Economic development in India and role of world bank

Indian Economy Overview:

India is a South Asian country that is the seventh largest in area and has the second largest population in the world. The land covers an area of 3,287,240 square km (India geography) and the population stands at 1,202,380,000 people (India population) . India has Great Plains, long coastlines and majestic mountains. Thus, the land has abundant resources. India shares its borders with China, Bangladesh, Pakistan, Nepal, Sri Lanka and Myanmar.

 

Understanding the Indian Economy:

Large, dynamic and steadily expanding, the Indian economy is characterized by a huge workforce operating in many new sectors of opportunity.

 

The Indian economy is one of the fastest growing economies and is the 12th largest in terms of the market exchange rate at $1,242 billion (India GDP). In terms of purchasing power parity, the Indian economy ranks the fourth largest in the world. However, poverty still remains a major concern besides disparity in income.

The Indian economy has been propelled by the liberalization policies that have been instrumental in boosting demand as well as trade volume. The growth rate has averaged around 7% since 1997 and India was able to keep its economy growing at a healthy rate even during the 2007-2009 recession, managing a 5.355% rate in 2009 (India GDP Growth). The biggest boon to the economy has come in the shape of outsourcing. Its English speaking population has been instrumental in making India a preferred destination for information technology products as well as business process outsourcing.

The economy of India is as diverse as it is large, with a number of major sectors including manufacturing industries, agriculture, textiles and handicrafts, and services. Agriculture is a major component of the Indian economy, as over 66% of the Indian population earns its livelihood from this area.

However, the service sector is greatly expanding and has started to assume an increasingly important role. The fact that the Indian speaking population in India is growing by the day means that India has become a hub of outsourcing activities for some of the major economies of the world including the United Kingdom and the United States. Outsourcing to India has been primarily in the areas of technical support and customer services.

Other areas where India is expected to make progress include manufacturing, construction of ships, pharmaceuticals, aviation, biotechnology, tourism, nanotechnology, retailing and telecommunications. Growth rates in these sectors are expected to increase dramatically.

Despite the liberalization the economy still largely controlled by the government and the 500+ major companies it owns, which together are worth around US$500 billion, or around 40% of GDP at current exchange rates. Thanks to past profligate spending, government debt is running at around 80% of GDP. Servicing the interest payments on that debt is now the single largest component of the federal budget. Fiscal discipline and deficit reduction is therefore vital for India’s future prospects.

It is also crucial to understand that India is driven primarily by domestic (consumer) consumption. This stands in marked contrast to Japan, the Asian Tigers and now China, all of whom have followed the export-oriented model.

With the massive growth of the Indian middle class, this vast country may become Asia’s first major ‘buy’ economy.

The Poverty Challenge:

One of the major challenges for the Indian economy an those responsible for operating it, is to remove the economic inequalities that are still persistent in India after its independence in 1947. Poverty is still one of the major issues although these levels have dropped significantly in recent years. Over 25% of the working Indian populace is living below the poverty line (India Poverty Line and Gini Index).

Poverty is a challenge that’s becoming increasingly important in relationship to the alarming rate of new births. This implies that ever more rapid change, or birth control policies like the ‘One Child’ policy in China, are needed to reduce the numbers affected by poverty in the vast Indian economy.

The per capita income of India is 4,542 US Dollars in the context of Purchasing Power Parity. This is primarily due to the 1.1 billion population of India, the second largest in the world after China. In nominal terms, the figure comes down to 1,089 US Dollars, based on 2007 figures. According to the World Bank, India is classed as a low-income economy.

India Economic Policy:

India Economic Policy plays a major role in determining various government actions on the economic field. Depending on the India economic policy, the government of India initiates various actions including preparing budget, setting interest rates etc. The economic policy also influences the national ownership, labor market, and several other economic areas where government intervention is required.

There are a number of internal factors like political beliefs and policies of the parties etc. that play pivotal roles in determining the economic policy of India. Besides these, like all other countries, Indian economic policy also gets influenced by various international institutions like the World Bank and the International Monetary Fund (IMF) etc.

