The Geographical division of the world differentiating the rich from the poor starting from the Global South includes all of Asia except Japan, Australia, New Zealand, Brunei, and the South East Asian ‘dragons’ of Hong Kong, South Korea, Malaysia, Singapore, Taiwan, and Thailand; all of Africa; the Middle East, except the oil-rich UAE, Qatar, Saudi Arabia, and Bahrain; and Central and South America. The North includes Europe; the USA, except Bermuda and the Bahamas; Canada; and the European republics of the former Soviet Union. Newly industrialized countries such as South Korea and Taiwan now have more in common with the industrialized North and fast-developing Argentina, Mexico, Brazil, Peru, and Chile than with other countries in the developing world. (http://www.talktalk.co.uk/reference/encyclopaedia/hutchinson/m0030871.html)
The Third World or Global South’s persistent underdevelopment can be explained by analysing both the internal and the external factors that consistently contribute towards halting its progress.
When Imperialism started in United States, which was a natural product of economic pressure due to sudden advance of capitalism which needed foreign markets for goods and investments. Europe was going through the same scenario, overproduction in the sense of excessive manufacturing plants and surplus capital which could not find stable investments within the countries, forced Great Britain, Holland, Germany and France to place large portions of their economic resources and capital outside their own political domain and stimulate a foreign policy of expansion to new regions and areas. Germany in the early 1900s was suffering severely from what is called a glut of capital and manufacturing power and had to move to new markets and trade settlements were forced upon Asia Minor, West Africa and other colonies. Improvements in method of production and industrial revolution boosted a machine economy with one nation after another adapting industrial methods, it became difficult for their merchants, manufacturers and financiers to dispose profitably their economic resources, so they used their Governments in order to secure for their particular use, some distant underdeveloped countries by annexation or protection. These economic conditions of affairs form the taproot of Imperialism.(Hobson, 1954)
Hence my point being that the developed world has used the developing world for its own gain and cheaper raw materials and labour. Due to the relationship of interdependence between world economies and world trade there are dominant countries which expand because they are self sufficient and there are dependent countries that can only do this only as a reflection of these dominant countries. The concept of dependence allows us to see the situation of these countries internally as a part of the world economy. In the Marxist tradition, the theory of imperialism has been developed as a study of this process of expansion of these imperial centres and their quest of world domination.
Scholars following the Marxist tradition have presented the most extensive analysis of foreign economic policy. Karl Marx himself was primarily concerned with developments within national economies, although he did not ignore international and global problems. The international aspects of capitalism assumed a place of importance for Marxist scholars.
Marxist theories can be divided into two basic types: instrumental and structural. (Laski, 2003)
Instrumental Marxist theories view governmental behaviour as a product of direct social and societal pressure. In its sophisticated form, Marxist arguments analyze the general ties between the government officials and the capitalist sector. I would like to quote Mr. Harold Laski here who argued that ‘historically we always find that any system of government is dominated by those who at the time wield economic power; and what they mean by ‘good’ is, for the most part, the preservation of their own interests.’ (Laski, 2003)
Structural Marxist have different arguments. They do not link the behaviour of the state to any capital class and see the state playing an independent role within the whole capitalist system. Analysing this from an economic perspective, we can see that capitalism is not self sustained towards general equilibrium in the long run profit because the labour cannot be exploited in the long run due to technological advancements which decrease the ratio of labour to capital in the long run. This process leads to more goods produced than its members can consume also known as under consumption and this drives the weaker firms out of the market and capital accumulation and greater power in the hands of owners or managers of capital.
