Economic development in India

The economic development in India is highly dependent upon various sectors like agriculture, manufacturing and services (escpecially in software market). India ranks fourth with respect to gross domestic product GDP and Purchasing power parity (PPP) as per the International Monetary Fund IMF and CIA World Factbook and third as per World Bank. India's economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and are playing an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global companies for the outsourcing of their customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Other sectors like manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation and tourism are showing strong potentials with higher growth rates.

India faces a burgeoning population and the challenge of reducing economic and social inequality. Poverty remains a serious problem, although it has declined significantly since independence. Current estimates state that 25% of India's population is below the poverty level.

Agriculture

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the green revolution. However, international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world.

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper. It also has the world's largest cattle population (193 million). It is the second largest producer of wheat, rice, sugar, groundnut and inland fish. It is the third largest producer of tobacco. India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.

Research and development

The Indian Agricultural Research Institute (IARI) established in 1905, was responsible for the research leading to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex body in agriculture and related allied fields, including research and education. The Union Minister of Agriculture is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for the design of agricultural experiments, analyses data in agriculture, and specializes in statistical techniques for animal and plant breeding. Prof. M.S. Swaminathan is known as "Father of the Green Revolution" and heads the MS Swaminathan Research Foundation. He is known for his advocacy of environmentally sustainable agriculture and sustainable food security.

Industrial output

India is fourteenth in the world in factory output. They together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.

Services

India is fifteenth in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialisation, availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers (a legacy of British Colonialism) on the supply side and on the demand side, increased demand from foreign consumers interested in India's service exports or those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/50th of the total services.

Banking and finance

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.

Currently, in 2007, banking in India is generally mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies of Asia. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

India's resource consumption

Oil

According to Oil and Gas Journal (OGJ), India had about 5.6 billion barrels of proven oil reserves as of January 2007 which is the second-largest amount in the Asia-Pacific region behind China. Most of the India’s crude oil reserves are located in the western coast (Mumbai High) and in the northeastern parts of the country, although considerable undeveloped reserves are also located in the offshore Bay of Bengal and in the state of Rajasthan.

The combination of rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet the consumption needs. In 2006, India produced an average of about 846,000 barrels per day (bbl/d) of total oil liquids, of which 77%, or 648,000 bbl/d, was crude oil. During 2006, India consumed an estimated 2.63 million bbl/d of oil. EIA estimates that India registered oil demand growth of 100,000 bbl/d during 2006. EIA forecasts suggest that country is likely to experience similar gains during 2007 and 2008.

Sector organisation

India’s oil sector is dominated by state-owned enterprises, although the government has taken steps in past recent years to deregulate the hydrocarbons industry and support greater foreign involvement. India’s state-owned Oil and Natural Gas Corporation (ONGC) is the largest oil company, and also the country’s largest company overall by market capitalization. ONGC is the leading player in India’s upstream sector, accounting for roughly 75% of the country’s oil output during 2006, as per Indian government estimates.

As a net importer of oil, the Government of India has introduced policies aimed at growing domestic oil production and oil exploration activities. As part of the effort, the Ministry of Petroleum and Natural Gas crafted the New Exploration License Policy (NELP) in 2000, which permits foreign companies to hold 100% equity possession in oil and natural gas projects. However, to date, only a handful of oil fields are being controlled by foreign firms. India’s downstream sector is also dominated by state-owned entities, though private companies have enlarged their market share in past recent years.

Natural gas

As per OGJ, India had 38 trillion cubic feet (Tcf) of confirmed natural gas reserves as of January 2007. A huge mass of India’s natural gas production comes from the western offshore regions, particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also one of the major producers of natural gas. As per EIA data, India produced 996 billion cubic feet (Bcf) of natural gas in 2004.

India imports small amounts of natural gas. In 2004, India consumed about 1,089 Bcf of natural gas, the first year in which the country showed net natural gas imports. During 2004, India imported 93 Bcf of liquefied natural gas (LNG) from Qatar.

Sector Organization

As in the oil sector, India’s state-owned companies account for the bulk of natural gas production. ONGC and Oil India Ltd. (OIL) are the leading companies with respect to production volume, while some foreign companies take part in upstream developments in joint-ventures and production sharing contracts (PSCs). Reliance Industries, a privately-owned Indian company, will also have a bigger role in the natural gas sector in the few upcoming years, as a result of a large natural gas find in 2002 in the Krishna Godavari basin.

The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline projects. While GAIL’s domination in natural gas transmission and allocation is not sure by statute, it will continue to be the leading player in the sector because of its existing natural gas infrastructure.

