Economists and various studies conducted across the globe envisage India and China to rule the world in the 21st century. For over a century the United States has been the largest economy in the world but major developments have taken place in the world.
THE MAJOR events that have taken place in the last few years has lead to the shift of focus from the US and the rich countries of Europe to the two Asian giants - India and China. For the year 2006-2007 India's GDP grew at an impressive 9.2 per cent. The share of different sectors of the economy in India's GDP is as follows: Agriculture - 18.5 per cent, Industry - 26.4 per cent, and Services - 55.1 per cent.
The fact that the service sector now accounts for more than half the GDP is a milestone in India's economic history and takes it closer to the fundamentals of a developed economy. Over the past four years India?s GDP growth has clocked up an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s and a measly 3.5% during the three decades before 1980. India seems to be reaping the rewards of reforms that were made in the early 1990s. By 2025 the India's economy is projected to be about 60 per cent the size of the US economy. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within the coming 10 years.
According to the economic data for the financial year 2006-07, agriculture accounts for 18% of India's GDP. From a nation dependent on food imports to feed its population, India today is not only self-sufficient in grain production but also has a substantial food reserve. The progress made by agriculture in the last four decades has been one of the biggest success stories of free India. The inflation rate is only a bit higher than the target of three per cent set by the Reserve Bank of India.There has been a surplus in India's BOP in both current and capital accounts. The main driver behind India's current account surplus has been invisible inflows, particularly private transfers comprising remittances, along with software service exports. The surplus in both accounts since 2002, have resulted in accumulation in the foreign exchange reserves of the country.
The trend is consistent with that of most economies of developing Asia, particularly East Asian economies. A strong BOP position in recent years has resulted in a steady accumulation of foreign exchange reserves. The level of foreign exchange reserves are around US $200 billion. The capital inflows, current account surplus and the valuation gains arising from appreciation of the major non-US dollar global currencies against US dollar contributed to such a rise in forex reserves. Money Supply (M3) has grown by a robust 22.5 per cent (year-on-year) as of October 26, 2007 compared to 18.4 per cent last year. The annual inflation rate in terms of WPI was 2.97 per cent for the week ended October 29, 2007 as compared to 5.35 per cent a year ago.
Fiscal deficit and revenue deficit decreased by 6.1 per cent and 11.8 per cent during April-September 2007-08 over the corresponding period last year. The domestic savings rate or the ratio of gross savings to GDP up at 32.4 per cent in 2005-06 and Gross domestic investment rate at 33.8 per cent in 2005-06, currently GDP investment ratio is 35% which is in line with other developed nations. Exports grew by 18.5 per cent in dollar terms during April-September 2007. Imports increased by 25.5 per cent in April-September 2007. The Fiscal Responsibility and Budget Management Act in India has resulted a declining deficits both in the center and state levels. Some deficit indicators are expected to decline by 0.7-0.9 Percent of GDP for the year 2006-07.
The fiscal deficit in India has declined in the recent times. The tax collections of the government have increased, particularly the taxes such as Income Tax, Corporation Tax and the Service Tax.India is tremendously progressing in the field of Science and Technology. It has the third largest scientific and technical manpower in the world. The Council of Scientific and Industrial Research runs 40 research laboratories that have made some significant achievements. In the field of Missile Launch Technology, India is among the top five nations of the world. It is heartening to note that it has recently launched the first commercial satellite. India has less income inequality than China or America. But it has much more poverty. Some 260m people still live on the equivalent of less than $1 a day.
Half of all children under five are malnourished. Better infrastructure and education are needed to make the rural poor more mobile so they have an escape route. In this way, better infrastructure and improved public services can not only increase growth, but also spread the rewardsIndia was the fourth-largest recipient of FDI during 2005-06 and was instrumental in FDI inflows to South Asia surging by 126 per cent, amounting to US$ 22 billion in 2006, reveals UNCTAD?s World Investment Report. In India FDI equity flows were US$ 5.5 billion in 2005-06, it increased almost three times to US$ 15.7 billion in 2006-07, representing a growth rate of 184 per cent. In fact, calculating the total FDI inflows into India by international best practices places the total inflow at US$ 19,531 million.
This huge inflow of FDI has in turn reversed the past trend, with FDI inflows overtaking the portfolio investment inflows by almost US$ 5.6 billion in 2006-07, according to the RBI?s report on International Investment Position. Cumulative FDI inflows during the period August 1991 to July 2007 amounted to US$ 60,242 million. Between 2001-02 and 2006-07, inflows increased by about two and a half times. The biggest danger of today's rampant economic optimism is that it could breed complacency about the need for reforms. That would be a sure recipe for a future slowdown. India needs faster growth to create more jobs for its expanding population and to make it easier to relieve poverty.
On the supply side, the indications are not too good. Crude oil prices touched an all-time high in 2007 and are expected to stay high in the coming year. One of the obstacles to growth in manufacturing is India's labour laws, which are among the most restrictive in the world. The big problem is the dreadful quality of public services, from education and health to the provision of water. Half of urban households lack drinking water within the home; one quarter have no access to a toilet, either public or private. Many public services in cities have worsened in recent years.
Empowering the population through universal education and health care. India needs to improve its HDI rank, as at 127 it is way below many other developing countries' performance. The UPA government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation, telecom and insurance sector in the future. Since independence Indian economy has thrived hard for improving its pace of development.
Notably in the past few years the cities in India have undergone tremendous infrastructure up gradation but the situation in not similar in most part of rural India. Similarly in the realm of health and education and other human development indicators India's performance has been far from satisfactory, showing a wide range of regional inequalities with urban areas getting most of the benefits. In order to attain the status that currently only a few countries in the world enjoy and to provide a more egalitarian society to its mounting population, appropriate measures need to be taken. Currently Indian economy is facing these challenges.India needs to invest 3-4% more of its GDP on infrastructure to sustain 8% growth. Reforms need to be accelerated in all sectors. Difficult issues such as rationalizing user fees for services need to be faced.
The country's consolidated fiscal deficit has been persistently large for many years. While recent efforts to tackle the deficit have paid off in substantial progress, it remains a continuing concern. India?s existing labor regulations - among the most restrictive and complex in the world - protect only the insiders, the small number of workers who are already working in the organized sector, while hobbling the creation of manufacturing jobs for the tens of millions unemployed or working in poor quality jobs. In terms of what we have written above, there is no doubt that India is almost a booming economy, but the big question is for whom? The plight of the common masses remains almost the same. The trickle-down effect does not work, the percolation effect is fully absent. There is still abject poverty, and the extent of poverty below the poverty line is still severe. Other equity issues are also serious. The so-called policy makers should divert their attention on the lot of the proletariat. Once this is done, India will become a SUPER power. Let us wish the county well.