Reasons for the Speedy Growing and Further Problems of the Indian Economic - Research Paper Example

?ESSAY PLAN Introduction The introduction of the essay shall be taken from a very broad angle where economics as a venture for the survival of India as a country shall be considered. This is to say that the introduction shall be broader than the three (3) major areas to be written about. The introduction shall spread wider to include: i. The present global economic trend ii. Effect of the current global economic trend on economic growth and stability of nations iii. Factors accounting for the current global economic trend iv. The role of India in the current global economic trend. After these areas have briefly being looked at, I shall then delve closely into the major areas of discussion where I shall touch briefly on each of the following areas: i. Reasons of the speedy growing of Indian economic. ii. Further problems of India because of high speed economic growing iii. Can India exceed China economically? These two major groups of discussions shall pave way for major components of the essay to begin. Reasons for the speedy growing of Indian economy - 3 India is fast becoming a force to recon with in world economic terms. Not as before, India is more stable and growing rapidly in terms of economic growth. This of course has reasons as to every effect, there is a cause. This part of the essay shall therefore be dedicated to looking at the reasons for the speedy growing of Indian economy. To talk about the reasons, a brief background to India’s current economic status shall be given. Next, I shall dig deep into the history of Indian economy. This aspect will be very relevant because it will help readers to identify that indeed the economy of India has its own roots. The discussion of the historic background would also help in creating timelines for major achievements and events in the history of India’s economy. It is the hope of the writer therefore that the background and timelines themselves would bring out clear reasons for the speedy growth of India’s economy. Further under this section, the writer shall discuss into detail, how the reasons or factors that led to the rapid growth of India’s economy can be sustained or revamped. This part of the discussion will be necessary for ensuring that India’s economy successes do not become short lived but a long lasting one. World history has it that there are nations who once had very graceful economies. Their gross domestic product grew at rapid rate, their inflationary rates where always down and the rate of their currencies were forces to recon with. However with time, due to poor economic management and because factors or reasons that led to their economic growth were not sustained. It is against this backdrop that this aspect of the essay shall not only consider the reasons for the speedy economic growth but also ways of sustaining the growth. Further problems of India because of high speed economic growing – 4 There is no denying the fact that there is an effect – positive and negative for that matter to every situation. Even though it is a good thing that India’s economy should develop at a very speedy rate, this comes not only with positive repercussions but negative ones as well. This part of the essay shall therefore be a progress of the previous aspect, which was on the reasons for the speedy growing of Indian economy. Three major problems that are likely to affect India’s economy as a result of its current economic growth shall be treated. The problems shall not just be stated but stated with possible solutions. The problems to be looked at would include: i. Unlawful migration to India – (The Indian Analyst, HVK ii. Taking advantage of booming economy to become the hub of counterfeit, low quality and fake products. – (The Lancet, Democratic Underground iii. Pressure from dependant nations – (The Economic Times, The Economic Times These problems have carefully being chosen because there are enough proofs that the problems have affected other countries that have attained economic growth and freedom. In worse cases, nations who were not able to handle the problems started declining in their economic performance. It is for this reason that India will be cautioned through this section to look out for some of these factors and work towards avoiding them. Can India exceed China economically? – 3 There is no impossibility to him or her who says he or she can. This is of course true for India as far as economic growth is concerned. A nation like China sprang from almost nowhere to become a leader in the world’s economic race. Today’s there is no denying fact that China is competing massively with giants such as U, Germany, France, Japan and the United States. There are so many lessons in this feat that China chopped. The lesson is that there is hope for every country who wants to make gains economically. Simple logical reasoning would have it that if China has been able to make it, then any other nation can also make it. This is the hope with which this aspect of the essay shall be written. India was indeed not as economically viable as she was fifty years ago as she is today. Today, she is rubbing shadows with a lot of world economic giants. For this reason if careful and prudent economic structures are put in place, India can exceed China in economic growth. This aspect of the essay shall suggest three major factors that India should put into consideration if she really wants to outscore China economically. These factors are: i. Political will and continuation of national policies – ( ii. Promotion of quality rather than affordable products iii. Over reliance on external aid