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India's Rise in Economics and the Challenges it Faces

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India is not, by a long way a regional power, let alone a global power. That it is necessary to state this obvious fact is a testament to the power of public indoctrination. There is a huge gap between India and the developed world. According to the World Bank, India's Gross National Income (GNI) in 2009 was $793 billion, compared to the US's $12.95 trillion. India, with 17 per cent of the world's population, accounts for less than 1.7 per cent of the world's income. Thus India's per capita GNI was $1180, compared to the US's nearly $47,240. Even South Korea's per capita GNI was over $19,880. India's situation is slightly better in terms of 'Purchasing Power Parity' (PPP) but even India's PPP per capita income is ranked 154th in the world [1] .

For all the rosy projections of rapid growth by India and other Asian countries by 2020, the US's National Intelligence Council admits that "per capita income in most (Asian) countries will not compare to those of Western nations."

Human Development

The situation is far worse in terms of 'human development'. In the UN's Human Development Index, this claims to be a composite of various factors, such as health, education and income, India ranks 119th among 175 countries. India's under-five mortality rate per 1,000 live births is 69, that is, one in fourteen children die before the age of five. Its maternal mortality ratio per 100,000 live births is 230, compared to 38 for China [2] .

We are constantly told that poverty in India is declining, and a great industry has sprung up of academic treatises to show how fast poverty is declining. However, these treatises have reduced poverty by defining the term so that it no longer relates to whether or not people get their minimum requirements of calories. The official National Sample Survey of 2005 revealed that three-fourths of India's rural population and half the urban population did not get the minimum recommended calories. This is confirmed by nutritional and health surveys, which reveal the following: more than two-fifths of the adult population suffer from chronic energy deficiency, and a large percentage are at the border of this condition; half India's women are anaemic; half its children can be clinically defined as malnourished (stunted, wasting, or both). Within India - half of our rural population or over 350 million people are below the average food energy intake of SSA (Sub-Saharan Africa) countries. [3] 

Poverty as such is not directly observed: the National Sample Survey (NSS) gathers responses to a questionnaire regarding consumption, and the poverty estimates are then derived (after making various assumptions) from this data. But the same NSS directly observes that employment growth plummeted between the last two surveys (1993-94 and 1999-2000). Now, it is virtually impossible for poverty to have declined if unemployment grew sharply, and the methodology of any study that claims poverty has fallen should be questioned.

The sector of the country's economy has seen breakneck growth in the past decade: the provision of software services and business process outsourcing services to foreign (principally US) firms. However, that sector accounts for 0.25 per cent of the labour force. Where are the rest? Nearly half of India's total working-age population (15-59 years of age) is unemployed, most of it not even counted as part of the labour force. While agriculture continues to employ the majority of those considered employed, it accounts for less than a quarter of the national income, and that share continues to shrink.

No Industrial Transformation

National income is conventionally divided into three sectors- agriculture, industry and services. All the countries in the developed world passed from being predominantly agricultural economies to being predominantly industrial economies. It was only after industry had brought these entire economies (including their agriculture) under its sway, commodities became vastly more plentiful than in the past, and the economic surplus grew massively, that these economies could sustain growth in the share of services. Today, industry accounts for the largest share of GDP in the economies of China, South Korea, Taiwan, Malaysia, Indonesia, and Thailand, as much as 56 per cent in the case of China. In India's case, however, the share of industry is low -- just 28.2 per cent in 2009 [4] . Industry has never been the dominant sector of the Indian economy. Moreover, its share of GDP has not been increasing, but is stagnant or shrinking. And Indian industry's share of employment is just 17.6 per cent. Indeed, in the two commodity-producing sectors - agriculture and industry - one cannot find any miraculous takeoff in growth during the period of 'reform'. But one should beware of drawing sweeping conclusions on the basis of two or even three years' figures. And while the services sector has led growth over the past two decades, so that it now accounts for 54.6 per cent of GDP, much of the services sector (e.g. growth of police and armed forces, the explosion of financial sector and real estate activity) has no tangible benefit for the people at large.

It is true that certain Indian firms (or Indian units of foreign firms) have attained 'world standards' in quality of output, and with their lower labour costs may become highly competitive exporters. Glowing press reports of such units convey the sense that the Indian economy has undergone a 'take-off'. However, these firms are generally dependent on imported capital goods and are strongly linked to export markets; they have few linkages to the rest of the Indian economy. They remain islands in the large sea of underdeveloped India. Contrast this with the transformation of the economy that would take place with the rapid development of industries catering to domestic demand for items of mass consumption. That would create demand for raw materials and indigenous capital goods, in the entire process generating huge employment and promoting indigenous technological know-how. At any rate, India accounts for less than one per cent of world exports. 'High technology' goods constitute just five per cent of its exports.

