South Asia is one of the densely populated regions in the world. Besides, the region houses one of the largest economies in the world based on the level of economic growth and development. Over the past two decades, the economy of South Asia has seen a steady growth averaging 6% annually, thus making it one of the fastest expanding economies globally (McDowell 73). Consequently, the people of South Asia have experienced improved living standards as the push towards the eradication of poverty in the region continues. India is one of the South Asian countries that have recorded remarkable economic growth over the last few decades.
Interestingly, the economy of India has secured the seventh position among the world’s largest economies concerning nominal Gross Domestic Product (GDP). Additionally, the Indian economy boasts of a stable Consumer Price Index (CPI) that has enabled it to position itself among the countries with desirable purchasing power parity (PPP) (Bhalla 164). The country uses the Indian rupee (₹) as its currency, which is also pegged by the currencies of neighboring countries including Bhutan and Nepal. Furthermore, India surpassed China as the fastest-growing major economy since the second half of 2014. Therefore, this paper is an analysis of the various aspects of the Indian economy that have accounted for its drastic growth over the last few decades.
The Background of India’s Economy
The history of India’s economy provides an inspirational account of a journey from underprivileged society to an emergent economic giant in the contemporary world. The economic development of India gained ground after it secured independence in 1947 from Britain who ruled them for at least 200 years (Rajakumar and Shetty 79). The newly sovereign nation experienced devastating poverty, high illiteracy levels, and a collapsed economy.
Therefore, India’s first Prime Minister, Jawaharlal Nehru, and his deputy, Sardar Patel, assumed their political roles by promoting a democratic society that sought to improve the living conditions of the impoverished citizens (Bhalla 161). In this regard, the strong political will demonstrated by the leaders inspired the citizens to collaborate for the realization of a prosperous India.
The first five decades after independence witnessed an Indian economy made up of two separate fragments that included the private and public sectors. Small and medium-sized firms constituted the private sector that also observed considerable protection by the government. In this light, the government displayed its interest in providing a favorable environment for investors to inject their funds into the Indian economy. The government managed the public sector by streamlining operations in sectors including communication, transportation, and social services by also considering the aspects of employment creation and cost efficiency (McDowell 101). As such, the government prioritized the enhancement of the infrastructure besides the improvement of the country’s social health.
The Indian government established a five-year strategic plan by partnering with the Soviet Union to reinforce its infrastructure, healthcare, agriculture production, and education. However, the strategy failed to realize tangible results as the political will to transform India faced a challenge from the self-centered leadership of Indira Gandhi. Pressure from domestic and international parties resulted in the conduction of the general election in 1977 to create a government focused on economic growth.
However, the decline of the Soviet Union’s economy in the 1990s led to the deterioration of India’s economy marked by an all-time low in its foreign exchange reserve. In this regard, the detriments of depending on only one particular partner in international trade proved to be injurious as India’s economic trends called for the intervention of the International Monetary Fund (IMF) and World Bank in 1991 (Ahluwalia 67).
The year 1991 heralded the wake of significant policy reforms spearheaded by the former Finance Minister, Manmohan Singh. Singh facilitated the reformation of the country’s foreign direct investment (FDI) and exchange rate policies besides lowering tariffs and relaxing industrial licensing provisions.
Therefore, the strategy unearthed the relevance of incorporating sound economic policies in crises for the following three years witnessed considerable investments by multinational corporations (MNCs) in the Indian economy. As the new millennium approached, India experienced an upsurge in foreign direct investment, heightened domestic consumption, and growing expertise in information technology (Ahluwalia 73). Axiomatically, these factors must have accounted for the current level of economic growth and development ion the country.
Key Sectors in India’s Economy
The remarkable economic growth in India that is projected to realize the 7.7% mark in the 2016-2017 fiscal year prompts an analysis of the chief sectors that facilitate the country’s rise into a global economic powerhouse. The latest economic figures achieved by the country hint that India relies on profound sectors that have placed it as the seventh leading economy in the world concerning the nominal aspects of GDP.
