PROBLEMS OF INDIAN PROBLEMS OF INDIAN ECONOMYECONOMY

BY: BY: RICHA GARG RICHA GARG

RUCHIKA JAINRUCHIKA JAINJAGRITI AHUJA JAGRITI AHUJA

ROSHNI KUMARIROSHNI KUMARI SHRUTI KHANDELWALSHRUTI KHANDELWAL

OVERVIEW OF INDIAN OVERVIEW OF INDIAN ECONOMYECONOMY

Geographically strategically located.Geographically strategically located. Largest democracy with stable political Largest democracy with stable political

system.system. Private sector is the backbone of the Private sector is the backbone of the

economy, accounting for 75 percent of GDP.economy, accounting for 75 percent of GDP. Measured in terms of the dollar at Measured in terms of the dollar at

purchasing power parity, India's economy is purchasing power parity, India's economy is the Fifth largest after USA, China, Japan and the Fifth largest after USA, China, Japan and GermanyGermany

Rapidly growing consumer market with 250 Rapidly growing consumer market with 250 million strong middle class.million strong middle class.

Economy of The Republic of IndiaEconomy of The Republic of India

Modern Indian currency notes:Modern Indian currency notes:

Sound legal system.Sound legal system. Widespread usage of English for official and Widespread usage of English for official and

business communications.business communications. Second largest English speaking scientific base in Second largest English speaking scientific base in

the world with over 200.the world with over 200. Universities and 2000 research institutes.Universities and 2000 research institutes. A member of World Trade Organization (WTO).A member of World Trade Organization (WTO). Vast reservoir of natural resources and large pool Vast reservoir of natural resources and large pool

of technically skilled, relatively inexpensive of technically skilled, relatively inexpensive manpower.manpower.

Currency: 1 Indian Rupee(INR)= 100 PaisaCurrency: 1 Indian Rupee(INR)= 100 Paisa Fiscal year: 1 April – 31 MarchFiscal year: 1 April – 31 March GDP:$1.63 trillion (2010) GDP:$1.63 trillion (2010) GDP growth: 8.5% (2010–11)GDP growth: 8.5% (2010–11) GDP per capita: $1,371 (2010)GDP per capita: $1,371 (2010) Sector rate: services (55.2%), industry (26.3%), Sector rate: services (55.2%), industry (26.3%),

agriculture (18.5%) (2010)agriculture (18.5%) (2010) Population below poverty line: 37% (2010)Population below poverty line: 37% (2010)

Exports: $225.4 billion (2010 est.)Exports: $225.4 billion (2010 est.) Imports: $359 billion (2010 est.)Imports: $359 billion (2010 est.) Public debt: 71.84% of GDP (2010 est.)Public debt: 71.84% of GDP (2010 est.) Revenues: $185.4 billion (2010 est.)Revenues: $185.4 billion (2010 est.) Expenses: $269.8 billion (2010 est.)Expenses: $269.8 billion (2010 est.)

  1. 1. InflationInflation: Fuelled by rising wages, property prices and : Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. food prices inflation in India is an increasing problem. Inflation is currently between 6-7%. With economic growth Inflation is currently between 6-7%. With economic growth of 9.2% per annum inflationary pressures are likely to of 9.2% per annum inflationary pressures are likely to increase. increase.

2. 2. Poor educational standardsPoor educational standards. Although India has . Although India has benefited from a high % of English speakers. (important for benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy call centre industry) there is still high levels of illiteracy amongst the population. amongst the population.

3. 3. Poor InfrastructurePoor Infrastructure. Many Indians lack basic amenities . Many Indians lack basic amenities lack access to running water. Indian public services are lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. creaking under the strain of bureaucracy and inefficiency.

4. 4. Balance of Payments deteriorationBalance of Payments deterioration. Although India has . Although India has built up large amounts of foreign currency reserves the built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent monthscurrent account deficit has deteriorate in recent months. .

Problems of Indian Problems of Indian EconomyEconomy

……contcont5. Inequality has risen rather than decreased :5. Inequality has risen rather than decreased : It is hoped the It is hoped the

economic growth would help drag the Indian poor above the economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. uneven benefiting the skilled and wealthy disproportionately. More than 78 million homes do not have electricity. 33% More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. (268million) of the population live on less than $1 per day.

6.Large Budget Deficit:6.Large Budget Deficit: India has one of the largest budget India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past to nearly 8% of GDP. Although it is fallen a little in the past year. year.

8.High levels of debt8.High levels of debt: Buoyed by a property boom the amount of : Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. Furthermore if there are concerns about the risk of such loans. Furthermore if inflation increases further it may force the RBI to increase inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially those indebted facing rising interest payments and potentially reducing consumer spending in the futurereducing consumer spending in the future

Major problem of Major problem of fiscal deficit /debt fiscal deficit /debt

burdenburden

DebtDebt (or  (or foreign debtforeign debt) is that part of the total debt in a ) is that part of the total debt in a country that is owed to creditors outside the country or country that is owed to creditors outside the country or within country.within country.