The Economic Policy:

The year 1991 was a significant one when it comes to Indian economic policy. The year saw a major economic policy reform, which resulted in shifting the direction of India economic policy from the post-independence era.

Indian Economic Policy Prior to 1991:

Prior to 1991, the colonial experience and the Fabian-socialistic approach had a great influence over India economic policy. The policy had got inclination towards protectionism, where emphasis was given on industrialization, import substitution, business regulation, state intervention in labor and financial markets, and central planning. The India economic policy during that time had three basic features:

Autarchic trade policy

Extension of public sector

Direct, discretionary and quantitative controls on private sector

All the above three features interacted in both the institutional environment of functioning markets as well as private ownership of means of production. It generated perverse incentives, which resulted in economic growth of mere 3.5 percent per annum.

It was the first Prime Minister of India, Jawaharlal Nehru, along with noted statistician Prasanta Chandra Mahalanobis, who formulated and supervised economic policy of India after its independence. The concept of Five-Year Plans came into existence, which were influenced by the central planning in the Soviet Union. A number of industries were nationalized during the mid-1950s, which include telecommunication, mining, steel, water, machine tools, electrical plants, insurance and a few more. Setting up new businesses required elaborated licenses and regulations. ‘Red tapeism’ was also a part of it between 1947 and 1990.

The economic policy formulated by Nehru and Mahalanobis was based on direct and indirect state intervention. Though they were quite optimistic about the success of their policy, economist Milton Friedman later criticized their policy which concentrates on capital and technology-intensive heavy industry as well as subsidizing manual, low-skill cottage industry at the same time. According to Friedman, it would waste capital and labor and would slow down the growth of small manufacturers.

Indian Economic Policy After 1991:

India saw an economic policy reform in 1991. During the late 80s, government of India took some bold decisions and started easing restrictions on capacity expansion, reduced corporate taxes and removed price controls etc. These led to enhancement in growth rate, which in turn led to high fiscal deficits and aggravating current account. Further, fall down of Soviet Union, which was a major trading partner of India, and the first Gulf War which caused a sharp rise in the oil prices, compelled India to face a major balance-of-payments crisis.

In this crucial juncture, the then Prime Minister Narasimha Rao and his Finance Minister Manmohan Singh initiated the economic liberalization, which changed the economic face of the country. The reforms put an end to ‘Red tapeism’ and also to several public monopolies. Foreign direct investments in a number of sectors started pouring in.

During the last few years of economic reforms, India saw some important changes in the liberalization and rationalization of:

domestic and foreign investment

import and export trade controls

tax structure

public and financial activities

India GDP:

Slowdown in economic growth of India has given rise to moderate expectations as far as GDP figures for India is concerned. From GDP growth rate highs of 9.4 percent in 2006 to GDP growth rate of less than 8.4 percent in 2008, Indian economy has borne adverse effects of global economic slowdown. However, a World Bank report released in early January 2008, predicted GDP growth rate to hover around 8.5 percent mark in 2009. 

Reasons for India’s GDP growth rate slowdown Interest rates have reached a 6-year high, and have reduced level of consumer spending, and also investments. A global economy, which is becoming increasingly complex, has affected India’s chances for better export prospects. According to data released by India’s statistics office, year-on-year GDP growth rate stood at around 8.8 percent for first three months of 2009. 

Does GDP data indicate a severe slowdown for India’s economy? 

After release of statistics office data, former Finance Minister, P. Chidambaram, requested central bank policy makers not to lose focus on economic growth of India as they try to counter inflationary pressures, which incidentally has long breached 8 percent. However, these numbers cannot be taken indicative of a dramatic slowdown in Indian economy, since nation is experiencing above-average GDP growth. 

Gainers and losers:

Manufacturing sector growth have dropped down to about 5.8 percent in three months leading to March 31, 2008. Farm production has also been affected, registering a figure of about 2.9 percent. Gainer was construction sector, which experienced growth of nearly 12.6 percent. Construction sector grew in strength due to rapid rise in erection of new roads, airports, and power plants. 

