation File:ONGC Logo.jpg Oil & Gas Operations 15.64 3.46 26.98 38.19
258 Reliance Industries Oil & Gas Operations 18.05 2.11 21.75 42.62
326 State Bank of India Banking 13.66 1.24 156.37 12.35
399 Indian Oil Corporation File:Iocl logo.jpg Oil & Gas Operations 34.22 1.11 22.68 10.92
494 NTPC Utilities 6.06 1.31 17.25 26.06
536 ICICI Bank Banking 5.79 0.54 62.13 16.72
800 Steel Authority of India Limited File:Saillogo.JPG Materials 6.30 0.91 7.06 10.16
1047 Tata Consultancy Svcs Software & Services 2.98 0.67 1.93 26.27
1128 Tata Steel Materials 4.54 0.84 4.61 5.80
1130 Infosys Technologies Software & Services 2.14 0.55 2.09 26.19

India's resource consumption

Oil

India had about 5.6 billion barrels (890,000,000 m3) of proven oil reserves as of January 2007, which is the second-largest amount in the Asia-Pacific region behind China.[23] Most of India's crude oil reserves are located in the western coast (Mumbai High) and in the northeastern parts of the country, although considerable undeveloped reserves are also located in the offshore Bay of Bengal and in the state of Rajasthan.

The combination of rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet the consumption needs. In 2006, India produced an average of about 846,000 barrels per day (bbl/d) of total oil liquids, of which 77%, or 648,000 bbl/d (103,000 m3/d), was crude oil.[23] During 2006, India consumed an estimated 2.63 Mbbl/d (418,000 m3/d) of oil.[24] The Energy Information Administration (EIA) estimates that India registered oil demand growth of 100,000 bbl/d (16,000 m3/d) during 2006.[25] EIA forecasts suggest that country is likely to experience similar gains during 2007 and 2008.

Sector organisation

India’s oil sector is dominated by state-owned enterprises, although the government has taken steps in past recent years to deregulate the hydrocarbons industry and support greater foreign involvement. India’s state-owned Oil and Natural Gas Corporation (ONGC) is the largest oil company, and also the country’s largest company overall by market capitalization. ONGC is the leading player in India’s upstream sector, accounting for roughly 75% of the country’s oil output during 2006, as per Indian government estimates.[23]

As a net importer of oil, the Government of India has introduced policies aimed at growing domestic oil production and oil exploration activities. As part of the effort, the Ministry of Petroleum and Natural Gas crafted the New Exploration License Policy (NELP) in 2000, which permits foreign companies to hold 100% equity possession in oil and natural gas projects.[23] However, to date, only a handful of oil fields are controlled by foreign firms. India’s downstream sector is also dominated by state-owned entities, though private companies have enlarged their market share in past recent years.[23]

Natural gas

As per the Oil and Gas Journal, India had 38 trillion cubic feet (Tcf) of confirmed natural gas reserves as of January 2007. A huge mass of India’s natural gas production comes from the western offshore regions, particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also major producers of natural gas. As per EIA data, India produced 996 billion cubic feet (Bcf) of natural gas in 2004.[26]

India imports small amounts of natural gas. In 2004, India consumed about 1,089×10^9 cu ft (3.08×1010 m3) of natural gas, the first year in which the country showed net natural gas imports. During 2004, India imported 93×10^9 cu ft (2.6×109 m3) of liquefied natural gas (LNG) from Qatar.[26]

Sector Organization

As in the oil sector, India’s state-owned companies account for the bulk of natural gas production. ONGC and Oil India Ltd. (OIL) are the leading companies with respect to production volume, while some foreign companies take part in upstream developments in joint-ventures and production sharing contracts (PSCs). Reliance Industries, a privately-owned Indian company, will also have a bigger role in the natural gas sector as a result of a large natural gas find in 2002 in the Krishna Godavari basin.[26]

The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline projects. While GAIL’s domination in natural gas transmission and allocation is not ensured by statute, it will continue to be the leading player in the sector because of its existing natural gas infrastructure.[26]

Issues

See also: Economy of India
Regulation, public sector, corruption
Main article: Corruption in India

India ranked 120th on the Ease of Doing Business Index in 2008, compared with 86th for Pakistan, 83rd for People's Republic of China, 108th for Nigeria, 122nd for Brazil,and 123rd for Indonesia.

