India Growth Story

India a country with diverse background and rich culture has managed to stand apart and create a space for itself in the global arena. India is one country that has been under British rule for several long years and since independence we have grown tremendously on various fields. The pace and momentum of our growth have been quite reasonable considering the fundamental nature of our economy. India witnessed rapid growth since 1991 with new economic reforms and policies that made India realize its true potential role on the global stage. The new economic policy that opened way to a whole new world of trade and business development made India an emerging and desired nation with full of opportunities. The slow but steady transformation of our economy has helped us to survive in an age of increasing risks and crisis around the world. The Indian growth story is in no way seem to be a miracle, it took years for us to realize this development, we are only half way through and we still have a long way to go in achieving our dreams.

As a part of the emerging nation we know that India has grown leaps and bounds and was able to create a niche space on the global platform. The country has witnessed rapid changes from technological to infrastructural development, healthcare to space research, education to business development and so on and so forth. Gross Domestic Product (GDP) is the standard measure of growth and we have been able to achieve a highest GDP rate of above 9 percent. Over the years we have seen big changes in both manufacturing and service sector that contributed the GDP to rise. But is this what the real growth means? Does GDP alone tell us the real growth of an economy? The answer is no. GDP is just one of the indicators that could tell the actual growth of a nation. Standard of living, Cost of living, literacy rate and many other small factors would indicate the real development of a country. In this article we will look at the India’s growth story in two parts. In the first part we will see the growth of India in more generalized form, the factors that contributed to high GDP rates in the last few years, which is the sole concern of politicians and think is the true growth indicator. In the second part we will see how India has been growing in specified form, which highlights the true growth path of India.

The growth and economic development of India since independence have been robust. The Indian growth story is quite pragmatic compared to its other Asian counterparts. India not only sacrificed its resources and blood during the British rule but also gained and learned equally much from them. The railways, telegram and postal system are very good examples of what we gained from the Britishers and perseverance and unity is what we learned from the freedom struggle. The British rule has given India the boost of industrial revolution and urge to infrastructural development. Over the years, particularly after 1991 India has grown tremendously in industrial and manufacturing output. This has been the major growth driver followed by retail, FMCG and service sector in the recent years. India is tenth in the world in factory and manufacturing output. The economic reform introduced in 1991 brought increasing foreign competition resulting in a continuous dynamic nature of the economy. Post liberalization, the Indian market offers endless possibilities for foreign investors which encouraged the business scenario of our country. India is fifteenth in service industry where the Indian Information Technology industry contributing significantly to the balance of payments but accounts for only one percent of the total GDP. Post the new economic reform the Indian consumerism has seen heightened changes as people started to increase their spending pattern as a result of increasing disposable income.

India saw the beginning of the 21^st millennium as a new beginning of Indian economic development. It started to look for all the opportunities that would help accelerate the growth rate. It has managed to achieve a high growth in the last decade. The rural consumption demand has grown in the recent years and contributed significantly to the high GDP post the global crisis when the urban demand was declining. In the last eight years India achieved an average growth rate of 8.7 percent on the back of wide ranging structural and policy reforms and also growing integration with the global economy. By 2008 India was fourth largest economy in terms of Purchasing Power Parity (PPP), an economic theory that explains the long term equilibrium of exchange rates based on relative price level of the two countries. For a nation that once believed the Hindu rate of growth (low annual growth rate of a socialistic economy) was its destiny, this remarkable growth performance has triggered aspirations for double digit growth rate. On the progress of economic development India started to encourage private players who played a key role in India’s growth story, infrastructural development and foreign investment. As a result, India emerged as a potential player on the global platform. This paved way for increasing competition in the domestic market and scope for foreign trade. Though this high growth octane made India as one of the powerful emerging economy and helped see economic prosperity it has also come with some economic costs such as high inflation, trade deficit, widening CAD and weakening rupee as result of global turmoil. The once growing Indian economy is now facing declining GDP rates in the past two years as a result of increasing domestic and external pressures. The following graph shows the annual GDP in percentage since 2000.

