Economic Research Summary

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An Overview of India’s Economic Growth

Introduction

There are diverse theories of economic growth as well as ways of computing it. However, the foundational definition is usually in relation to growth in the long-term productive capacity of the economy. This is characteristically computed by real growth in the Gross Domestic Product (GDP). This refers to the process through which a country’s wealth enlarges ultimately. The most broadly utilized determinant of economic growth is the actual growth rate in a country’s overall output of services and goods. Other measures such as consumption per capita and national income per capita are utilized. The economic growth rate is influenced by human resources, natural resources, technological development, and capital resources in the economy in conjunction with institutional stability and structure. Other factors would include the degree of global economic activity as well as the terms of trade (Reserve Bank of India, 2007).

Definition of Land as a Factor of Production

Land as a factor of production may be defined as an economic resource that encompasses natural resources that are found within a country’s economy. This natural resource embraces land, timber, farms, fisheries, and comparable natural resources. Land is generally a limited resource for several economies (Warren, 2010).

Definition of Capital as a Factor of Production

Capital may be defined in two ways as a factor of production. It may represent the financial resources that companies employ to procure natural resources and related capital commodities. Capital also embodies the key physical assets companies and individuals employ when producing services or goods. These assets may include production facilities, buildings, equipment, and related comparable items (Ramesh, 2007).

Definition of Entrepreneurship as a Factor of Production

Entrepreneurship is regarded as a factor of production since economic resources may exist in an economy but fail to be converted into consumer goods. Entrepreneurship is regarded as a factor of production because someone should execute the managerial functions of allocating, distributing, and gathering consumer products or economic resources to businesses or individuals in the economy (Warren, 2010).

Definition of Labour as a Factor of Production

Labor as a factor of production embodies the human capital accessible to convert national or raw resources into consumer goods. As a factor of production it is an elastic resource since workers may be allocated to diverse locations of the economy for the production of consumer goods and services (Ghatak & Roy, 2008).

GDP

In regard to India, the continued improvement in the fundamental conditions for economic growth has resulted in stimulating the Indian economy to among the fastest developing economies worldwide.

(Bosworth, 2011).

From the graph above, it is evident that India’s GDP in India grew by 6.9% in the last four months of 2011. Traditionally, from 2000 to 2011, the country’s mean quarterly GDP growth was rated at 7.45%, attaining a historical climax of 11.80% in December 2003. It suffered a record short of 1.60% in December 2002. The economy recorded a mean growth rate of above 7% in ten years since 1997, dropping poverty by approximately 10% points.

A comparison with the main developing and developed countries depicts that India’s economic growth has moved forward. Table 1 depicts the economic growth rate of GDP that has ranked India among the fastest developing economies worldwide. In India’s Tenth Five Year Plan, that culminated in 2006–2007, India’s real GDP grew at a rate of 7.8% per annum

Table 1. India’s % economic growth by comparison (1990-2007).

Country 1990–1999 2000–2007

Developed countries

France 1.9 2.0

Australia 3.3 3.2

Canada 2.4 2.9

Japan 1.5 1.7

South Korea 6.1 5.2

U.K 2.1 2.8

U.S.A 3.1 2.6

Developing Countries

Malaysia 7.1 5.6

India 5.6 7.1

Indonesia 4.1 5.1

Thailand 5.1 5.0

Brazil 1.7 3.4

(Reserve Bank of India, 2007).

Increased Growth and the Long Term Economic Drivers

The proximate drivers of India’s economic growth acceleration would include momentous improvement in the productivity of labor, capital, and land. The improvement in the growth rate from the 1980s, to the 1990s occurred principally as a result of larger buildup of physical capital as well as an increase in output of land, labor, and capital. In context of India, it is apparent that productivity growth and factor accumulation were responsible for the country’s current growth experience (Ramesh, 2007).

Employment Growth

As the Indian economy shifts to a higher growth trajectory, skill deficiencies are rising as a foremost challenge to supporting the soaring growth rates. This brings to surface the long-term disregard of education in the country’s development planning. In current years, the significance of empowering the Indian populace with health facilities and basic education is being acknowledged as a critical norm in India’s pursuit for inclusive development. The challenge of improving skills as well as synchronize demands with supplies would be appropriately met within the structure of private-public partnership (Dyson, 2006).

International Trade

The Indian policy in regard to international trade was transformed from a fundamentally discriminatory in supporting transfers of technology to an increasingly proactive one in drawing foreign direct investment (FDI), predominantly in infrastructure segments. As from the year 2000, the Foreign Exchange Management Act was enacted the policy towards foreign direct investment out-flows experienced a regime change. Consequently, the margin for outward investment was increased to $50 million. However, by the year 2005, the Indian government had increased the margin for Indian corporations to invest overseas up to 200% of their pertinent net worth. Subsequently, in the year 2008, the margin was increased to 400% (Reserve Bank of India, 2007).