Conclusion – 1 The essay shall have a conclusion. This shall purposely be dedicated to giving out very relevant suggestions for the Indian economic stakeholders. By stakeholders, the writer shall touch on the roles that needs to be played not just by government but also by trade and export leaders, finance and economic planning ministry, industries and other businesses whose activities contribute in one way or the other to the success and rapid growth of the Indian economy. THE ESSAY Introduction The ‘credit crunch’ that began in August 2007 caused large international capital flows, including heavy repatriation of dollars to major countries of the world. But for interventional programs such as augmentation of the supply of international liquidity through bilateral central bank swap facilities the effect of the credit crunch would have been worse. The interventions prevented the crisis from becoming much worse.1 Not withstanding such prudent measures and the end to the credit crunch, the global economic climate was greatly affected as the untold effect of the credit crunch, which later grew to be a global economic crisis continued to lash the world economy even years after the end of the crisis. Today however, the economic ‘temperature’ has receded and some economic giants have started making progress already. Whereas some of the progresses are coming from major companies of the world, names of countries such as America, Germany, China, Japan and India are also living marks of tremendous success with their economic performance and progress. India as a nation has had great roles playing in today’s economic climate in the sense that the countries is fast becoming a force to reckon with as far as economic growth is concerned. There is none denying the fact that India’s current economic growth, which is actually taking place at a very fast rate is partly responsible for the success that world economy is enjoying today. Writing on India, “in recent decades, increased trade in goods and services has reshaped the global economy, blurring the boundaries between nation states and heralding a new era of economic dynamism and interdependence.”2 This quote by Singh (2011) states clearly the major cause or factors that accounts for India’s speedy economic growth today. India as a nation has benefited greatly because of its focus on trade and services, which have been noted to be one of the world’s most competitive. In light of this, India’s economy keeps growing at a very fast rate. These advantageous developments not withstanding, it has been observed that India needs to do more to ensuring that its speedy economic growth remains a blessing rather than a curse. India’s economic growth could become a curse if certain factors needed to ensure that citizens and foreigners alike do not abuse the conducive trade and economic environment are not put in place. Among some of the highlights given by researchers as possible downfalls to India’s speedy economic growth are immigration and imitation3. Finally, there has been a continued debate as to whether or not India is in a position to overtaking China in terms of economic growth. This debate has left analysts with a lot of factors as to why the answer could be ‘yes’ or ‘no’. Primarily, economic analysts believe that if India could focus on economic variability and technological innovation, then it could rub shoulders with China in the nearest future. Reasons for the speedy growing of Indian economy The success that the Indian economy is enjoying today can be traced to a couple of factors and reasons. Indeed these factors that can be traced to a long economic background of the country. The success story of Indian’s economy pivots around very good initiatives that have been put in place over the years in the areas of agriculture, industry and services4. Quoting agriculture as the leading economic hype, the Economist states that “Two-thirds of India's population work in agriculture and agriculture, forestry and fishing accounts for around 25% of GDP.” Further, “Economic ‘miracle’ by capitalist economists and pundits5” such miracle is attributed; according to the Review, “the strength of Indian large capital, which is leading the current economic boom, derives at least partly from the persistence and even expansion of a wide range of workers engaged in precarious and low-productivity employment.” This argument confirms the assertion made by the Economist early on regarding the role of services to Indian’s economic growth. The United Girls Education Initiative, (2011) on the other hand argues in the line of industrial transformation, giving much attribute to technological development and advancement. The Initiative states that “Economic growth in India has been strong over the past decade, especially in the information technology sector.”6 These arguments give a widespread of reasons to India’s economic growth. Because there could several reasons underlying the speedy economic growth of India as seen above, some economists have categorized reasons or factors leading to India’s speedy economic growth to three major factors. These three major factors integrate or put together the performance and various factors that can be pointed to from the various sectors seen in the first paragraph. These three factors are therefore more consolidating affirmative. These three factors are subsequently discussed. Firstly, there is the reason or factor of capital stock series, which has been constructed using fixed investment at constant prices7. The National Account Statistics (NAS) uses what has come to be known in economics as perpetual inventory method of determining and pegging the capital stock series of India