India though has seen tremendous changes and growth it still lags behind many other developing nations on various fronts. One of the greatest problems of India is poverty. This one factor makes me wonder what is the use of India growing in terms of technological advancement, infrastructural development and high industrial production when a certain section of the society struggles even for one meal a day. India constitute a third of the world’s poor. In 2010 the World Bank reported that 32.7% of the total Indian population falls below the international poverty line. It is a great shame that even after 65 years of independence India still can’t eradicate poverty. The poverty in India is also primarily because of income and wealth inequality. The distribution of wealth is highly uneven in India contributing to the increasing poverty. The Ginni Index is a measure of income inequality and India as per 2011 has a Ginni coefficient of 35.6%.Unrealistic poverty line estimate also add to the woes. But there is some good news about the poverty. According to the recent National Sample Survey Organization (NSSO) the poverty levels across India is down by 15 percent in the past eight years. The findings stated that rural poverty declined at a faster rate than urban poverty. India is ranked at 134 out 234 countries in HDI. The HDI is a measure of education, health, standard of living and income parameters. India falls under the category of medium human development index. India despite rapid economic growth in the last decade has a very low per capita income making it the poorest country among the G20 nations.

On literacy, India is ranked at 168 out of 234 countries. On Quality of Life Index India ranks at 77 out of 111 countries. Corruption is one serious issue in India because of which development is stagnant and we are partially hidden from the potential growth. India ranks 95 out of 178 countries in corruption. The Organization for Economic Cooperation and Development for international student assessment program ranked India at 72 out of 73 on global educational survey on account of poor performance by the Indian students. The Indian education system has undergone serious criticism and the future development of the system is a matter of concern as India constitute more number of young population. The poor status of Indian education system is evident as none of our universities are ranked even among the top 200 global universities. India is also one of the countries with huge levels of pollution and carbon emissions. As an emerging nation it produces a large amount of industrial wastes and toxic materials causing severe environmental damages. Over the years in the process of achieving high growth we have ignored the nature around us by exploiting it which has a serious cost to pay. The recent Uttrakhand floods is an example of natural disaster caused by human intervention and exploitation rather than climate change. The OECD report also stated that it is very difficult doing business in India as result of slow clearance. India is ranked at 173 on this regard. Though, India was able to achieve a reasonable growth and witnessed rapid changes in infrastructural and economic development it has not generated equally much jobs because of which our unemployment rate is at 9.8 percent, much beyond many other Asian countries.

The Indian economy at present is undoubtedly at a mess with declining growth rate, depreciating rupee, high CPI inflation, poor investment outlook and widening CAD. No wonder India requires a restructuring in policy measures and decision making. Changes in policy reforms to revive India’s growth is the need of the hour. The Keynesian theory states that during economic downturn the government should increase its expenditure to compensate for the decline in the private demand for goods and services and during an economic boom the government should reduce its expenditure to make room for productive investment and consumption.  Some of the correctives recently desired are reliable laws, renewed investor confidence, more efficient government spending, rationalization of taxes, lower interest rates and perhaps more FDI. The latest hike in FDI cap in key sectors is a significant move in boosting investor confidence and improve the growth prospects. Rapid and inclusive growth in the medium term does not look too likely looking at the unattended constraints. But this current economic slowdown can be seen as an opportunity to grow with a new start as the 1997 Asian financial crisis served as an opportune for India to grow. The pessimism surrounding the economy and the downturn is also because India became too complacent as a country. India seriously needs to address the concerns of farmers and encourage agricultural production. Unless due importance is given to agriculture India can’t achieve inclusive and sustainable growth. India also ignored the needs of small producers not just farmers, who form the bulk of employment and production. We have simply focused on the big corporate guys leading to slow or falling productivity. The fastest way to raise the average productivity is to raise the productivity at the bottom. The present macroeconomic problem of twin deficit has also raised questions about the future growth trajectory of India. Hence to restart the engine of India’s growth story it is highly necessary to look at the issues at the bottom level and restructure our policy reforms to meet the various needs of all the economic agents.