The significant sectors in India’s economy include industry, agriculture, and services accounting for 29.5%, 16.1%, and 54.4% of the GDP respectively (Rajakumar and Shetty 80). The sectoral GDP contributors reveal that the Indian economy is making good strides towards becoming an industrialized country that is also food secure and provides affordable services to its population.
India’s Industrial Sector
The industry sector in India encompasses main areas that consist of manufacturing, mining, and quarrying, energy production, and construction among other sub-sectors. The industrial sector accounts for 22% of the overall workforce in the country who facilitates the sector’s 26% GDP contribution. For this reason, the sector has enabled the country to be considered as one of the leading manufacturing countries by GDP as it was ranked in the sixth position in 2014 (Ahluwalia 67). In this respect, the 1991 economic reforms exhibit positive results after the liberalization of the economic structures. Importantly, the reforms aimed at eliminating trade limitations, the privatization of public sector corporations, encouraging foreign competition, and liberalizing the FDI system.
The outcomes of the policy reforms manifest today by the significant foreign investments that have bolstered domestic and international competition. Currently, India competes for a substantial share of the global industrial markets with powerhouses like China, which have posed a considerable threat to the former’s domestic industries. In response, the Indian government has considered the creation of strategies that seek to cut production costs, foster management efficiency, integrate advanced technology, and use cheap labor in its industrial sector. Thus, a government needs to establish policies that facilitate the continuity of economic growth.
However, engaging in cheap labor could improve the economy of India at the cost of the population’s well-being given that the sector accounts for 22% of the country’s entire workforce (Rajakumar and Shetty 81). For this reason, the abandonment of labor-intensive undertakings in India’s industrial sector has increased the economy’s unemployment rate.
The engineering sub-sector is the largest GDP contributor in India’s industry besides topping the country’s foreign exchange-earners list. Mainly, the engineering segment concentrates on the manufacture of transport equipment, automobiles, transformers, furnaces, and railways among other products. Impressively, India is emerging as a strong player in the manufacture of scooters, motorcycles, and tractors that accounted for the exportation of 2.3 million automobiles in 2011 (Rajakumar and Shetty 82). As such, India’s sustained engagement in nurturing creative engineers is a strategic endeavor that pursues to enhance the growth of its energy industrial sector that would fulfill the needs of its domestic and global markets.
Furthermore, chemicals and petroleum products contribute to the growth of India’s industrial GDP substantially by garnering at least 34% of the economy’s foreign earnings (Rajakumar and Shetty 80). Notably, India has the largest oil refinery plant in the world located at Jamnagar, which has a daily processing capacity of 2.4 million crude oil barrels. The chemicals segment primarily focuses on the production of dyes, plastics, agrochemicals, and polymers. In this regard, India has demonstrated its interest in influencing the trends of the international oil market by investing significantly in the energy sector.
As part of India’s industrial sector, the gems and jewelry sub-sector has also put the country on the map as a major manufacturer and consumer of products such as precious stones and gold. Interestingly, the segment books for an impressive 7% of the economy’s GDP (Bhalla 163). Historically, India considers the gems and jewelry sector as part of its traditional art. Therefore, the culture of the people expressed in their love for jewels and gems proves that society’s way of life could also spearhead economic growth after putting the necessary structures in place.
India’s Agriculture Sector
Globally India is the second-largest producer of agricultural products. Agriculture and other related sectors of the economy such as fishing, logging, and forestry were reported to have contributed 17% of India’s GDP in 2014 (Rajakumar and Shetty 81). Further, agriculture together with these other connected sectors employed 49% of the labor force in the same year. Parallel to the progress and diversification of the Indian economy is the consistent reduction in the contribution of agriculture to the GDP between 1951 and 2011 (Rajakumar and Shetty 82). Nevertheless, agriculture continues to be the largest employer and a critical socio-economic growth in India.