GDP Statistics (2007) 

As per estimates published in CIA’s World Fact book, the 2007 GDP figure stood at around $2.966 trillion. Official exchange GDP figure was nearly $1.099 trillion. Real growth rate was recorded as 9 percent. GDP per capita was around $2,600. Agriculture accounted for 17.8 percent of the total GDP. Industry contributed nearly 30 percent to India’s GDP. At 52.8 percent, services accounted for more than 52 percent of India’s gross domestic product. 

India Economy History:

The 12th largest economy in the world in terms of the market exchange rate, the Indian economy has come a long way to become one of the fastest growing economies. In order to have an idea of the various economic stages, one needs to make an analysis of the Indian economy history.

The pre colonial era of Indian economy:

India is one of the world 's oldest civilizations. The main source of economy and income for the people in the ancient ages was agriculture. The fertile plains, rivers and water bodies and a favorable climate provided a wonderful scope for agricultural produce in the country. The ancient civilizations of India like Indus Valley, the Aryan civilization, Mauryan Empire, Gupta Empire and most other dynasties had a planned economic system. In some dynasties, even coins were issued. However, the chief form of trading in those times was the barter system. According to the economic rule, the farmers and villagers were required to provide a part of their crops or produce to the kings or the landlords.

Even in the Muslim rule, the economy of India was mainly based on agricultural produce. Towards the later part of the Mughal period, some trade relations were established between the Mughal Empire and the British, French and Portuguese merchants. Eventually, after the Battle of Plassey, the British East India Company eventually came into power. Thus the colonial rule in India started.

The colonial era of India is a significant part of the India Economy history. It brought a considerable change in the process of taxation from the revenue taxes to the property taxes which resulted in large scale economic breakdown. In fact a number of industries like the Indian handicrafts industry suffered huge losses. During India's freedom struggle, the Indian Nationalists advocated for the Swadeshi Movement in which the British products were boycotted.

However, the British rule also developed the country to a great extent. The financial and banking system as well as free trade was established, a single currency system with exchange rates was brought into being, standardization of weights and measures took place and also a capital market came into existence. Stress was also given to the development of infrastructure and new telegraph lines were laid, railway lines were constructed and roads were made.

Post Independence to the 1990s:

After India gained independence, stress was given to stabilize the economic system of the country. Wide scale development was made in sectors such as agriculture, village industries, mining, defense and so on. New roads were built, dams and bridges were constructed, and electricity was spread to the rural areas to improve the standard of living.

In the subsequent Five Year Plans, a number of economic reforms and policies were formulated. Public and rural sectors were developed, emphasis was given to increase the quantity and quality of the export items, making the country self sufficient and minimize imports and other related reforms. The political leaders also put stress on business regulations, central planning and nationalization of the industries in mining, electricity and infrastructure.

Another major economic reform that was initiated in the 1960s was to make India self sufficient in food grain production. In this regard, the Green Revolution & a pos ; movement was initiated for a forestation, more irrigational projects, improved seed usage, better farming techniques and use of fertilizers and lots more.

In the 1980s, the first step towards market liberalization was undertaken by the then government headed by Rajiv Gandhi. In his tenure, restrictions on a number of sectors were eased, pricing regulations were abolished and efforts were made to improve the GDP of the country.

From 1990s to the present times:

India's economic condition in the initial stage of the 1990s was dismal. The main trading partner, Soviet Union was dissolved and India faced huge balance of payment problems. The loans kept on increasing and the IMF asked for a bailout loan. In this situation, Manmohan Singh, the then Finance Minister initiated the liberalization plan. This is one of the milestones in the history of Indian Economy. In the liberalization plan, foreign direct investments were welcomed, public monopolies were abolished and banking, service and tertiary sectors were developed. Boost was also given to develop the money and capital market.

Since the open market plan in the 1990s, India has experienced favorable economic growth. Today it has become one of the fastest growing economies in the world with a GDP growth rate of around 6-7 %. To complement the growing GDP, the country has also experienced growth in per capita income, standard of living and industrial development.