since 1993. The fixed investment price has been calculated with an assumption that the depreciation rate of India is 5%. Economists explain that the reason why this strategy of fixing the capital stock series investment price has worked and will continue to work to develop the economy of India is that the price has been calculated along a very low depreciation rate of 5%. However, there is no denying the fact that India’s depreciation rate has been performing so well over the years. There have been times that the currency has actually appreciated instead of depreciated. There have also been times that depreciation has occurred at rates lower than 5% and hardly go beyond 5%. In cases where the depreciation falls below 5% or there is an appreciation, the fixed investment price records very high profits8. Happily, the investment price is paid across all sectors and every year. This fixed investment has thus being a major source of economic income for India as a nation and the strategy has already been replicated in other parts of the world. Secondly, “conventional wisdom is that liberalization and resulting inflow of foreign capital to corporate India are the primary reasons for India's rapid growth in the past decade”9. As the adage goes, ‘no nation is an island of development.’ This means that every nation needs the other nation in one way or the other. For India, this philosophy has led to very large economic profits whereby a constitutionally admitted and legalized liberal economic system in practice has ensured that foreign economic partners enter and leave India as long as they are proofed as viable and authentic. To this effect, almost all sectors of India’s economic owe some praise and thanks to foreign ideas and investments. Before such an era, India tried to depend sorely on her native human capital. They also tried to produce as much as they needed and cut down on exportation. This move however denied the country of valuable foreign exchange, foreign direct investment, international expertise and foreign aids. Hitherto, India was experiencing a stagnant economic growth10. When the country opened itself up to foreigners however, there have been tremendous successes and foreign capital inflow to the development of India’s economy. Today, India is a world economic giant because it benefits fully from the developments that go on in other nations by permitting investors from such nations to ply their trade and expertise in India11. Finally, there is an argument put forward by Vaidyanathan (2008) who after several years of research into India’s economy, “Concludes that the non-corporate sector of India's economy, consisting of unregistered units in the manufacturing sector, typically partnership/proprietorship firms and self-employed persons in trade, transport, construction, hotels and other services have been the unsung heroes of India's economic growth.” From Dr. Vaidyanathan’s assertion and research, it can be deduced that “increase in household savings and growing domestic demand have been the primary drivers of Indian economic growth”12. Though domestic investment is the opposite of foreign investment, the discussion on the role of foreign investment as discussed above still holds as valid as that of the domestic investment. The fact is that these two forms of investments come with their own advantages and merits. And so for a country like India who has tapped into both kinds of investment, there is the assurance that the country would benefit from all advantages that come with the two. With special emphasis on domestic investment as a form of economic management tool, it can be seen that when a lot of informal sector investment is done at the domestic level, the country’s economy is assured of constant inflow of money in the country. This reduces the use and dependence on foreign currency, thereby stabilizing the country’s currency and reducing depreciation. Again, local financial institutions such as banks are assured of constant basic capital flow that enables them to function well. This goes a long way to reduce interest rate and thereby make business at the local level lucrative and attractive. Further problems of India because of high speed economic growing There is no denying the fact that there is an effect – positive and negative for that matter to every situation. Even though it is a good thing that India’s economy should develop at a very speedy rate, this comes not only with positive repercussions but negative ones as well. Such negative repercussions are not limited to India as an emerging world economy alone but to almost every other country that fails to put in place stringent policies to check abuse of her economic growth and development. Economic critics who have carefully studied India’s economic developmental trend have put forward three major factors that are likely to affect India as a result of her speedy and rapid economic growth. These three factors include unlawful migration to India, taking advantage of booming economic to promote counterfeits and finally pressure from dependant nations. Immigration is the situation whereby people live one place for another with an intention to stay for a living13. Immigration comes in different forms but are all geared towards staying to make a living. Most commonly, people migrate from one city to another. However at the higher level, people migrate from one country to another. Immigration, according to Cohen has a lot of social impact on the lives of both the migrant and emigrant. McCarthy (2001, 45) is however quick to add that the impact of immigration is not just social but economical as well14. This is especially true for inter-country migration