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Economy of India

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Economy of India
The economy of India is the tenth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP).[1] The country is one of the G-20 major economies and a member of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011, according to the IMF.[13]
The independence-era Indian economy (from 1947 to 1991) was based on a mixed economy combining the worst features of capitalism and socialism, resulting in an inward-looking, interventionist policies and import-substituting economy that failed to take advantage of the post-war expansion of trade.[14] This model contributed to widespread inefficiencies and corruption, and the failings of this system were due largely to its poor implementation.[14]
In 1991, India adopted liberal and free-market oriented principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V. Narasimha Rao the then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control on setting up new industry. Following these strong economic reforms, and a strong focus on developing national infrastructure such as the Golden Quadrilateral project by Atal Bihari Vajpayee, the then Prime Minister, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people.[15]
India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. India has recorded a growth of over 200 times in per capita income in a period from 1947 ( 249.6) to 2011. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labour force, growth in the manufacturing sector due to rising education levels and engineering skills and considerable foreign investments. India is the nineteenth largest exporter and tenth largest importer in the world. Economic growth rate stood at around 6.5% for the 2011–12 fiscal year.


The combination of protectionist, import-substitution, and Fabian social democractic-inspired policies governed India for sometime after the end of British occupation. The economy was then characterised by extensive regulation, protectionism, public ownership of large monopolies, pervasive corruption and slow growth.[16][17] Since 1991, continuing economic liberalisation has moved the country towards a market-based economy.[16][17] By 2008, India had established itself as one of the world's fastest growing economies. Growth significantly slowed to 6.8% in 2008–09, but subsequently recovered to 7.4% in 2009–10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[18] India’s current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 2010–11, according to the state Labour Bureau, was 9.8% nationwide.[6] As of 2011, India's public debt stood at 68.05% of GDP which is highest among the emerging economies.[9] However, inflation remains stubbornly high with 7.55% in August 2012, the highest among its BRICS counterparts.[3]
India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively.[19] Agriculture is the predominant occupation in Rural India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[20] However, statistics from a 2009–10 government survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%.[6]
Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software and pharmaceuticals.[21] The labour force totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[21] In 2011–2012, India's top five trading partners are China, United Arab Emirates, United States, Saudi Arabia and Switzerland.
Previously a closed economy, India's trade and business sector has grown fast.[16] India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's total trade in goods and services has reached a share of 43% of GDP in 2005–06, up from 16% in 1990–91.[22] In the year 2010–11 India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion[23] and is currently the 9th largest in the world. During 2011–12, India's foreign trade grew by an impressive 30.6% to reach $ 792.3 billion (Exports-38.33% & Imports-61.67%).

Industry and services

India has one of the world's fastest growing automobile industries.[75] Shown here is the Tata Nano, the world's cheapest car.[76]
Industry accounts for 28% of the GDP and employ 14% of the total workforce.[20] In absolute terms, India is 12th in the world in terms of nominal factory output.[77] The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods.[78] Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes.[79]

Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people.[80] As stated in late January, by the then Minister of Textiles, India, Shankersinh Vaghela, the transformation of the textile industry from a declining to a rapidly developing one has become the biggest achievement of the central government. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government gave a green light to massive investment inflows – both domestic and foreign. During the period from 2004 to 2008, total investment amounted to 27 billion dollars. By 2012, this figure will reach 38 billion and are expected to create an additional 17 million jobs. However, demand for Indian textiles in world markets continues to fall. According to Union Minister for Commerce and Industries Kamal Nath, during the fiscal year 2008–2009 (which ends on 31 March), the textile and clothing industry will be forced to cut about 800,000 new jobs which will be redirected to the export-oriented sectors of Indian economy to soften the impact of the global crisis.[citation needed] Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. Considering the Rs 15,000,000,000 revenue from textile sales with an approximate of a nominal 20% net profit and with around 257,572 residents of the city, per capita income of Ichalkaranji is 1,16,472, among one of the highest per capita incomes in the country. Textile Development Cluster : To enhance and improve the infrastructure facilities of the city, the Municipal Council along with Ichalkaranji Co-operative Industrial Estate, Laxmi Co-operative Industrial Estate, Parvati Industrial Estate and DKTE Textile and Engineering Institute have jointly come together and formed a Special Purpose Vehicle (SPV) company viz. “Ichalkaranji Textile Development Cluster Limited (ITDC).The individual members will contribute to the extent of about 50% of the project cost and the balance amount would come in from the grant in aid from Department of Industrial Promotion and Policy, Government of India,under the Industrial Infrastructure up-gradation Scheme (IIUS).[81]