There has been an increased crop harvest in every unit area since 1950 given the peculiar accentuation directed towards agriculture in various five-year terms plans. At the same time, there has been growth in irrigation, utilization of contemporary farming exercises, technology, and the setups offering agriculture loans and subsidies starting from the time of the Green Revolution in the country. Nonetheless, transnational comparisons demonstrate that standard yield in India is thirty to fifty percent of the top standard yield globally. The greatest contributing states to agriculture include Madhya, Maharashtra, Uttar Pradesh, Punjab, and Haryana among others (Srivastava et al. 612).
The lack of total reliance on rainfall despite the weather being conducive for farming and utilization of irrigation makes the sector reliable and a major contributor to the country’s GDP. Thirty-nine percent of the land that is under farming is under irrigation in India. The states’ inland waters encompassing ponds, rivers, canal, and lakes together with the marine assets including the coast both the west and east are a source of employment to over 6 million individuals in the fishery zone. The fishing industry was ranked 6th in 2010 (Srivastava et al. 613).
In 2011, India attained the number one slot in milk production in the world, pulses, and pulses parallel to being the second globally regarding cattle population that is 170 million livestock. On another note, the country is also marked as the largest generator of cotton, sugarcane, wheat, and groundnuts. The country also ranks second as the largest generator vegetable and fruits reported for 8.6% and 10.9% of the vegetables and fruits produced globally respectively.
The country is also marked as the second largest generator and the leading customer of silk globally having generated 77000 tons in 2005. India is the biggest seller internationally of cashew kernels. India sells internationally numerous agricultural products that include cotton, tea, Basmati rice, wheat, fresh fruits, beef, and spices among others mostly exported to the Middle East. In this light, the country earns 10% of its earnings through exports of agricultural goods making the farm sector a critical aspect of the country (Roy 80).
India’s Service Sector
India has placed itself as a distinctive developing economy bolstered by a rapidly growing service sector. Captivatingly, India’s service sector booked 54.4% of its GDP during the 2014-2015 fiscal year (McDowell 121). The growing embracement of innovation in various sectors of the economy in the country has resulted in considerable technological advancements that have influenced the impressive growth of the services sector. In this respect, projections show that the IT sector experienced a 23.72% growth between 2014 and 2015 (Roy 79).
Surprisingly, the contribution of the IT segment to India’s GDP rose from 1.2% in 1998 to 9.5% in 2015 thereby, indicating that the country has embraced the integration of IT-enabled services in both the private and public sectors (McDowell 143). Notably, the high levels of specialization in the IT field have enhanced the realization of a highly skilled labor force ready to seize emerging opportunities in the country’s service sector and beyond.
The energy and power sub-sector in India is the largest in the South Asian region. Oil and coal fulfill 85% of India’s energy demands. India is also a huge energy consumer since its domestic oil reserves satisfy a mere 25% of the energy demands. In this respect, for India to realize the sustainable growth of its energy sector, it should invest in green energy initiatives due to the anticipated increase in energy and power demands as the population grows.
Outstandingly, India contributed a 5% share of the electricity generated globally in 2013. India has also shown interest in posting its power generation capacity, especially nuclear energy, by engaging in explorations that led to the discovery of natural uranium situated at the Tummalapalle belt (Roy 74).
Furthermore, the money market aspect of India’s service sector comprises of a well-organized banking system made of public, private, and international commercial banks. The Indian economy is also characterized by unorganized banking systems composed of non-banking financial institutions and lenders. However, most Indians prefer using the financial services offered by microcredit institutions besides the unorganized banking structures. The main reason for the trend is due to the inaccessibility of the organized financial institutions needed to serve over 500,000 villages in India (Roy 78). Therefore, there is a need for the establishment of more bank branches at the grassroots level to meet the heightening banking demands in India.
Moreover, the tourism, infrastructure, and retail elements of India’s service sector have also accounted for its economic growth and development. In 2014, India received foreign exchange earnings emerging from the tourism sector that stood at $19.75 billion after witnessing the arrival of almost 8 million tourists (Rajakumar and Shetty 82). However, the government ought to encourage domestic tourism to maximize the sector’s earnings. Quantitatively, India boasts of the largest road connectivity in the world implying that the country upholds the essence of an effective transport sector that promotes growth and development. Additionally, India is positioned as the fourth country that has the largest railway connectivity globally (Kumar 91).