though inter-city migration also have a lot of such economic impacts and effects. Most commonly, because the immigrant travels with an aim to going to make a living, it is supposed that the economic activities of the immigrant would in one way or another generate wealth for the host city or country. Because no one country is an island of development and the presence of enough human capital is needed for the development of every nation, the presence of immigrants in itself should not be a bad thing to the economic development of nations. With the speedy development of countries however, people have taken advantage of the economic booms to ‘invade’ rather than just migrant to countries. Invading a country for selfish economic advantage comes most commonly in the form of illegal migration. The above points on the importance of immigration not withstanding, immigration has its ugly side. Such ‘ugliness’ arises when immigrants find their way to other countries and cities illegally. This development is referred to as illegal migration. Illegal migration retards economic development rather than promoting it. This is because national authorities are not able to keep track and record of illegal immigrants and are therefore not able to plan for their stay so well. With time, because of the absence of proper records on the population of the people due to the influx of illegal immigrants, there become a lot of pressure on social amenities, economic targets of the government and general living condition. India is one country that is not spared the menace of illegal immigration. “The Illegal Immigration from Bangladesh into India's northeast that it is a time bomb that will explode sooner or later.15” This expression shows the seriousness of the issue of illegal immigration to the economic growth of India. This is because already India has one of the world’s largest population, who all have to be fend for through the government’s economic budgets, projections and targets. With illegal immigrants taking over India however, there is the likelihood that there would be general retardation of India’s economy because the economic targets would be smaller than the people present in the country. As the HVK Online Journal observes, “economic migrants also will tend to be much larger and places a substantial monetary burden on the host country.” Another serious threat to the speedy development of India’s economy is counterfeiting and production of fake goods. This is a development that is commonly associated with Chinese industries but could be very threatening to India’s future economic development if checks are not put in place to clamp down on the situation. It seems like every economic giant in the world has a peculiar problem of counterfeiting that it faces. Where as electronic counterfeiting is commonly associated with China, “India’s worse enemy as far as counterfeiting is concerned is pharmaceuticals16. India is noted to be the world’s leading pharmaceuticals producer. It therefore should come as a major economic blow for the country to be tagged with counterfeiting in the area of pharmaceuticals. According to The Lancet (2010), “The definition of counterfeits in Section 2 of the new Kenyan law (Anti-Counterfeit Act, 2008) can be interpreted to refer to generics as counterfeits as they are considered to be substantially similar goods.” Most commonly, counterfeiting sets in to a particular sector of the economic is the rapid growth in that sector is not well monitored. This is because it creates room for some few selfish people to produce substandard products with the aim of selling them with the earned ‘name’ of the country. For instance because India is noted for pharmaceutical production, people are likely to settle in that country and produce fake or counterfeit drugs with the hope of getting people to patronize the products at all cost just because it was made in India. Happily, the Lancet (2010) tells us that “India, the leading supplier of low-cost generic drugs to Africa, has begun fighting back to counter the confusion surrounding counterfeit drugs in the region.” This is a step in the right to ensure total and progressive economic growth for India. This is because of the pivotal role pharmaceuticals play in the economic development of India. One reason that makes counterfeiting of pharmaceutical and other products from India more serious is that once the country gets to become commonly associated with the bad name of counterfeiting, she is likely to lose most of her trade customers; a situation that can lead to the collapse of the country’s entire economy. In recent times, it was reported that India had been tagged by the European Union as a leaking face drug producer. In the words of Balakrishnan (2006) “another first for India, but this one leaves a bitter taste. India has been listed by the European Commission (EC) as the country which supply lion’s share of counterfeit drugs in the Europe.”17 Clearly, once an entire economic community and such a vibrant one as the European Union gives India such as a tag, India is likely to suffer a lot of setbacks in her quest to be the world’s economic leader. Such setbacks will set in when countries begin pulling off their trade relations from India. Finally, India’s economy is likely to suffer if overdependence on the country’s economy by foreigners is not checked. Broadly speaking, to offer to help other countries is not a bad action that can be taken by any country, however, as far economic development and growth is concerned, it is extremely important to be very circumspect when deciding or choosing which countries to aid and at what time to go into partnership of any kind. This is because