India is 13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950.[20] Information technology and business process outsourcing are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 1997–98 and 2002–03 and contributing to 25% of the country's total exports in 2007–08.[82] The growth in the IT sector is attributed to increased specialisation, and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8% in 2005–06 to 7% in 2008.[83] In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.[84]

Global trade relations

A map showing the global distribution of Indian exports in 2006 as a percentage of the top market (USA – $20,902,500,000).
Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.[125] India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods.[126]

Graphical depiction of India's product exports in 28 color coded categories.
Since liberalisation, the value of India's international trade has increased sharply,[127] with the contribution of total trade in goods and services to the GDP rising from 16% in 1990–91 to 47% in 2008–10.[22][128] India accounts for 1.44% of exports and 2.12% of imports for merchandise trade and 3.34% of exports and 3.31% of imports for commercial services trade worldwide.[128] India's major trading partners are the European Union, China, the United States of America and the United Arab Emirates.[129] In 2006–07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver.[130] In November 2010, exports increased 22.3% year-on-year to 85,063 crore (US$15.48 billion), while imports were up 7.5% at 125,133 crore (US$22.77 billion). Trade deficit for the same month dropped from 46,865 crore (US$8.53 billion) in 2009 to 40,070 crore (US$7.29 billion) in 2010.[131]
India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers to trade into the WTO policies.[132]
[edit]Balance of payments

Cumulative Current Account Balance 1980–2008 based on IMF data
Since independence, India's balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91.[133] However, the global economic slump followed by a general deceleration in world trade saw the exports as a percentage of imports drop to 61.4% in 2008–09.[134] India's growing oil import bill is seen as the main driver behind the large current account deficit,[109] which rose to $118.7 billion, or 9.7% of GDP, in 2008–09.[135] Between January and October 2010, India imported $82.1 billion worth of crude oil.[109]
Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009.[136] The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports.[137] However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to 25,250 crore (US$4.6 billion).[136] As of June 2011, exports and imports have both registered impressive growth with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. This represents a year on year growth of 56.9% for exports and 54.1% for imports.[23]
India's reliance on external assistance and concessional debt has decreased since liberalisation of the economy, and the debt service ratio decreased from 35.3% in 1990–91 to 4.4% in 2008–09.[138] In India, External Commercial Borrowings (ECBs), or commercial loans from non-resident lenders, are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates them through ECB policy guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act of 1999.[139] India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $283.5 billion in December 2009. [140]
[edit]Foreign direct investment
Share of top five investing countries in FDI inflows. (2000–2010)[141]
Rank Country Inflows
(million USD) Inflows (%)
1 Mauritius 50,164 42.00
2 Singapore 11,275 9.00
3 USA 8,914 7.00
4 UK 6,158 5.00
5 Netherlands 4,968 4.00
As the third-largest economy in the world in PPP terms, India is a preferred destination for FDI;[142] During the year 2011, FDI inflow into India stood at $ 36.5 billion, 51.1% higher than 2010 figure of $ 24.15 billion. India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI [143] policies were a significant hindrance. However, due to positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia-Pacific region.[142] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.[144]
During 2000–10, the country attracted $178 billion as FDI.[145] The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.[146]
India's recently liberalised FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100% FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.[147] Despite a number of changes in the FDI policy to remove caps in most sectors, there still remains an unfinished agenda of permitting greater FDI in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 2008–09 stood at 122,919 crore (US$22.37 billion), a growth of 25% in rupee terms over the previous period.[148]. India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006.
See also Foreign direct investment, India section.