Extent of corruption in Indian states, as measured in a 2005 study by Transparency International India. (Darker regions are more corrupt)[27]

Corruption in many forms has been one of the pervasive problems affecting India. For decades, the red tape, bureaucracy and the Licence Raj that had strangled private enterprise.[28] The economic reforms of 1991 cut some of the worst regulations that had been utilized in corruption.

Corruption is still large. A 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying a bribe or peddling influence to get a job done in a public office.[27] The chief economic consequences of corruption are the loss to the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores.[27] India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared with China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances.[27][29] The 2006 report by Transparency International puts India at 70th place and states that significant improvements were made by India in reducing corruption.[30] [31]

Employment

India's labor force is growing by 2.5% every year, but employment is growing only at 2.3% a year.[32] Official unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs and remain unpaid for the rest of the time.[32] Only 10% of the workforce is in regular employment.[32] India's labor regulations are heavy even by developing country standards and analysts have urged the government to abolish them.[2][33]

Most children never go beyond primary level schooling. Children under 14 constitute 3.6% of the total labor force in the country. Of these children, 9 out of every 10 work in their own rural family settings. Around 85% of them are engaged in traditional agricultural activities. Less than 9% work in manufacturing, services and repairs.[34] Child labor is a complex problem that is basically rooted in poverty. The Indian government is implementing the world's largest child labor elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organizations are also involved. Special investigation cells have been set up in states to enforce existing laws banning employment of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of child labor was $10 million in 1995-96 and $16 million in 1996-97. The allocation for 2007 is $21 million.[34]

Environmental Degradation
Main article: Environment in India

About 1.2 billion people in developing nations lack clean, safe water because most household and industrial wastes are dumped directly into rivers and lakes without treatment. This contributes to the rapid increase in waterborne diseases in humans.[35] Out of India's 3119 towns and cities, just 209 have partial treatment facilities, and only 8 have full wastewater treatment facilities (WHO 1992).[36] 114 cities dump untreated sewage and partially cremated bodies directly into the Ganges River.[37] Downstream, the untreated water is used for drinking, bathing, and washing. This situation is typical of many rivers in India as well as other developing countries. Globally, but especially in developing nations like India where people cook with fuelwood and coal over open fires, about 4 billion humans suffer continuous exposure to smoke. In India, particulate concentrations in houses are reported to range from 8,300 to 15,000 μg/m3, greatly exceeding the 75 μg/m3 maximum standard for indoor particulate matter in the United States.[38] Changes in ecosystem biological diversity, evolution of parasites, and invasion by exotic species all frequently result in disease outbreaks such as cholera which emerged in 1992 in India. The frequency of AIDS/HIV is increasing. In 1996, about 46,000 Indians out of 2.8 million (1.6 % of the population) tested were found to be infected with HIV.[39]

Future predictions

File:IndianEconomicForecast.SVG
Goldman Sachs has predicted that India will become 3rd largest economy of the world by 2035 based on predicted growth rate of 5.3 to 6.1%. Currently It is cruising at 9.4% growth rate.

It has been estimated by the economists that the domestic political scene will be dominated by the upcoming general election, which is due to be held by May 2009 but might be held sooner. The increasing importance of regional parties will ensure that the next government will again be a coalition government, likely to be led by either the current ruling party (Indian National Congress) or by the main opposition (Bharatiya Janata Party). A governing alliance of regional and left-wing parties could also be a possibility.[40]

The Reserve Bank of India (RBI, the central bank) is most likely to maintain a bias towards monetary tightening during the remainder of 2007 in order to keep inflation under control. Monetary policy will move to a more neutral orientation in 2008 to 2012, provided that the wholesale price inflation remains within the RBI's medium-term target range of 4 to 4.5%.[40]

The government will remain committed to increased spending on public facilities such as health, education and rural welfare projects in a bid to improve living standards outside the country's fast-growing urban localities. Also, the strong economic growth will increase tax revenue, allowing the government to continue to reduce the budget deficit. The real GDP growth (on an expenditure basis) is forecast to slow from 9.4% in fiscal year 2006/2007 (from April to March) to an annual average of 7.7% in 2007/2008 to 2012/2013. Information technology (IT) and IT-enabled services (ITES) output will grow rapidly in the upcoming period, owing to India's cost advantages in these sectors.[40]

The strength of the Indian rupee against the US dollar will mitigate inflationary pressures by limiting import-led price rises. However, strong domestic demand, together with supply-side bottlenecks, will keep consumer price inflation at an average of nearly 5.1% a year in 2008 to 2012.[40] For the years 2008-2010, India, is the second largest destination for Foreign direct investment, after China.