Land

In spite of productivity growth in the agricultural sector in India in recent decades, agricultural productivity in India remains extremely low by international standards. For instance, approximation of rice yields in the country are approximately 3.2 metric tonnes per hectare, in comparison to 6.7 metric tonnes per hectare in China, 7.5 metric tonnes per hectare in the USA, and an world standard of 4.3 metric tonnes per hectare. Comparable disparities in yields are observed in wheat, vegetables, and cereals. In reality, the most productive states in India fall short of international standards (Ghatak & Roy, 2008).

While the Indian agricultural sector employs approximately 50% of the working populace, agriculture generates merely 15% of the GDP. India would not be able to sustain 50% of the working population in its agricultural sector, unless the country’s effervescent large scale manufacturing and services sectors sustain their growth (Bosworth, 2011).

The issues of land reforms are usually difficult policy issues for densely populated emergent economies. Currently there is a limit on the greatest land size that can be owned in India. This limitation results in an increase in the quantity of lesser holdings of land. This is evident in table 2. The allocation of rural households with less than one hectare that is engaged in agriculture increased from approximately 58% (30.5 million households) to approximately below 80% (80.4 million households).

Table 2. Distribution of India’s rural land (millions)

(Warren, 2010).

It is evident that these small holdings impede productivity growth. Land reform is a major issue in the infrastructure and industrial development context.

Capital

The rapid growth of the economy and population in India means that increasing pressure has been placed on the existing infrastructure. For instance, in the year 2010-11, there was 12,200 Mega Watts of electricity system capacity that were added, from 9,600 MW the preceding year (Reserve Bank of India, 2007). This falls short of the 20,000 Mega Watts targeted. India requires an average investment of approximately 200 billion US dollars per year to sustain the country’s growth. This investment would be realized through an incorporation of private initiatives and public investment, as well as through the Public Private Partnerships (PPP). Despite a number of impediments, the telecommunications sector is a sector that promises tremendous progress (Reserve Bank of India, 2007).

Entrepreneurship in India’s Economic Growth

The outstanding progress of India’s economic development provides additional evidence that people react to incentives in their quest for wealth accumulation and self-survival. India’s economy was struggling provided that it was founded on a structure of government regulation that had diminutive interaction with the economic forces external to the country. The economic reforms set the arena for significant development in the Indian economy. Entrepreneurial initiatives in India generate a broad range of economic advantages. This includes new jobs, new businesses, innovative services and products, as well as increased wealth for upcoming community investment. In regard to India’s economic growth in recent times, the country may currently be prepared for the microeconomic policies implementation that will promote entrepreneurial activities (Rao & Rao, 2009).

Auspiciously, besides the macroeconomic reforms India has endeavored to lay the groundwork for the kind of economic growth that would be promoted only through entrepreneurial activities and suitable economic policies that mirror individual responsibilities and rights. For instance, in contemporary years the country has made numerous significant structural changes that include the building of telecommunications networks as well as the execution of a countrywide road-construction program (Acharya, 2007). Supplementary, numerous new businesses were established in the year 2000.

Brief and Summary

The long range prospects for this economy are exceedingly strong. India’s preliminary focus on the global sector has been successful. But to maintain this phenomenon growth, microeconomic issues, such as improved income distribution, better labor-market functioning, dealing with corruption, and efficient institutions for enterprise require bigger attention. The policy makers in India ought to sustain the reform process if the country is to exploit all its drivers of growth to realize its gargantuan potential.

ReferencesAcharya S. (2007). Macroeconomic Policy & Growth in India. New Delhi: Oxford

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Dyson, T., (2006), India’s Human Development, Oxford University Press.

Bosworth, B. (2011). Sources of Growth in the Indian Economy. New Delhi: Sage Publications.

Ghatak, M., and Roy, S. (2008). Land Reforms &Agricultural Productivity in India: Review of Evidence. Oxford Review of Economic Policy, 23(2), 69.

Ramesh, H. (2007), Reflections on China & India, New Delhi, India Research Press.

Rao M.G., Rao R.K. (2009). Trends & Issues in Tax Policy& Reform in India, India Policy Forum, 2005–2006. Sage Publications: New Delhi.

Reserve Bank of India (2007). Handbook of Statistics on Indian Economy. New Delhi: Reserve Bank of India.

Warren, C. (2010). The Global Family Planning Revolution: Three Decades of Population Policies & Programs. Washington, DC: World Bank.