most developing and under developed countries have woefully become misers, whose excessive dependence on developed economies live the developed economies with nothing but debt and economic stagnation. As far as economic principles are concerned, partnership and assistance should be mutual. This means that both countries involved must benefit in one way or the other. In a situation where one country only becomes an active giver without receiving any benefits in return, it is likely that such a country would suffer economic setbacks. As India continues to make strides in her economic growth, she needs to be very careful with her choice of partnership with other countries. As much as some already developed countries can take advantage of India’s emerging economic successes to further enrich themselves, some underdeveloped countries can also soak all their burdens onto the country without India getting any economic benefits in return. When countries continue to depend on the economy of India, it is likely to affect the economy in terms of the country’s inflation and infrastructure18. According to the journal, “there are risks of inflation, the infrastructure may not catch up, and there are any number of things that are beyond our control.19” To ensure an unbalanced dependence on the economy of India, it is advised that there become policies put in place that would ensure that for every quota of support offered or given out, there becomes a subsequent benefit that would be derived from such support. For instance India can give out grants to less endowed countries but there should be the conscious effort to ensure that even if should countries would not be making any financial commitments in return, they allow for Indian investments in their countries. This way, the profits that the investors make would be channeled back to developing India and replacing or filling the vacuum that would be created. If India really wants to maintain her current economic development, under no circumstance should there be total dependence on her economy by outsiders without any mutual benefits. Can India exceed China economically? There is no impossibility to him or her who says he or she can. This is of course true for India as far as economic growth is concerned. A nation like China sprang from almost nowhere to become a leader in the world’s economic race. Today’s there is no denying fact that China is competing massively with giants such as United Kingdom, Germany, France, Japan and the United States. There are so many lessons in this feat that China chopped. The lesson is that there is hope for every country who wants to make gains economically. Simple logical reasoning would have it that if China has been able to make it, then any other nation can also make it. These hopes and assurances not withstanding, there is no way India would attain this feat without a lot of challenges. India was indeed not as economically viable as she was fifty years ago as she is today. Today, she is rubbing shadows with a lot of world economic giants. With factors such as political will, promotion of quality and avoidance of over reliance on foreign aid in place, India can gradually rise to the level that China is today. Firstly, Ramtanu (2003) of Asian Times admonishes India to discover reasons or factors that makes her lag behind China in terms of economic development. This is an advice well given because without finding the cause of the problem, getting solutions would be extremely difficult. Ramtanu (2003) believes that “a majority of economic analysts have come to the conclusion that as of the year 2003, China is well ahead of India.20” This is caused by various factors including “China's relative success over India in attracting foreign direct investment (FDI) (Ramtanu, 2003). There are also factors such as “corruption, fiscal mismanagement, a lack of international ambition and a history of over-protection at home.” Luckily for India, these are all factors that can be controlled or overcome. There should therefore be a very strong political will that will not be characterized by haphazard and intermittent breaks due to change in government. If political policies are put in place and made to run over a very long period to check these factors that make India lag behind China, there is every indication that India would one day overtake China in economic development. Finally, India should consider these factors put forward by Shailesh, (1998) 21as an ultimate source of overtaking China economically. The factors include 1. Government should change its policies from socialism to capitalism. 2. Give boost to economy from current slump. 3. Have transparency in all government operations. Conclusion India’s economy is doing well today than some fifty years back. Today’s speedy growth of India’s economy is an indication that there is more room for improvement. Throughout this essay, there have been various suggestions on what to do and what not to do if India wants to maintain her current economic status. To conclude it is recommended that India develops long term economic policies that would serve as guiding principle for generations and governments to come. This is particular important due to the saying that if you do not know where you are going, any room leads you there. Without a long term economic plan, India would be moving without clear-cut focus. Finally, it is recommended that India puts in place peer review mechanisms to constantly check its rate of success with her economic goals and aspirations. These peer review mechanisms would become assessment tools for determining the level of progress and signaling any areas that need modification or change. Read More