The relationship between giant multinationals, advanced capital societies and foreign activity has been emphasized by some recent Marxists like Harry Magdoff and James O’ Conner. Through the behavioural theory of the firm, Magdoff suggests that corporations are systems of power and each firm tries to control and capture its own market. This fact could not be realized at the beginning of capitalism because the level of competition was too high. Businesses seek to maximize control over actual and potential sources of raw material and foreign markets. The foreign investment by these multinational guarantees this control. And these corporations are the foundation of the American capitalist system and their political power is immensely great and for these reasons the United States, the leading capitalist nation in the world maintains an international economic system with minimum constraints on the functioning and operation of these giant multinationals. (Magdoff, 1960)
Although another Marxist James O’Conner maintains that in modern capitalist systems, monopoly sector is the most important source of profits. However the monopoly sector can expand rather quickly than demand and employment and this leads to aggressive foreign policy. Thus overseas activity can create new opportunities of investment, sales and profit. Marxist analysts have also suggested a relationship between capitalist system, military expenditure and imperialism. This military power is important in direct sense because the use of force may be necessary to keep foreign areas open to investment and trade. (Connor, 1973)
One of the main focuses of these capitalists was the supply of cheap raw materials and United States was itself dependent on foreign sources for some commodities that were essential for industrial operations and also military equipment.
One author argues that all American foreign policy can be explained by the need “to insure that the flow of raw materials from the Third World is never interrupted.” (Dean, 1966)
Marxist theories tend to explain the effect of imperialism and capitalism on underdeveloped countries.
A famous quote of Karl Marx, “Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth – the soil and the labourer.”
Modernization Theory is another competing theory which tends to explain the underdevelopment of the Global South and also gives an essence of the internal factors involved in its causation. Modernization Theory suggests that the cause of underdevelopment in third world nations is their own policies and socio-economic structures that are based on feudalism, tribal system, family/cultural ties and primitive economic structures. The Third World society is lacking rules, regulations, law rule of jurisprudence and democracy and their underdevelopment is a product of their own slowness and failure to adapt to the modern worlds patterns of efficiency to modernize and develop themselves. While the modernization theory does recognize that the developed world has a role to play in the progress of the third world, the main focus of modernization theory is that the developed countries only have limited responsibility for the underdevelopment of the third world as the third world is largely responsible for its own poverty. They have a traditional societal approach and the new generation is expected to imitate their ancestors. In these societies there is hardly any belief of development and improved living conditions or the eagerness to engage in fundamental social changes such as a switch from subsistence economies to market economies. Traditional economies is where groups and individuals in position of immense power cause corruption and halt economic development and redistribute profits into their own hands. In order for underdeveloped countries to develop they have to abandon their traditional approach and their social and cultural models in replacement for the western traditions of free market system, good governance and stable economic planning. For capitalism to take hold and entrepreneurial environment with individual innovation and political freedom is required. (Isbister, 2003)
A sound economic environment which will draw investment and prudent spending of public funds by officials for maintaining social infrastructure such as public safety and education is necessary for development. Disciplined monetary and fiscal policies are needed to create an investing environment for both domestic and foreign investors. Rule of law such as tort law and contract law should be enforced for businesses to expand from traditional family/tribal/cultural ties to person who will be trusting non-relative person, who will invest capital.
The benefit that the first world can give to the underdeveloped nations is the transfer of technological knowledge and assistance though enabling transnational corporations to introduce advance technology in their third world branch of plants. (Isbister, 2003)
While the modernization theory implies that underdeveloped countries have to follow the same path of the first world , the dependency theory opposes the modernization theory and rather argues that impoverishment of the third world is caused by the economic well being of the first world.
While contemporary dependency theory is largely Marxist in origin (Isbister, 2003), the foundation for the concept of dependency theory goes way far back to Adam Smith who acknowledged that the imperialist economic practices of the European nations had denied colonized peoples the benefits of socio-economic progress.
The dependency theory argue that unfair economic practices and unequal trade conditions transfer the surplus generated in the dependent countries to dominant countries; financial relations are based on the viewpoint of the dominant countries based on export and loans of capital giving them interest in return and also control over the developing economy.