Economic Development of India:

The economic development of India was dominated by socialist-influenced policies, state-owned sectors, and red tape & extensive regulations, collectively known as “License Raj”. It led the country and its economy isolated from the world economy. However the scenario started changing from the mid-1980s, when India began opening up its market slowly through economic liberalization. The policy played a huge impact on the economic development of India. The Indian economic development got a boost through its economic reform in 1991 and again through its renewal in the 2000s. Since then, the face of economic development of India has changed completely.

The economic reform of 1991 played a pivotal role in the economic development of India. Reaping its benefit, the growth of the country reached around 7.5% in the late 2000s. It is also expected to double the average income within a decade. According to the analysts, if India can push more fundamental market reforms, it will be able to sustain the rate and can even achieve the government’s target of 10% by 2011.

India’s Economic Development: Role of States

India is world’s 12th largest economy and also the 4th largest in terms of purchasing power parity adjusted exchange rates (PPP). It is the 128th largest in the world on per capita basis and 118th by PPP. However, states have a major role to play in the economic development of India. There are few states which have higher annualized 1999-2008 growth rates comparing to others. The growth rates for the states like Gujarat (8.8%), Haryana (8.7%) and Delhi (7.4%) are considerably higher than other states like Bihar (5.1%), Uttar Pradesh (4.4%) and Madhya Pradesh (3.5%).

Economic Development ? the Decisive Factors

The economic development of India largely depends upon a few factors, which prove to be decisive. According to the World Bank, for a better economic development, India needs to give due priorities in various issues like infrastructure, public sector reform, agricultural and rural development, reforms in lagging states, removal of labor regulations and HIV/AIDS.

Agriculture:

Agriculture, along with other allied sectors like fishing, forestry, and logging play a major role in the economic development in India. In 2005, these sectors accounted for almost 18.6% of the GDP. India holds the second position worldwide in terms of farm output. It also generated works for 60% of the total workforce. Though, currently seeing a steady decline of its share in the GDP, it is still the largest economic sector of the country.

In India, a steady growth has been observed in the yields per unit area of all the crops since 1950. And the reason behind this is the fact that, special emphasis was given on agriculture in the five-year plans. In 1965, the country saw green revolution. Improvements came in the various areas like irrigation, technology, provision of agricultural credit, application of modern agricultural practices and subsidies.

India has done considerably well in agriculture and allied sectors. The country is the world’s largest producer of tea, coconut, cashew nuts, black pepper, turmeric, ginger and milk. India also has the largest cattle population in the world. It is world’s second largest producer of sugar, rice, wheat and inland fish. It is in the third position in the list of tobacco producers in the world. India also produces 10% of the overall fruit production in the world, holding the first position in banana and sapota production.

Industrial Output:

India occupies 14th position in the world in industrial output. The manufacturing sector along with gas, electricity, quarrying and mining account for 27.5% of the country’s GDP. It also employs 17% of total workers. The economic reforms of 1991 brought a number of foreign companies to the Indian market. As a result, it saw the privatization of several public sector industries. Expansion in the production of FMCG (Fast-moving Consumer Goods) started taking place. Indian companies started facing foreign competitions, including the cheap Chinese imports. However, they managed to handle it by cutting down costs, refurbishing management, banking on technology and low labor costs and concentrating on new products designing.

Services:

In services output, India occupies 15th spot in the world. Around 23% of the total workforce in India works in service industry. This is also the sector which provides quick growth with a growth rate of 7.5% during 1991-2000 from 4.5% in 1951-80. With a substantial growth in IT sector, a number of foreign consumers showing interests in India’s service exports as India has got low cost, educated, highly skilled workers in abundance. Besides this, ITES-BPO sector has also become a big source of employment for a number of youths.

Banking and Finance:

Since liberalization, India has seen substantial banking reforms. On one hand, one could see the mergers of banks, competitiveness and reducing government interference, on the other hand one can also see the presence of several private and foreign players in the banking and insurance sectors. Currently the banking sector in India has got maturity in terms of supply, reach-even and product range. The Indian banks are also said to have clean, transparent and strong balance sheets comparing to their Asian counterparts.

