Economic growth refers to the country's ability to produce more than in previous periods. This is attributed to increased consumer spending as a result of the job growth rate. Economic growth can be simply measured by calculating a country's gross domestic product. This is the total output of a country's economy, taking inflation into account. Economists developed several periods of the economy known as the business cycle in order to achieve economic growth. This cycle has four stages: peak, recession, trough, and expansion or recovery. Most of the economic growth of any country is greatly attributed to the abundance of resources, population, and the government economic projections. Growth stimulates tax revenue whereas the government steers growth through the expansive fiscal policies under strict precaution to avoid much foreign debt (Amadeo., 2017).
In my research, I will closely examine India’s economic growth over the years and identify the key feature that has made India unique with an outstanding growth. India continues to hold the fastest growing economy in the whole world. India was a British colony for over 200 years, and after gaining its independence in 1947, it has shown tremendous growth in the economy. After independence, it had critical challenges ranging from low literacy levels to horrific poverty. Indian economic history can be divided into two phases. After independence the 45 years and the last 20 years being a free economy. This can be classified into two segments namely the public and private sector. Private sector formed the small and medium business while the other part was formed by industries which were under government protection. The government governed the consumer services with an expectation of delivering cheap and reliable services.
In the 1990s the economy worsened characterized by inflation, poverty, unemployment and low foreign exchange reserves. This was due to the collapse of the Soviet Union which was a large market partner for India. During this period the International Monetary Fund and the World Bank tried to help India’s economy. After economic reforms in 1991, India put more emphasis on increasing foreign direct investments, diversifying information and technology and increasing domestic consumption. This combination contributed greatly to the generation of new jobs. The technical workforce was highly skilled to improve protection and safeguard the intellectual property and also to pick up many outsourcing businesses from western countries which had low costs (Gosal. ., 2013). India has a rapid growth of GDP raising its gross per capita income, and this has reduced the general state of absolute poverty. It has a per capita income of about $1,270 with a life expectancy level of 65years with 44% of the children under age of 5 being malnourished.
From 1990 onwards, India’s economy has been expanding immensely with the GDP growing at a rate of 6-8% per year. The nominal GDP has grown from US$267.52 billion in 1992 to around US$1.85 trillion in 2012. Between 2011 and 2012 the largest trading partners of India were Saudi Arabia, United States, Switzerland, China and the United Arabs Emirates. The various sector percentage share is given in table 1. India is a fast-growing market for agricultural and food products with agriculture accounting for 16.1% of its GDP. It is the world’s biggest milk producer.
India’s rapid economic growth is contributed by some factors which include: a fast-growing population of the working age. The country has about 700 million people under the age of 35. It has experienced demographic transition which has increased working age population share from 55% to around 64% in the last two decades. The large population is seen to have increased the real wages and disposable income. India also has a strong legal system with many people having proficiency in English. This factor is seen to attract many investors especially those with special interest towards IT. Advancement in the sector of IT is seen to have contributed greatly to the growth of the economy. India has a low wage cost. This has closed some production gaps between her and the rest of the countries which are in the process of development. Cheap wages are also seen to attract foreign investors because they cut off the high expenses of production. External economies of scale have enabled Indian economy to grow faster by attracting a group of businesses in technological space leading to the emergence of Bangalore as the host of the global software business.
The World Bank director in India suggested that India was to continue being the fastest growing economy and this will be boosted on its approach to GST. This is aimed at reducing logistical cost and reduce the cost of production of firms. The fiscal year 2017-2018 is expected to recover to 7.2 and is aimed to increase to 7.7% in the fiscal year 2019-2020.
The growth of Indian economy has impacted both positively and negatively internationally and locally. There has been an increased market partnership which has created a favorable competition condition. It has also created jobs for many Indians drifting them from absolute poverty condition. It has also led to the advancement of different fields of specialization such as the IT and medical field. There has been continued expansion of infrastructure to aid transportation. The government has also been able to raise a substantial amount of money from taxation
Despite the optimistic nature of India, growth has encountered several obstacles which are characterized by poor infrastructure which has made it hard to exploit the resources fully and transport ready products to the market. The cost of energy supplies is also high therefore increasing the cost of production. Human capital (labor) has low productivity in scenarios whereby unskilled labor is found working in small businesses. The high inflation rate in India has exposed businesses to too much fluctuation. India is also a net importer of primary products, and this has closed the economy. There has also been the challenge of inequalities whereby about a third of the population is living below the poverty line.
Conclusion
The paper has outlined the history of India’s economy over the last two decades and also highlighted the key features that have been a hindrance to economic development in India. India is focused on sustainable growth with energy directed towards solving issues in the economy by setting up good infrastructure systems, bankruptcy, and labor regulations and balancing the rising inequalities between the urban and rural areas. These great concerns on the India economy and diversifying of economic activities has contributed to the rapid growth of the economy. Economic growth is essential for every country to experience improved standards of living and also creating a smooth business environment between different states.
Table 1
Sectors
Percentage share of GDP in
19950-51
2011-12
Primary sector
58
16.1
Secondary sector
13
24.9
Tertiary sector
28
59
References
Amadeo Kimberly 2017. What is economic growth? The balance.
https://www.thebalance.com/what-is-economic-growth-3306014
Gosal Dushyant., 2013. History of economic growth India.
https://intpolicydigest.org/2013/04/24/history-of-economic-growth-in-india/
https://www.tutor2u.net/economics/reference/india-economic-growth-and-development
Word Bank 2017. India’s Economic Fundamentals Remain Strong; Investment Pick-up Needed for Sustained Growth, says New World Bank Report.
http://www.worldbank.org/en/news/press-release/2017/05/29/india-economic-fundamentals-remain-strong-investment-pick-up-needed-sustained-growth-says-new-world-bank-report