Trade relations are based on monopolistic control of the market and the developing country are exporting their profits and interests out of their country but also bear the loss of control of their domestic resources. From colonial dependence in earlier times where the colonial countries of Europe economically dominated the colonized countries, to the financial-industrial dependence of the nineteenth century, where raw materials where supplied from these developing nations,
each of the forms of dependence corresponds directly to the control that the first world had over the dependent world.
Third world poverty is, therefore, not the result of tradition or accident but rather the direct result of plunder conducted by the first world for its own development and to sustain its economic position. As a result of first world actions in shaping the world order, in the eyes of dependency theorists, the third world has been impoverished and rendered incapable of balanced development. (Isbister, 2003)
These two main theories discussed above (Modernization Theory
Reasons For The Sharp Development Of India Economics Essay
A South-Asia country, India has a sharply development in recent years. It is deserved that India is listed in BRCI (is a grouping acronym that refers to the countries of Brazil, Russia, China and India that are deemed to all be at a similar stage of newly advanced economic development) . There are big progresses in the developed cities in India such as New Delhi and Mumbai. In the last five years, the economic growth of India are keeping 5% or above.
In this project, the main objective is that to study why the economy of India had a sharply development in recent years. We will discuss the reasons why India develops so fast in detail. Is it related to the economic structure of India? Is it because of the liberalization after 1900s? We will have some completed explanations in the follow parts.
India today According to IMF and World Bank, India has become the eleventh largest economy in the world by nominal GDP, and the distance between Canada, Spain, Brazil and India is small; consider another measure living standard, which is the purchasing power parity. India is the fourth economy in 2009, and in 2008, India is ranked at 5th.(Figure1 and figure 2) Indian’s economy is growing very fast in recently ten years, from 2000 to 2009, the average growth rate is about 6.9% , especially in 2007, the grow rate is 9.2%, which is one of the most fast growing economy. (Figure 3)
Figure 1: List of countries by GDP (nominal)
Figure 2: List of countries by PPP
Figure 3: The ten largest economies in the world measured in PPP
Figure 4: GDP growth rate
It seems that India is one of the leading economies if we only look at the aggregate results, but actually, if we compare the GDP per capita, the rank is 142 and 123 respectively, we find that India still is a relatively poor country.(Figure 5)
Figure 5: List of countries by GDP (nominal) per capita
History of India economy India’s economic can be mainly divided into 4 periods, beginning with Pre-colonial period (last up to 18th century), followed by colonial period which ended with independence in 1947, from the independence of India to 1991, and last period is since 1991 to now.
Pre-colonial Indus Valley civilization is the first permanent and predominantly urban settlement that flourished from 2800 BC to 1800 BC. The citizens of Indus valley civilization is skilled in agriculture, raise animals, made sharp tools, weapons and traded with other cities. Most of the populations are resided in villages, according to 1872 census, 91.3% of the population of the region India living in villages.The economy is highly isolated and self-sustaining with agriculture. The religion in this period played an important role in affecting the economic activities, especially Hinduism, cast and joint family systems. Caste system ensured the division of labors, the barrier restricted the economic transaction on different castes. Joint-family systems reduce the initiative of people through providing support, these two religions became resistances for the economic development. For the next 1,500 years, India is the largest economy of the world.
Share of world income
Colonial period Under the control of British, company rule in India which refers to rule or dominion of the British East India Company on the Indian subcontinent, has changed the taxation and agriculture policy, this policy protects colonist, but harms the benefits of farmers, lead to numerous famines. India’s largest handicrafts industry was bankrupted because of the economic policies of British Raj. The impact of British imperialism on India economy can be seen as a form of plunder and a catastrophe. At the end of colonial period, India is one of the poorest countries in developing countries. Two reasons lead to the situation, industrial development stagnation and lower agriculture growing than population.
