Student’s name Nishant U Wakare

Registration number My learning outcome from PDEL-II WM/F07/12

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Date for submission of Assignment. 08/08/2007
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Name of Student : Nishant U Wakare
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Signature of student Date

-ii-
Table of Contents

Sr.no. Topic Page no.

1 Introduction 2
2 Overview 6
3 Problems in 7
growth
4 How it can be 8
improved

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 GDP PER CAPITA

Introduction :

Output per head is a good guide to living standards. It implicitly allows for
qualitative factors such as literacy or health, although these are not covered
directly. It is a measure of output per person and calculated as Gross
Domestic Product (GDP) divided by Population size. It is used as an
indicator of overall economic welfare.
The Indian economy has registered a highly impressive growth during fiscal
2005-06. Sustained manufacturing activity and impressive performance of
the services sector with reasonable support from the recovery in agricultural
activity have added greater momentum to this growth process. After
recording some slowdown in the third quarter (October-December) of 2005-
06, real gross domestic product (GDP) registered a sharp increase in the
fourth quarter (January-March) of 2005-06 benefiting from a pick-up in
almost all segments of agriculture, industry and services. According to the
revised estimates released by the Central Statistical Organization (CSO) in
May 2006, real GDP accelerated from 7.5 per cent in 2004-05 to 8.4 per cent
during 2005-06.
Indian real growth has risen from the 4 per cent average it had from the
1950s to the early 1980s to a current 6 per cent average (first graph).
However, because population growth has fallen from 2.5 per cent a year to
1.5 per cent, GDP per head is now rising at 4.5 per cent instead of 1.5 per
cent - an enormous improvement in living standards. Most recently there has
been a sudden spurt in growth: In the third quarter of last year, it was an
annualized 8.4 per cent.
There has been a steady rise in the service sector since the early 1980s and
particularly since the liberal reforms of the early 1990s. Manufacturing,
apart from one or two particular segments such as motor components, has
gone nowhere - partly because of ill-designed regulation but also because
poor port and airport facilities make it hard to ship goods. Software, on the
other hand, can be shipped over the wires; Indian exports have almost
doubled as a percentage of GDP over the past two decades, and are currently

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running up some 25 per cent year-on-year. India now has a trade surplus
with China.
There is also, unsurprisingly, a long agenda of things needing attention. The
fiscal-monetary mix needs to be rebalanced. The government deficit is
around 5 per cent of GDP and has been around that level from most of the
past 40 years. The deficit funds low-quality public investment as well as
crowding out small investment. Meanwhile monetary policy is too tight,
which makes it difficult and expensive for companies to borrow,and while
progress has been made in deregulation, labour controls still inhibit hiring by
private sector companies.
There is a reasonable expectation that the 6 per cent growth rate can be
sustained. Despite all the lapses of governance, the corruption, the
destructive regulation and so on, some aspects of the Indian system function
better than the country's east Asian neighbors. The banking system is
solvent, with non-performing loans making only 4 per cent of GDP, against
41 per cent in China. There is the English language, a competence that will
take China a generation to acquire, and the possibility of the creation of
special economic zones, like China, with less rigorous labour and other
regulation.
With a GDP growth rate of 9.4% in 2006-07, the Indian economy is among
the fastest growing in the world. India's GDP in terms of USD exchange rate
is US$1,103 billion, which makes it the twelfth largest economy in the
world. When measured in terms of purchasing power parity (PPP), India has
the world's fourth largest GDP at US$4.156 trillion. India's per capita
income (nominal) is $979, ranked 128th in the world, while its per capita
(PPP) of US$3,700 is ranked 118th.
The Indian economy has grown steadily over the last two decades; however,
its growth has been uneven when comparing different social groups,
economic groups, geographic regions, and rural and urban areas. Although
income inequality in India is relatively small, it has been increasing of late.
Despite significant economic progress, a quarter of the nation's population
earns less than the government-specified poverty threshold of $0.40/day. In
addition, India has a higher rate of malnutrition among children under the
age of three (46% in year 2007) than any other country in the world.