India's rapid increase in oil imports (and India's high-profile efforts to secure long-term oil and gas supplies from abroad) is being held up as a sign of its rapid economic growth. It actually is a sign of the absence of national planning. Much of the growth in oil consumption is on account of the great boom in private automobiles. This is in turn the result of the failure of public transport, growing income inequalities, and the massive expansion of cheap credit for car purchases. Moreover, rapid growth of oil imports signifies not the growing strength but the growing vulnerability of the Indian economy. Genuine national planning would have ensured instead (i) restraint on consumption (through the expansion of railways for goods and passenger transport, expansion of public transport in cities, and a variety of energy conservation investments), and (ii) a programme of investment to develop and use the country's oil, gas and plentiful coal resources effectively and economically. A combination of such measures could have greatly reduced the country's dependence on oil imports. Instead, the share of oil in India's energy is growing, and the share of imports in its total oil consumption is on course to reach 90 per cent or more in some years.

In the last few years, large foreign capital inflows and the booming foreign exchange earnings of the IT sector have resulted in the rapid growth of the country's foreign exchange reserves. As a result, the Government has liberalised foreign investment by Indian firms. Thus a number of Indian firms have been investing abroad, in many cases acquiring foreign firms. This phenomenon has generated considerable excitement in the business press, which point to it as further evidence of India's new global status: now, they claim, Indian firms too are multinational corporations. Indeed, for two years, 2003-04 and 2004-05, India ran a current account surplus, which means that it was a net capital exporter.

However, much as this may be good business sense for the firms which are making them; but in general they run contrary to the requirements of national economic development. India is not a capital-surplus economy, but an underdeveloped, capital-starved one, with large resources lying idle for lack of investment. It makes no economic sense to export capital from such a country. Indian capitalists may earn financial returns from their investments abroad, but such returns will give paltry stimulus to the Indian economy, whereas investment in manufacturing within the country stimulates demand, productive activity and employment in a number of sectors, with far-reaching benefits for the whole economy.

India- A Knowledge Economy

As part of the propaganda about India's 'emerging' as a 'global power', we are told ad nauseam that India is a 'knowledge economy', an 'information technology (IT) superpower', and the like. The truth is that adult literacy in India is just 61 per cent; on this score, it ranks 146th out of 177 countries in the UN's Human Development Index  (that is, many countries with much lower per capita income had much higher literacy levels than India - for example, much of desperately poor sub-Saharan Africa). In recent years, on the recommendation of the World Bank, the Indian government has focussed its meagre education expenditures increasingly on primary education, largely abandoning secondary and higher education (as if they were a luxury). Yet official data tell us that 42 per cent of children enrolled drop out before completing primary education (I-V). Another 19 per cent, according to official data, drop out before completing upper primary education (VI-VIII). And according to Census data, 43.5 per cent of the children between the ages of five and nine are not in school.

More perturbing is the quality of education that is being imparted in government schools. It is so dismal that half the children in Class IV in government schools in Mumbai cannot do the arithmetic calculations required of a Class I student. When put to the test, 18 per cent of students attending Classes II to V in Andhra Pradesh couldn't do single-digit additions while only 12 per cent managed single-digit subtractions. Higher education, which the Government has increasingly abandoned to a rapacious private sector, is out of the reach of all but a small section. At any rate, the infrastructure and staff of many of the new private institutions are appalling, and thus the degrees imparted to a large percentage of graduates may not be worth the paper they are printed on.