Independence to 1991 After India became independence, the policy tended to protectionism, strongly emphasis on import substitution, industrialization, state intervention, a large public sector, business regulation, and central planning. State interventionism is government takes an action to affect its own economy, India government launched a Five-Year Plans similar to central planning in the Soviet Union. Mining,steel, water, machine tools, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.The rate of growth of the Indian economy in the first three decades after independence was quite low(about 3.5%), and the growth rate was referred to a term called “Hindu rate of growth”, by comparing with the growth rate in other Asian countries, especially the East Asian Tigers. (Figure 6)
Figure 6: GDP per capita of South Asian economies
From 1991 to now India government faced a big problem, which is the balance of payment crisis because of the collapse of its major trade partner. Have no other choices, India asked IMF for help, and IMF required India government to do the reform. Then India began to do the reform, which was called “economic liberalization of 1991”. The reforms canceled the Licence Raj (investment, industrial and import licensing) and ended the monopoly position of state-owned company, at the same time, relaxed foreign investment. Since 1991, India’s liberalization followed this direction, with the objective to change from planned economy to market-based economy gradually. These reforms can be summarizing as below:
Cut industrial licensing; rationalize Industrial regulation, and only 18 industries subject to licensing.
Repealing the Controller of Capital Issues in 1992, stock price and no of shares were decided by market.
Introducing the “SEBI” in 1992 and the Security Laws,the law gave SEBI the legal authority to register and regulate all security market intermediaries.
Tariffs were reduced from an average of 85 percent to 25 percent, and return to quantitative controls.
Increasing the maximum limit on share of foreign capital in joint ventures from 40 to 51 percent, to encourageforeign direct investment.
Equity markets were Opening up in 1992, Indian firms could raise capital on international markets.
Initiating privatization of government corporations which were large, but inefficient
Impact of the economy liberalization India’s economy was benefit from these reforms, and India’s government realizes that they need to continue liberalize their economy. In 1991, the growth rate was 2.1%, after the liberalization of economic, growth rate next year is 4.2% which is double. (Figure 7) By 2006, the average weight of imports and exports in GDP had risento 24%,the weight in 1985 is just 6%. At the end of 2006, inflows of foreign direct investment also increased to 2% of GDP, whileless than 0.1% of GDP in 1990.Now India’sGDP per capita isrising by 7½ per cent annually, and the potential growth rate is keep increase. (Figure 8)Consider the annual growth of GDP per capita of from1950 to 1980, isjust 1¼ per cent. The fast growth rate hasbrought India to become the fourth largest economy.
Why the economy of India can grow so fast. We analyze this question in the following points:
1. Economic reforms: The economy of India once famous for the “Hindu rate of growth”, of 3% a year, was opened up by the reforms of the 1990s, many of them pushed through by the man who is now Prime Minister, Manmohan Singh. The government’s latest five-year plan sets that India can sustain average growth of around 9%. Since the eighties and nineties in the 20th century, the economic liberalization reforms include relaxing industrial regulations to reduce the monopoly, encouraging competition and trade and investment liberalization and other market-oriented reform measures, which nurtured the international competitiveness of enterprises. And the economic reforms focus on the OM (open market) economic policies. Foreign investments have come in different sectors and there has been a good growth in the standard of living, per capital income and Gross Domestic Product. And until now, India growth rate rises to 8.8% until the third quarter of 2010. Let’s see the picture of economic growth after liberation:
Figure 9: the economic growth in recent years
The economic growth rate is get rid of the “Hindu rate of growth”, it becomes the eleventh largest economy in the world by nominal GDP and had established itself as the world’s second-fastest growing major economy.
2. Continued growth of service sector: The continued growth of services provided for the Indian economy continued growth. After India’s independence last century, in the fifties or sixties, the proportion of service sector output accounted for 31.1% GDP, while in 2001-2009, the services sector share of GDP, reached 63.9%. Service-oriented development strategy has potential for sustainable development and potential of India’s economic development it provides a great opportunity. The table below is the GDP by sector of India in recent years:
Table1: GDP by sector of India
Through the table, we can see that Service Sector in India of 2000s accounts for more than half of India’s GDP. There was high growth rate in services sector growth in the 1980s and 2000s. And the weight of service sector of India’s GDP increases by around 21% in about 50 years between 1950 and 2001. While most service sectors participated in this expansion, growth was fastest in trade, communications, community services, hotels and restaurants, and business services, such as the IT (information Technology) industry. One reason for the sustained growth in the services sector of India in the 2000s is the liberalization in the regulatory framework that improves innovation and increase exports from the services sector.