In 2006, estimated exports stood at US$112 billion and imports were around
US$187.9 billion. Textiles, jewellery, engineering goods and software are
major export commodities. Crude oil, machineries, fertilizers, and chemicals
are major imports. India's most important trading partners are the United
States, the European Union, China, and the United Arab Emirates. More

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recently, India has capitalized on its large pool of educated, English-
speaking people to become an important outsourcing destination for
multinational corporations. India has also become a major exporter of
software as well as financial, research, and technological services. Its natural
resources include arable land, bauxite, chromites, coal (of which it has the
fourth largest reserves in the world), diamonds, iron ore, limestone,
manganese, mica, natural gas, petroleum, and titanium ore.

Table 1: Growth of GDP and Major Sectors

(% per year)

Year 1951/5 1981/8 1992/9 1997/98- 2002/0 1992/9 1981/8

2- 2- 3- 2001/02 3- 3- 2-
1980/8 1990/9 1996/9 (4) 2005/0 2005/0 2005/0
1 1 7 6 6 6
(1) (2) (3) (5) (6) (7)
Agricult 2.5 3.5 4.7 2.0 1.9 3.0 3.0
ure and
Allied
Industry 5.3 7.1 7.6 4.4 8.0 6.6 6.5
Services 4.5 6.7 7.6 8.2 8.9 8.2 7.4
GDP 3.6 5.6 6.7 5.5 7.0 6.4 5.9
GDP per 1.4 3.4 4.6 3.6 5.3 4.4 3.8
capita
Source: CSO . Note: Industry includes Construction.

At the same time, one should not forget that the GDP growth rate of 3.6
percent was four times greater than the 0.9 percent growth estimated for the
previous half century of pre- independence (Table 2). Moreover, the growth
was reasonably sustained, with no extended periods of decline. Nor were
there inflationary bouts of the kind that racked many countries in Latin
America. However, growth was far below potential and much less than the
7-8 percent rates being achieved in some countries of East Asia and Latin
America.

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Table 2: Economic Growth: Pre-independence
(% per year)

Year 1900-46 1900-29 1930-46

GDP 0.9 0.9 0.8
Population 0.8 0.5 1.3
Per Capita GDP 0.1 0.4 -0.5

The last thirty years’ experience suggests that very few developing countries
have sustained decent per capita growth for two decades or more.
Specifically, out of 117 developing countries with population over half a
million, only 12 countries achieved per capita growth of more than 3 percent
per year in 1980-2002, with at least 2 percent growth in each decade of the
eighties and nineties. These twelve countries were: China (8.2), Vietnam
(4.6), South Korea (6.1), Chile (3.3), Mauritius (4.4), Malaysia (3.4), India
(3.6), Thailand (4.6), Bhutan (4.3), Sri Lanka (3.1), Botswana (4.7) and
Indonesia (3.5). (The number falls to 9 if we specify a minimum population
of 3 million).
. The strength of the cycle could abate in the next couple of years and
India’s growth could revert to a trend rate in the range of 6 to 7 percent,
perhaps closer to the higher figure. Even then, under this “pessimistic”
scenario, annual per capita growth would be at a historical peak for India
(Table 3).

Table 3 : Medium Term Growth Expectations

1992/3 – 2002/3 2007/8 - 2011 /12

2005/6 -2006/7
“Optimist” “Pessimist
”

GDP % 6.4 7.2 * 8 – 10 6.5 – 7.0

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GDP per capita 4.4 5.5 6.5 – 8.5 5 – 5.5
(%)
* Assuming Reserve Bank projection of 8.0 percent GDP growth for 2006/7

Perhaps the most noteworthy point is that medium-term growth

expectations for India are so buoyant that the range between optimists and
pessimists is placed so high, within a narrow band of about 7 to 9 percent.
Only time will tell who is closer to being right.

Overview:-

India's diverse economy encompasses traditional village farming,

modern agriculture, handicrafts, a wide range of modern industries, and a
multitude of services. Services are the major source of economic growth,
though two-thirds of the workforce is in agriculture. The existing
government has committed to furthering economic reforms and developing
basic infrastructure to improve the lives of the rural poor and boost
economic performance. Government controls on foreign trade and
investment have been reduced in some areas, but high tariffs (averaging 20%
in 2004) and limits on foreign direct investment are still in place. The
government has indicated it will do more to liberalize investment in civil
aviation, telecom, and insurance sectors in the near term. Privatization of
government-owned industries has proceeded slowly, and continues to
generate political debate; continued social, political, and economic rigidities
hold back needed initiatives. The economy has posted an excellent average
growth rate of 6.8% since 1994, reducing poverty by about 10 percentage
points. India is capitalizing on its large numbers of well-educated people
skilled in the English language to become a major exporter of software
services and software workers. Despite strong growth, the World Bank and
others worry about the combined state and federal budget deficit, running at
approximately 9% of GDP. The huge and growing population is the
fundamental social, economic, and environmental problem. GDP per capita
is often used as an indicator of Standard of Living in an economy. While this
approach has advantages, many criticisms of GDP focus on its use as a sole
indicator of standard of living.