The primary component of fiscal deficit includes revenue The primary component of fiscal deficit includes revenue deficit and capital expenditure deficit and capital expenditure

India's debt situation focuses on the total amount of India's debt situation focuses on the total amount of external debts taken by the nation in a particular year, its external debts taken by the nation in a particular year, its repayments as well as the outstanding debt amounts, if repayments as well as the outstanding debt amounts, if any.any.

India’s External Debt SituationIndia’s External Debt Situation

India’s external debt, as of India’s external debt, as of March 2009,was US $229.9 March 2009,was US $229.9 billion (22.0 % of GDP), billion (22.0 % of GDP), recording an increase of recording an increase of US$5.3 billion or 2.4 % over US$5.3 billion or 2.4 % over 2008 mainly due to the 2008 mainly due to the increase in trade credits. increase in trade credits. 

The share of short-term The share of short-term debt in the debt in the total debt increased to total debt increased to 21.5% in March 2009, from 21.5% in March 2009, from 20.9% in March 20.9% in March 2008,primarily on account 2008,primarily on account of a rise in short-term trade of a rise in short-term trade credits.credits.

Large fiscal deficits have a variety of Large fiscal deficits have a variety of adverse consequences: reducing adverse consequences: reducing economic growth, lowering real economic growth, lowering real incomes, and increasing the risk of incomes, and increasing the risk of financial and economic crises financial and economic crises

A continually increasing ratio of debt A continually increasing ratio of debt to GDP runs the risk that the debt will to GDP runs the risk that the debt will get on an unsustainable path leading get on an unsustainable path leading to national insolvency. to national insolvency.

Major problem of ExportsMajor problem of Exports Exports are the goods and Exports are the goods and

services that are made in the our services that are made in the our economy and transmitted to economy and transmitted to foreignersforeigners

The goods exported from India The goods exported from India mainly include wide variety of mainly include wide variety of agricultural products, chemicals, agricultural products, chemicals, jewellery,garments, leather jewellery,garments, leather goods .goods .

Exports during 1998-99 are Exports during 1998-99 are estimated to be around US $ 33.6 estimated to be around US $ 33.6 billion, as compared to 35 billion in billion, as compared to 35 billion in 1997-98,representing a decline of 1997-98,representing a decline of 3.8%. This poor performance in 3.8%. This poor performance in exports is attributed to both exports is attributed to both domestic and external factors.domestic and external factors.

Export Volume of All Items Including Goods and Export Volume of All Items Including Goods and Services (Percent Change) for India in year Services (Percent Change) for India in year 2010 is 10.229 %. 2010 is 10.229 %.

One of the reasons for this decline, is the One of the reasons for this decline, is the reduction in the international prices of various reduction in the international prices of various

commoditiescommodities..

What can be done ?What can be done ?

The basic rule is that government revenue must The basic rule is that government revenue must exceed government non-interest outlays. The excess exceed government non-interest outlays. The excess of revenue over non-interest outlays must be of revenue over non-interest outlays must be sufficient to finance enough of the interest payments sufficient to finance enough of the interest payments on the public debt to avoid a rising ratio of debt to on the public debt to avoid a rising ratio of debt to GDP. GDP.

Interest rates and money growth rates can be Interest rates and money growth rates can be changed frequently and can reverse direction. changed frequently and can reverse direction.

A faster rate of economic growth would also reduce A faster rate of economic growth would also reduce the equilibrium ratio of debt to GDP and the risk of a the equilibrium ratio of debt to GDP and the risk of a shift to an unstable path of debt to GDP.shift to an unstable path of debt to GDP.

A sound monetary policy that reduces A sound monetary policy that reduces inflation risk can reduce the real interest rate. inflation risk can reduce the real interest rate.

Finally, an increase in the rate of economic Finally, an increase in the rate of economic growth would lower the equilibrium ratio of growth would lower the equilibrium ratio of debt to GDP and reduce the risk of an debt to GDP and reduce the risk of an unstable rising ratio of debt to GDP.unstable rising ratio of debt to GDP.

The Government of India latest export policy The Government of India latest export policy for the exporters will help in stabilizing the for the exporters will help in stabilizing the export growth .export growth .

There is an effort to give a boost There is an effort to give a boost to exports. The annual advance to exports. The annual advance liscence system has been liscence system has been introduced to take care of introduced to take care of imports required by exporters.imports required by exporters.

Zero duty export promotion Zero duty export promotion capital goods scheme has been capital goods scheme has been extended to chemicals, plastics extended to chemicals, plastics and textiles. Additional facilities and textiles. Additional facilities have been provided for exports have been provided for exports of gems and jewellery. of gems and jewellery.