3. Fast growing of IT and BPO industries: As you know, the Information Technology industry and the business process outsourcing (BPO) industry in India is one of the fastest growing industries. Indian IT industry has built up the goodwill and the brand equity in the world. So, why Global organizations are willing to choose outsourcing call center services to India, when compared to outsourcing to Malaysia, Philippines, China and other Asian countries. Here is why, the call centers in India can provide a wide variety of advantages that other countries do not offer so that India can be dominant in the IT and outsourcing market. Let’s look at the following graph.
Figure 10: The outsourcing weight in the world.
Figure 11: The 6 advantages of the outsourcing in India
The rapid development of information industry ensures sustained and rapid economic growth in India. India’s software industry is its economic development focus of the most striking, especially in its business process outsourcing industry. Indian software services industry in 2003-2004 reached 15.9 billion U.S. dollars, up 28.2%, with exports 12.5 billion, an increase of 30.5%, while the BPO industry is 3.6 billion U.S. dollars, up by 54%. India’s outsourcing of services involving a wide range, including customer management, financial management, financial services, digital services, engineering and design services, animation production, network management and biotechnology research and other business. There is no doubt that IT and BPO industry in India has become the engine of economic growth. International software giant, Microsoft chairman Bill Gates suggested that the software superpower in the 21st century, not America, not Europe, not Japan, but India.
4. Stable and efficient financial sector: India has a relatively stable and efficient financial sector. Financial sector is connected to the owner and user of capital funds as a bridge between the financial sector efficiency is directly related to economic development. India has a relatively sound banking system and capital markets more transparent, and India’s capital market has been liberalized. The government has approved significant banking reforms. While some of these relate to nationalized banks like encouraging mergers, reducing government interference and increasing profitability and competition, other reforms have opened up the banking and insurance sectors to private and foreign players. India in the interest rate market, and promote financial sector competition, the development of the domestic securities market, strengthen supervision have made certain achievements: By 2002, India’s commercial banks to bad debt ratio of 10.8%, the proportion of non-performing assets accounted for only 2.8% of GDP; Now there are 23 stock exchanges in India (please notice that China only has 2), in exchange more than 6,000 listed companies, the Indian stock market daily trading volume combined 40 billion Yuan in 2003, hitting a 73% growth recorded. Robust and diversified financial system help to further improve the financing sources of the small Indian companies and corporate governance structure, long-term growth for the economy and create the conditions.
5. Human resources: The abundant human resources are a source of economic growth in India. India’s science and technology in a leading position in the third world, especially in basic sciences has a strong advantage. India attaches great importance to education and training of personnel, since independence, and gradually increased investment in education. As a part of the tenth Five year Plan (plans to all children in India in school by 2003, all children to complete 5 years of schooling by 2007, Reduction in gender gaps in literacy and wage rates by at least 50% by 2007, Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%, increase in Literacy Rates to 75% within the Tenth Plan period among 2002-2007), the central government of India outlined an expenditure of 65.6% of its total education budget of US$ 9.95 billion. Moreover, to strengthen basic education in India also attaches great importance to investment in higher education, the current total number of Indian students after the United States and China account for third in the world. India’s policy of personnel training, making India have a strong research team, there are 400 million scientific and technical personnel, after the United States and Russia, ranking third in the world, intellectuals, the number was 3.6 million, it even more than the total number of France and Japan. India has invested heavily in education to accelerate the process of human capital formation; to help India formed a unique mode of economic development in India. The table below shows the budget of education.