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The measure advantage to using GDP per capita as an indicator of standard
of living are , that is measured frequently widely and consistently and in that
technical definition used within GDP are relatively consistent between
countries, and so there can be confidence that the same thing is being
measured in each country.
The measure disadvantage of using GDP as an indicator of standard of living
is that it is not, a measure of standard of living GDP is intended to be a
measure of particular type of economic activity.

Problems in Growth

• We can be justifiably proud of the fact that the “rule of law” prevails in
our country, and that even the mightiest are not above the law. The delays
in the judicial process may be legendary, but there is a widespread respect
for the “rule of law”. However, for historical reasons, it is also a fact that
our legal system provides full protection to the private interests of the so-
called “public servant”, often at the expense of the public that he or she is
supposed to serve. In addition to complete job security, any group of
public servants in any public sector organization can go on strike –
hospitals, universities, schools, banks, buses, post offices, railways,
municipalities - in search of higher wages, promotions and bonuses for
themselves irrespective of the costs and inconvenience to the public (in
whose name they have been appointed in the first place). Problems have
only become worse over time and there is little or no accountability of
the public servant to perform the public duty.
• The “authority” of Governments at, both Centre and States, to enforce
their decisions has eroded over time. Governments can pass orders, for
example, for relocation of unauthorized industrial units or other
structures, but implementation can be delayed if they run counter to the
private interests of some (at the expense of the general public interest).
Similarly, Governments may decide to restructure public utilities to cut
down waste or output losses, but these decisions do not necessarily have
to be implemented if they adversely affect the interests of public servants
employed in these organizations.
• Governments at different levels may announce plans and programmes to
provide social services (such as, expand literacy), but these initiatives are
unlikely to be implemented on the ground because of fiscal stringency.
For example, in 1994, the Tenth Finance Commission projected a rate of
growth in real terms of 2.5 per cent for expenditure on elementary

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 education up to the end of the century in respect of four States where the
incidence of poverty and illiteracy was among the highest in the country.
This projected rate of growth in expenditure was lower than the growth
of population in the relevant age group, and grossly insufficient to cover
new programmes of adult literates
• The process and procedures for conducting business in Government and
public service organizations, over time have become non-functional.
There are multiplicities of Departments involved in the simplest of
decisions, and administrative rules generally concentrate on the process
rather than results. There is very little decentralization of decision-
making powers, particularly financial powers. Thus, while local
authorities have been given significant authority in some States for
implementing national programmes, their financial authority is limited.
Transfers to local authorities for health spending, for example, average
less than 15 per cent of State Government budgets.
• The multiplicity of functions and responsibilities placed upon ill-
equipped and ill-trained staff in public offices and local institutions make
it almost impossible to deliver services with any degree of efficiency,
particularly in rural areas. For example, a “multi-purpose” female health
worker is required to perform as many as forty-seven tasks to be
undertaken on a regular basis!

How it can be improved?

In order to overcome some of the problems that I mentioned above, we need

to move on a number of fronts. We need legal reform to focus sharply on the
interests of the public, and not those of the public servant, in the functioning
of the governmental and public delivery systems. Clear mechanisms for
establishing accountability for performance are essential, and all forms of
special protection for persons working for Government or public sector
agencies (except for armed forces or agencies engaged in maintenance of
law and order) deserve to be eliminated. We need institutional reform, all
public monopolies should be eliminated, and there should be no purchase
preference for public sector enterprises or agencies. Government should be
free to engage the services of non-governmental organizations or private
service providers at competitive costs to ensure effective delivery of
essential services. We need freedom of information and full disclosure of all

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financial decisions made by Governments and its multifarious agencies on a
daily rather than quarterly or annual basis.

Bibliography

• www.finmin.nic.in
• www.yahoo.com/finance

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