Emerging issues

Child labour

There are more children under the age of 14 in India than the entire population of the United States. The great challenge of India, as a developing nation, is to provide sufficient nutrition, education and health care to these children. Children under 14 constitute nearly 3.6% of the total labor force in the country. Of these children, 9 out of every 10 work in their own rural family settings. Around 85% of them are engaged in traditional agricultural activities. Less than 9% work in manufacturing, services and repairs. While child labor is a very complex problem that is basically rooted in poverty, there is unwavering commitment by the Government of India to combat it. The world's largest child labor elimination program is being implemented in India, with primary education targeted for ~250 million. In this a huge number of non-governmental and voluntary organizations are involved. Special investigation cells have been set up in states to enforce existing laws banning employment of children (below 14) in hazardous industries. The allocation of the Government of India for the eradication of child labor was $10 million in 1995-96 and $16 million in 1996-97. The allocation for the current year i.e. 2007 is $21 million.

Corruption

Corruption has been one of the pervasive problems affecting India. It takes the form of bribes, evasion of tax and exchange controls, embezzlement, etc. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled private enterprise and was blamed for the corruption and inefficiencies. Yet, a 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.

The chief economic consequences of corruption are the loss to the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores. India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared to China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances.The 2006 report by Transparency International puts India at 70th place and states that significant improvements were made by India in reducing corruption.

Environmental Degradation

Approximately 1.2 billion people in developing nations lack clean, safe water because most household and industrial wastes are dumped directly into rivers and lakes without treatment, which contributes to the rapid increase in waterborne diseases in humans. Out of India's 3119 towns and cities, just 209 have partial treatment facilities, and only 8 have full wastewater treatment facilities (WHO 1992). Furthermore, 114 cities dump untreated sewage and partially cremated bodies directly into · the sacred Ganges River. Then, downstream, the untreated water is used for drinking, bathing, and washing. This situation is typical of many rivers in India as well as other developing countries also. Globally, but especially in developing nations like India where people cook with fuelwood and coal over open fires, approximately 4 billion humans suffer continuous exposure to smoke. In India, particulate concentrations in houses are reported to range from 8300 to 15,000 ug/m3, greatly exceeding the 75 ug/m3 maximum standard for indoor particulate matter in the United States. Changes in ecosystem biological diversity, evolution of parasites, and invasion by exotic species all frequently result in disease outbreaks such as Vibrio cholerae which emerged in 1992 in India. One of the rapidly increasing disease is AIDS, which is caused by HIV. In 1996, approximately 46,000 Indians out of 2.8 million (1.6 % of the population) tested were found to be infected with HIV. By the year 2000, more than 10 million Indians, the largest number of any population in the world, will be infected.

Future predictions

It has been estimated by the economists that the domestic political scene will be dominated by the upcoming general election, which is due to be held by May, 2009 but looks most likely to be held sooner. The increasing importance of regional parties will ensure that the next government will again be a coalition government, likely to be led by either the current ruling party i.e. the Indian National Congress, or by the main opposition i.e. Bharatiya Janata Party. An governing alliance of regional and left-wing parties can also be a possibility.

The Reserve Bank of India (RBI, the central bank) is most likely to maintain a bias towards monetary tightening during the remainder of 2007 in order to keep inflation under control. Monetary policy will move to a more neutral orientation in 2008 to 2012, provided that the wholesale price inflation remains within the RBI's medium-term target range of 4 to 4.5%.

The government will remain committed to increased spending on public facilities such as health, education and rural welfare projects in a bid to improve living standards outside the country's fast-growing urban localities. Also, the strong economic growth will increase tax revenue, allowing the government to continue to reduce the budget deficit. The real GDP growth (on an expenditure basis) is forecast to slow from 9.4% in fiscal year 2006/2007 (from April to March) to an annual average of 7.7% in 2007/2008 to 2012/2013. Information technology (IT) and IT-enabled services (ITES) output will grow rapidly in the upcoming period, owing to India's cost advantages in these sectors.

The strength of the Indian rupee against the US dollar will mitigate inflationary pressures to a bit extent by limiting import-led price rises. However, strong domestic demand, together with supply-side bottlenecks, will keep consumer price inflation at an average of nearly 5.1% a year in 2008 to 2012.

Prediction by Goldman Sachs

Goldman Sachs has predicted that India will become 3rd largest economy of the world by 2035 based on predicted growth rate of 5.3 to 6.1%. Currently It is cruising at 9.4% growth rate.

In 1999, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035 it is expected to reach as 3rd largest economy of the world behind US and China[2].

Goldman Sachs has made these predictions based on India's expected growth rate of 5.3 to 6.1% in various periods, whereas India is registering more than 9% growth rate. However the same report also shows there were large variation in its predicted gauging growth between 1960–2000, 7.5% predicted India's annual growth rate compared to the real average value of only 4.5% during that period.

A Goldman Sachs report recently cited by BBC News stated that 'India could overtake Britain and have the world's fifth largest economy within a decade as the country's growth accelerates Jim O'Neal, head of the Global Economics Team at Goldman Sachs, said on the BBC, "In thirty years, India's workforce could be as big as that of the United States and China combined"