Table 2: Budget of education in India: measure by billion (Indian Rupee)
Here are the other factors which also affect the economic growth of India:
The consumption. Consumption growth in India’s GDP is relatively large, the marginal output of 1.410 units. This shows that India’s economic growth was mainly driven by domestic demand. India is the world’s second most populous country, and by 2010 the total population of 1.19 billion, accounting for 17.5% of the world’s population, and the population is still increasing at a rate of 1.40% per year. The large population of goods purchased enormous potential, but only the middle class in India to 2.5 million people, this part of the strong purchasing power of residents, the other, with the economic development of rural India, India, and a large number of rural residents also formed a huge commodity market, which greatly stimulated domestic demand in India. Especially, the energy consumpution has been universally considered as one of the most important inputs for human developmentand economic growth. There are two main relationships between energy consumption and economic development. The first point is growth of an economy, with its global competitiveness, cruxes on the availability of environmentally and cost-effective benign energy sources.And the second point is that the level of economic development has been observed to be reliant on the energy demand.
As a fast developing country, India consumes plenty of energy every year, and the consumption of energy are increasing in recent years (figure 12). Let’s discuss the consumption of the energy in India.
Figure 12: the toal energy consumed increased
India’s primary energy consumption has increased 4.6 times in the last 30 years: compound growth of 5.2% pa. The consumption of main energy, coal is shown in figure 13. The net import of coal is decreasing in recent years. That means the growth of coal export is larger than the import of coal import. It is because to fulfill the demand of the energy on the India’s development.
Figure 13: the consumpution of coal
The total investment. Of the total investment is also an important factor in India’s GDP growth one, the marginal output is 0.652. This is closely related to stage of development in India, according to Burt’s theory of stages of economic growth, India is still in the stage to promote the development of factor inputs, for a long period of time, capital formation will remain the main support India’s economic growth. However, India’s economic growth model can be seen that the marginal product of investment in India is only 0.625, reflecting the particular mode of economic growth in India, India’s economy is a “high efficiency”, “low cost” economy, the investment rate 20% -25%, foreign direct investment in China is only 1 / 10, but its economic growth rate has reached about 8%. The features and services in India accounted for a higher proportion of GDP in India are not unrelated. India’s economic liberalization and reform has greatly improved the investment environment in India, a relatively stable and efficient financial sector provide a financing facility, which greatly promoted the efficiency of investment in India. Let’s see the foreign direct investment in detail.
As one of the top five economies in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in telecommunication, information technology and other significant areas such as auto components, apparels,chemicals, jewelryand pharmaceuticals. In figure 14, it shows the proportion of different products in India in 2004 and 2005.
Figure 14: The foreign direct investments in India
India’s recently liberalized FDI policy (2005) allows up to a 100% FDI stake in investment. Industrial policy reforms have substantiallyremoved restrictions on expansion and facilitated easy access to foreign technology, reduced industrial licensing requirements and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, built-up infrastructure and construction development projects including housing, resorts, hospitals, commercial premises, hotels, educational institutions, recreational facilities,housing and city- and regional-level infrastructure.
Further more, India have experienced a substantial increase in their holdings of international reserves in recent years. Figure 15 (the purple curve) shows the international reserves of India. Nonetheless, the growth rates of their international reserves are quite comparable – from 1990-2007, the average annual growth rate of India’s is 37% and, from 2000 to 2007, the Indian growth rate is 33%.
Figure 15: international reserves of India
3. International trade. India’s economy is mostly dependent on its large internal market with external trade accounting for just 20% of the country’s GDP. In recent year, India accounted for 1.45% of global commodity trade and 2.8% of global commodity services export.Until the liberalization in 1991, India was deliberately and largely separated from the world markets, to protect its economy and to achieve self-dependence.