References

  1. ^ Indian School of Business placed 20th in global Top 100 rankings - livemint
  2. ^ a b c d e Economic survey of India 2007: Policy Brief. OECD.
  3. ^ A special report on India: Ruled by Lakshmi Dec 11th 2008 From The Economist print edition
  4. ^ The developing world is poorer than we thought, but no less successful in the fight against poverty
  5. ^ India Country Overview 2008. World Bank
  6. ^ a b c "CIA - The World Factbook - India". CIA. 2007-09-20. Retrieved 2007-10-02. {{cite web}}: External link in |publisher= (help)
  7. ^ Agriculture sector Indo British Partnership network, Retrieved on December 2007
  8. ^ Lester R. Brown World's Rangelands Deteriorating Under Mounting Pressure Earth Policy Institute, Retrieved on- February 2008
  9. ^ a b c Indian agriculture Agribusiness Information Centre, Retrieved on- February 2008
  10. ^ Agriculture marketing india.gov Retrieved on- February 2008
  11. ^ India: Priorities for Agriculture and Rural Development. World Bank
  12. ^ Objectives Indian agricultural research institute, Retrieved on December 2007
  13. ^ MS Swaminathan Times Inc. Retrieved on- 21 February, 2008
  14. ^ "Economic structure". The Economist. October 6, 2003.
  15. ^ "Indian manufacturers learn to compete". The Economist. February 12, 2004.
  16. ^ Gordon, Jim and Gupta, Poonam (2003). "Understanding India's Services Revolution" (PDF). November 12, 2003. {{cite journal}}: Cite journal requires |journal= (help)CS1 maint: multiple names: authors list (link)
  17. ^ ITES and BPO Services india.gov Retrieved on- February 2008
  18. ^ Datt, Ruddar & Sundharam, K.P.M. "50". Indian Economy. pp. 865–867.{{cite book}}: CS1 maint: multiple names: authors list (link)
  19. ^ a b Nishtha Khurana Crisis Prevention and Capital Controls in India boeckler.de, Retrieved on- October 2007
  20. ^ Rajesh Chakrabarti Foreign Exchange Markets isb.edu Retrieved on- February 2008
  21. ^ a b India growth story is attracting talent from govt establishments HT media, Retrieved on- December 2007
  22. ^ "Forbes Global 2000 (Ger-Ind)". Retrieved October 3. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  23. ^ a b c d e "Energy Information Administration (EIA)". Statistical agency of the U.S. Department of Energy. Retrieved 2007-10-23.
  24. ^ International Petroleum Monthly 2005-2006
  25. ^ International Petroleum Monthly 2005-2006
  26. ^ a b c d "Energy Information Administration (EIA)". Statistical agency of the U.S. Department of Energy. Retrieved 2007-10-27.
  27. ^ a b c d Centre for Media Studies (2005). "India Corruption Study 2005: To Improve Governance Volume – I: Key Highlights" (PDF). Transparency International India. {{cite journal}}: Cite journal requires |journal= (help)
  28. ^ DeLong, J. Bradford (2001). "India Since Independence: An Analytic Growth Narrative" (PDF). {{cite journal}}: Cite journal requires |journal= (help)
  29. ^ Example of a central government department's implementation of the Right to Information Act.
  30. ^ Transparency International Press release
  31. ^ Transparency International Press release
  32. ^ a b c Growing Unemployment Problem in India
  33. ^ Why India needs labour law reform. BBC
  34. ^ a b "Child Labor and India". Embassy of India, Washington, DC. Retrieved 2007-11-28.
  35. ^ Gleick PH. 1993. Water in Crisis. New York: Oxford University Press.
  36. ^ Russell Hopfenberg and David Pimentel HUMAN POPULATION NUMBERS AS A FUNCTION OF FOOD SUPPLY oilcrash.com Retrieved on- February 2008
  37. ^ National Geographic Society. 1995. Water: A Story of Hope. Washington (DC): National Geographic Society
  38. ^ Christiani DC. 1993. Urban and trans-boundary air pollution: Human health consequences. Pages 13-30 in Chivian E, McCally M, Hu H, Haines A, eds. Critical Condition: Human Health and the Environment. Cambridge (MA): MIT Press.
  39. ^ Burns JF. 1996. Denial and taboo blind India to the horror of its AIDS scourge. New York Times, 22 September: A1.
  40. ^ a b c d "Economic data". Country Data, An economist group business. Retrieved 2007-10-18.

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