PROBLEMS OF INDIAN ECONOMY

BY: RICHA GARG RUCHIKA JAIN JAGRITI AHUJA ROSHNI KUMARI SHRUTI KHANDELWAL

OVERVIEW OF INDIAN ECONOMY

Geographically strategically located. Largest democracy with stable political system. Private sector is the backbone of the economy, accounting for 75 percent of GDP. Measured in terms of the dollar at purchasing power parity, India's economy is the Fifth largest after USA, China, Japan and Germany Rapidly growing consumer market with 250 million strong middle class.

Economy of The Republic of India

Modern Indian currency notes:
Sound legal system. Widespread usage of English for official and business communications. Second largest English speaking scientific base in the world with over 200. Universities and 2000 research institutes. A member of World Trade Organization (WTO). Vast reservoir of natural resources and large pool of technically skilled, relatively inexpensive manpower.

Currency: 1 Indian Rupee(INR)= 100 Paisa Fiscal year: 1 April 31 March GDP:$1.63 trillion (2010) GDP growth: 8.5% (201011) GDP per capita: $1,371 (2010) Sector rate: services (55.2%), industry (26.3%), agriculture (18.5%) (2010) Population below poverty line: 37% (2010)

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

Problems of Indian Economy

inflation in India is an increasing problem. Inflation is currently between 6-7%. With economic growth of 9.2% per annum inflationary pressures are likely to increase. 2. Poor educational standards. Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. 3. Poor Infrastructure. Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. 4. Balance of Payments deterioration. Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months.

1. Inflation: Fuelled by rising wages, property prices and food prices

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5. Inequality has risen rather than decreased : It is hoped the economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. 6.Large Budget Deficit: India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. 8.High levels of debt: Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future

Major problem of fiscal deficit /debt burden

Debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country or within country. The primary component of fiscal deficit includes revenue deficit and capital expenditure India's debt situation focuses on the total amount of external debts taken by the nation in a particular year, its repayments as well as the outstanding debt amounts, if any.

Indias External Debt Situation

Indias external debt, as of March 2009,was US $229.9 billion (22.0 % of GDP), recording an increase of US$5.3 billion or 2.4 % over 2008 mainly due to the increase in trade credits. The share of short-term debt in the total debt increased to 21.5% in March 2009, from 20.9% in March 2008,primarily on account of a rise in short-term trade credits.

Large fiscal deficits have a variety of adverse consequences: reducing economic growth, lowering real incomes, and increasing the risk of financial and economic crises A continually increasing ratio of debt to GDP runs the risk that the debt will get on an unsustainable path leading to national insolvency.

Major problem of Exports

Exports are the goods and services that are made in the our economy and transmitted to foreigners The goods exported from India mainly include wide variety of agricultural products, chemicals, jewellery,garments, leather goods . Exports during 1998-99 are estimated to be around US $ 33.6 billion, as compared to 35 billion in 1997-98,representing a decline of 3.8%. This poor performance in exports is attributed to both domestic and external factors.

Export Volume of All Items Including Goods and Services (Percent Change) for India in year 2010 is 10.229 %. One of the reasons for this decline, is the reduction in the international prices of various commodities.

What can be done ?

The basic rule is that government revenue must exceed government non-interest outlays. The excess of revenue over non-interest outlays must be sufficient to finance enough of the interest payments on the public debt to avoid a rising ratio of debt to GDP. Interest rates and money growth rates can be changed frequently and can reverse direction. A faster rate of economic growth would also reduce the equilibrium ratio of debt to GDP and the risk of a shift to an unstable path of debt to GDP.

A sound monetary policy that reduces inflation risk can reduce the real interest rate. Finally, an increase in the rate of economic growth would lower the equilibrium ratio of debt to GDP and reduce the risk of an unstable rising ratio of debt to GDP. The Government of India latest export policy for the exporters will help in stabilizing the export growth .

There is an effort to give a boost to exports. The annual advance liscence system has been introduced to take care of imports required by exporters. Zero duty export promotion capital goods scheme has been extended to chemicals, plastics and textiles. Additional facilities have been provided for exports of gems and jewellery.