The Federation of Indian Export Organizations (FIEO), non profit organizations contributed by the Ministry of Commerce, Govt. of India in 1965 to coordinate and focus the influence of all organizations in the country committed in export promotion. The Federation has evolved into a hinge player in the promotion of trade, collaboration and investment. FIEO provides the direction, content and thrust to India’s expanding international trade.
FIEO offers a sole platform to the businessmen dealing in Multi Products. FIEO membership is provided to exporters dealing in different services and goods, and nearly all the products fall under its range. It is the unique organization authorized in India to register exporters not covered under any other Export Promotion Council of India. With customer oriented approach, the satisfactionand confidence of the business community on FIEO has increased which has reflected in the continuous growth in membership. In figure 16, it shows that the members of FIEO were increasing in recent years.
Figure 16: The growth in membership
FIEO operates as a partner of the Government of India in providing inputs on different trade policy issues and also acts a strong connection between the Industry and the Government. It takes up problems /issues of its members, organizes capacity building courses to offer a conducive domestic atmosphere and to increase their competitive edge on one hand and organizes international activities to give its members a global reach.
FIEO is the most important organization for any foreign buyer, seller of investers looking for a trade partner in India. It has played amain role as linking with counterpart organizations in difference countries as well as international agencies to enable direct communication and interaction between world businessmen and India.
We have already discussed about India’s rapid economic growth reasons in the previous sections, then we have to discuss is to maintain this rapid economic growth, India needs to pay attention to the problem.
According to the research, India’s development could be 40 times bigger by the year 2050. In order to obtain this goal, What India needs is to implement many changes. What India needs to improve is: its governance, control inflation, introduces credible fiscal policy, liberalize financial markets and increase trade with its neighbors.
India needs both to significantly raise its basic educational standards, and increase the quality and quantity of its universities. India needs to boost agricultural productivity, improve its infrastructure and environmental quality.
If India has better governance, delivery systems and effective implementation, India will do a much better job to educate its citizens, build its infrastructure, improve agricultural productivity and make sure that it establish the fruits of economic growth well.
Raise educational achievement.
Raising India’s educational achievement is a important requirement to help reach the nation’s potential. Base on our basic indicators, there is a lot India’s young people receive no (or only the most basic) education. Boosting basic education is needed quite badly. Quite lot initiatives, such as a continued expansion of Pratham and the introduction of Teach First need to be pursued.
Increase quality and quantity of universities.
According to the data, India needs to make a great effort to improve the numbers and quality of its universities.
Despite that India has not suffered particularly from dramatic inflation, it is currently experiencing a rise in inflation similar to that seen in a number of emerging economies. We think a formal adoption of Inflation Targeting would be a very sensible move to help India persuade its huge population of the (permanent) benefits of price stability.
Introduce a credible fiscal policy.
We also believe that India shouldintroduce a more credible medium-term plan for fiscal policy. Targetinglow and stable inflation is not easy if fiscal policy is poorly maintained. Wethink it would be helpful to develop some ‘rules’ for spending over cycles.
Liberalize financial markets.
To improve further the macro variableswithin the GES framework, we believe further liberalization of Indianfinancial markets is necessary.
Increase trade with neighbors.
In terms of international trade, Indiacontinues to be much less ‘open’ than many of its other large emergingnation colleagues, especially China. Given the significant number of nationswith large populations on its borders, we would recommend that India targeta major increase in trade with China, Pakistan and Bangladesh.
Increase agricultural productivity.
Agriculture, especially in these timesof rising prices, should be a great opportunity for India. Better specific anddefined plans for increasing productivity in agriculture are essential, andcould allow India to benefit from the BRIC-related global thirst for better-qualityfood.
Focus on infrastructure in India is legendary, andtales of woe abound. Improvements are taking place, as any foreignbusiness visitor will be aware, but the need for more is paramount. Without such improvement, development will be limited.
Improve Environmental Quality.
the final area where greater reforms areneeded is the environment. Achieving greater energy efficiencies andboosting the cleanliness of energy and water usage would increase thelikelihood of a sustainable stronger growth path for India.