Research And Development

According to the official publication Research and Development Statistics (2004-05, the latest edition), India's expenditure on R & D has been falling as a share of GDP, from 0.87 per cent in 2000 to 0.77 per cent in 2005. Let us look more closely at this 'R & D' expenditure. First, the Indian private sector does not account for much of it. According to official figures, eighty per cent of R & D expenditure was carried out by the Government. This was largely not for productive purposes, but for military purposes: 32 per cent on direct military research, 21 per cent on space research (much of which actually serves the missile programme) and 12 per cent on atomic energy (much of which actually serves the nuclear weapons programme). Even allowing for some genuine space and atomic energy expenditures, at least half of R & D expenditure in India appears to be for military purposes. To be able to project power, we bought Admiral Gorshkov from Russia and named her Vikramaditya. But where is the ship? Where is that power on high seas? Our horizon does not even show the outline of a carrier. The Arihant (the lead ship of India's Arihant class of nuclear-powered submarines) has not been armed as yet, and we do not have an indigenously manufactured fighter/bomber. Nor do we have the Missile regime that makes the military might of a Regional Power credible. The showpieces of defence R & D - the Main Battle Tank project (started in 1974) and the Light Combat Aircraft project (started in 1983) - have yet not been completed, and, after the expenditure of billions of rupees each, the chances of their actually being inducted into the armed forces are dwindling. For example, the air force is now in the international market for a mammoth order of 126 fighter planes, at a cost of over $6 billion. How then can we call ourselves a Regional Power?

To absorb foreign technology properly (in such a fashion that one can further develop it), R & D expenditures need to be multiples of technology payments. And finally, much of what passes under the name of R & D in Indian industry is merely classified so for tax saving purposes, and actually consists of adaptation of products to local conditions, or even merely quality control.

By conventional measures of scientific output, India's performance is dismal. The standard database in this regard is the US-based Science Citation Index (SCI). In 1980, around 40 Indian journals were indexed in the SCI; this figure has fallen to 10, or just 0.3 per cent of all SCI-indexed journals. In 1980, nearly 15,000 scientific papers from India were indexed in the SCI; this figure fell over the next two decades to just over 12,000 (China's figure grew from under 1,000 to over 22,000 during the same period). India's share of the world's total research papers published in SCI-indexed journals was just 1.79 per cent in 2002. Finally, India's world ranking in the SCI's citation impact (the number of times a paper is cited by others) has fallen to an abysmal 119 out of 149 countries listed.

The IT sector

India's much-vaunted Information Technology (IT) sector is composed of two parts: the software sector, and the IT-enabled sector (ITES). In both cases, work that was earlier done in the developed world, particularly the US, has been 'outsourced', or contracted out, to locations in India.

In the case of the ITES, the activities outsourced include call centres, medical transcription, data entry, ticket-reconciliation, claims processing, credit card administration, and such other routine office work as can be performed at remote locations. While this work requires knowledge of English, it does not require superior education or skills. Indeed, some of it is so mechanical and repetitive that it is in danger of being eliminated: "Optical-character-recognition software is automating the work of Indian data-entry workers. Electronic airline tickets are eliminating some of the ticket-reconciliation work airlines carry out in India. Eventually, natural-language speech recognition is likely to automate some of the call-centre work that is currently going to India. Other countries too are entering the same business, particularly those once colonised by an English-speaking country: the call-centre business is booming in the Philippines. 

This is obviously not high-technology or knowledge-based work; new information-and-communications technology has merely made it possible to carry out such work at remote locations. The sole reason for outsourcing such work is that wages for it in India are a fraction of those in the developed world (according to Deloitte Research, one-tenth), yielding massive savings to US and UK corporations. The jobs threatened in those countries are primarily ones that already pay low wages because they require low skills; by outsourcing to India, firms are able to drive their costs even lower.

The same applies for the software sector. It is true that India's annual production of IT engineers is larger than that of the US. However, Indian engineers are employed in relatively low-value work: the less-creative software jobs are the ones being moved offshore: bug-fixing, updating antiquated code, and routine programming tasks that require many hands." The 'software pyramid', shows a structure with a few thousand 'architects' at the top, followed at successive levels of skill and pay by researchers, consultants, project managers, business analysts, and finally basic programmers. The last categories are the foot soldiers in the information economy, who write codes for applications and update and test them. It is a part of this lowest category that has been 'off shored', much of it to India.

Indian software firms manage applications of programmes owned by multinational software giants; but Indian firms produce virtually no copyrighted programmes which are sold to a large number of customers, and earn a continuing stream of revenue. Rather, both the hardware and the software they use are imported. American investments in India, especially in new technology areas, will help American companies to reduce costs and become more competitive globally. Equally, India's earnings from these investments will lead to increased purchases from the US. The information technology revolution is built primarily on US computer-related technology and hardware.

India is thus not a 'knowledge economy' but a low-wage economy, distinguished from other such by its colonial heritage, English. It does not command increased international status by virtue of its economic strength; rather, the publicity about its 'emergence' as a 'power' is an outcome of conscious US policy.

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