World bank:

The World Bank is an international financial institution that provides financial and technical assistance to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of reducing poverty.

Major institutions created as a result of the Bretton Woods Conference in 27th December, 1944

Two main countries which shaped the negotiations were United States and Britain

objective and function:

Provide assistance to developing and transition countries

Promote the economic development of the world’s poorer countries

Finance the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA)

The World Bank in India:

http://www.worldbank.org.in/shared/images/shim.gif

http://www.worldbank.org.in/shared/images/shim.gif

http://www.worldbank.org.in/shared/images/shim.gif

The World Bank is one of the world’s largest sources of funding and knowledge for developing countries. India is one of our oldest members, having joined the institution at its inception in 1944.

In India, the World Bank works in close partnership with the Central and State Governments. It also works with other development partners: bilateral and multilateral donor organizations, nongovernmental organizations (NGOs), the private sector, and the general public including academics, scientists, economists, journalists, teachers, and local people involved in development projects.

THE WORLD BANK’S PLAN OF ACTION IN INDIA

 

The World Bank’s work plan in India is spelt out in its Country Strategy (CAS). The Country Strategy for India is closely aligned with India’s own development priorities and describes what kind of support and how much can be provided to the country over a period of around four years.

 

The Country Strategy for India for 2009-2012 is aligned with the government’s Eleventh Five Year Plan. It focuses on helping the country to fast-track the development of much-needed infrastructure, support the seven poorest states, and respond to the financial crisis. See Video

.

The strategy was arrived at after a series of consultations with a broad range of stakeholders, including members of the government and civil society.

.

The strategy envisages total proposed lending of US$14 billion for 2009 – 2012. As private financing dries up in the wake of the global financial crisis, the Bank has agreed to provide an additional US$ 3 billion as part of the total financing envelope of US$ 14 billion.

 

The strategy is implemented through lending, dialogue, analytical work, engagement with the private sector, and capacity building exercises.

The Bank’s previous four-year Country Strategy for 2005-2008 focused on lending for infrastructure, human development, and improving rural livelihoods.

Objectives:

To find out economic development of India.

Identify that World Bank help to development for the economy.

To provide assistance to developing and transition of India.

Promote the economic development of the world’s poorer India.

To identify that World Bank is helpful for the Indian globalize market.

Helpful for the development of the infrastructure of the India.

Research Methodology:

RESEARCH

Research is a Purposeful investigation. It is a scientific and systematic search for knowledge and information on a specific topic. Research is useful and Research objective can be achieved if it is done in Propose Process.

METHODOLOGY

The word “Methodology” spells the meaning itself i.e. the method used by the researches in obtaining information. The data (Information can be collected from the Primary sources and Secondary sources.)

Definition of Market Research:-

Market research is “the constant search for and analysis of fact.” It is defined as diligent investigation.

By Charles F. Kellering.

“A researcher looks forward to see what industry may do when it can go longer do what it is doing. He further says that “research is done in man’s minds are not in laboratories may be necessary”.

Data collocation method-

There are two types of data collocation method-

1. Primary

2. Secondary

Primary data-

Primary data are those which are collected a fresh and for the first time, and thus happen to be original in character.

Method of Primary data collection

Observation method

Interview method

Questionnaire method

Schedule method

Secondary Data

Secondary data means data that are already available, they refer to the data which have already been collected and analyzed by someone else. In this case he is certainly not conformed to the problems that are usually associated with the collection of originals data. Secondary data may either be published data or unpublished data.

My data collection in primary source was questionnaire and schedule. In secondary source of data collection I have use internet, magazine, books, and Indian journal of marketing.

Researcher must be very careful in using secondary data. He must make a minute scrutiny because it is just possible that the secondary data may be unsuitable or may be inadequate in the context of the problem which the researcher wants to study.

Source of Secondary data

The secondary source of data collection is the Books, Internet, News paper, etc. These are the secondary source of data collocation.

Research methodology:

We use the research methodology to find out the hidden truth and research the problems. I have chosen secondary data for this term paper.

Secondary Data:

Secondary data was collected through various publications of books and journals, websites.