Besides, 74% of the Indian population is connected to a telephone network thus, enhancing the communication infrastructure aspect of the economy (McDowell 87). Furthermore, projections depict that the country constitutes one of the rapidly budding retail markets in the world currently valued at $500 billion (Roy 76). The trend reveals that the realization of a stable PPP that triggers the expansion of the retail industry to accommodate the increasing needs of the consumers. Therefore, as an area that contributes approximately 15-20% of India’s GDP, the retail industry’s growth would have a positive influence on the progress of other sectors.
Emerging Issues and Trends in the Indian Economy
The Indian economy is currently experiencing issues that influence its development in the various segments. Particularly, sectors that include agriculture, education, poverty disparities, and corruption have a great Influence on India’s growth as an economic powerhouse. Despite India’s agriculture sector experiencing substantial improvement, adequate measures have not been put in place to make the country food secure and a net exporter of food products (Srivastava et al. 618). The government needs to relax its overregulation policies besides incorporating modern technology in the sector.
Currently, 75% of Indians are literate compared to the 52% rate in the early 1990s (Bhalla 162). The government has made impressive strides in ensuring that each Indian has an equal opportunity of attending elementary and primary school. However, literacy rate disparities based on social class, region, and gender have affected the country’s realization of greater educational achievements. Besides ensuring equitable education opportunities for all, India has continually endeavored in the incorporation of IT in its education system for quality improvement.
Shockingly, India has one of the poorest villages in the world amid the economic growth experienced. The poorest Indian states including Bihar can realize a mere $294 as its annual per capita income thereby, denoting the extent of economic variance compared to other states (Bhalla 163). Therefore, for the attainment of a prosperous Indian society, there is a need for the implementation of initiatives that promote equitable development across the South Asian country.
The Transparency International (TI) body lists India among the most corrupt countries in South Asia as 40% of its population has firsthand experience of the vice (Roy 74). The trend has affected the country’s public and private sectors thereby, creating inequalities that undermine transparent processes. Reports show that India’s underground economy operates by channeling black money into Swiss accounts and thus, undermines India’s economic growth.
India has the potential of becoming the world’s top economy if it continues implementing progressive economic policies like the reforms established in 1991. Additionally, refurbishing the key sectors of the economy, which include service, agriculture, and industry, is crucial for improving its GDP. Furthermore, the emerging issues entailing corruption, and the widening wealth disparities should be addressed to boost the pace at which India is moving towards becoming a global economic powerhouse.
Ahluwalia, Judge. India’s Economic Reforms and Development: Essays for Manmohan Singh, Oxford: Oxford University Press, 2012. Print.
Bhalla, Singh. Monuments, Power, and Poverty in India: From Ashoka to the Raj, 2015, London: I.B. Tauris. Print.
Kumar, Rajesh. “Role of Engineering Export Promotion Council in Promotion of Export of Bicycles and their Spare Parts-an Empirical Study of Bicycle Exporters in Ludhiana.” Journal of Commerce and Management Thought 7.1 (2016): 91-107. Print.
McDowell, Stephen. Globalization, Liberalization and Policy Change: A Political Economy of India’s Communications Sector, Berlin: Springer, 2016. Print.
Rajakumar, Dennis, and Singh Shetty. “Some Puzzling Features of India’s Recent GDP Numbers.” Economic & Political Weekly 51.2 (2016): 79-82. Print.
Roy, Amrita. “Structural Change and the Changing Relationship between the Industrial and the Service Sector: Evidence from Indian States.” Indian Growth and Development Review 8.1 (2015): 73-92. Print.
Srivastava, Pratap, Sishikesh Singh, Sacchidanand Tripathi, and Akhileshi Raghubansh. “An Urgent Need for Sustainable Thinking in Agriculture–An Indian Scenario.” Ecological Indicators 67.3 (2016): 611-622. Print.