The RBI's new headquarters in Mumbai
Main articles: Indian rupee and Reserve Bank of India
The Indian rupee () is the only legal tender in India, and is also accepted as legal tender in the neighbouring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paise. The highest-denomination banknote is the 1,000 note; the lowest-denomination coin in circulation is the 50 paise coin;[149] with effect from 30 June 2011 all denominations below 50 paise have ceased to be legal currency.[150][151] India's monetary system is managed by the Reserve Bank of India (RBI), the country's central bank.[152] Established on 1 April 1935 and nationalised in 1949, the RBI serves as the nation's monetary authority, regulator and supervisor of the monetary system, banker to the government, custodian of foreign exchange reserves, and as an issuer of currency. It is governed by a central board of directors, headed by a governor who is appointed by the Government of India.[153]
The rupee was linked to the British pound from 1927–1946 and then the U.S. dollar till 1975 through a fixed exchange rate. It was devalued in September 1975 and the system of fixed par rate was replaced with a basket of four major international currencies – the British pound, the U.S. dollar, the Japanese yen and the Deutsche mark.[154] From 2003 to 2008, the rupee appreciated against the U.S. dollar; thereafter, it has sharply depreciated. Between 2010 and 2012, the rupee value had depreciated by about 30% of its value to the U.S. dollar in 2010.[155]
[edit]Income and consumption

Main article: Income in India

World map showing the Gini coefficient, a measure of income inequality. India has a Gini coefficient of 0.368.
India's gross national income per capita had experienced high growth rates since 2002. India's Per Capita Income has tripled from Rs.19,040 in 2002–03 to Rs.53,331 in 2010–11, averaging 13.7% growth over these eight years.[156] As of 2010, according to World Bank statistics, about 400 million people in India, as compared to 1.29 billion people worldwide, live on less than $1.25 (PPP) per day. These consumption levels are on an individual basis, not household.[157]
Per 2011 census, India has about 330 million houses and 247 million households. The household size in India has dropped in recent years, with 2011 census reporting 50% of households have 4 or less members. Some households have 6 or more members, including the grandparents.[158][159][160] These households produced a GDP of about $1.7 Trillion.[161] The household consumption patterns per 2011 census: about 67 percent of households use firewood, crop residue or cow dung cakes for cooking purposes; 53 percent do not have sanitation or drainage facilities on premises; 83 percent have water supply within their premises or 100 meters from their house in urban areas and 500 meters from the house in rural areas; 67 percent of the households have access to electricity; 63 percent of households have landline or mobile telephone connection; 43 percent have a television; 26 percent have either a two wheel (motorcycle) or four wheel (car) vehicle. Compared to 2001, these income and consumption trends represent moderate to significant improvements.[158][159] One report in 2010 claimed that the number of high income households has crossed lower income households.[162]

GNI per capita: India (1,170 $) Higher GNI per capita compared to India Lower GNI per capita compared to India
India has about 61 million children under the age of 5 who are chronically malnourished, compared to 150 million children worldwide. Majority of malnourished children of India live in rural areas. Girls tend to be more malnourished than boys. Malnourishment, claims this report, is not a matter of income, rather it is education as in other parts of the world. A third of children from the wealthiest fifth of India’s population are malnourished. This is because of poor feeding practices — foremost among them a failure exclusively to breastfeed in the first six months — play as big a role in India’s malnutrition rates as food shortages. India's government has launched several major programs with mandated social spending programs to address child malnourishment problem. However, Indian government has largely failed. A public distribution system that targets subsidised food to the poor and a vast midday-meal scheme, to which 120 million children subscribe —are hampered by inefficiency and corruption. Another government-paid program named Integrated Childhood Development Service (ICDS) has been operating since 1975 and it too has been ineffective and a wasteful program.[163] A 2011 UNICEF report claims recent encouraging signs. Between 1990 to 2010, India has achieved a 45 percent reduction in under age 5 mortality rates, and now ranks 46 in 188 countries on this metric.[164]
Main article: Poverty in India
According to World Bank international poverty line methodology, India's poverty dropped from 42% of its total population in 2005 to about 33% in 2010.[5] In rural India, about 34 percent of the population lives on less than $1.25 a day, down from 44 percent in 2005; while in urban India, 29 percent of the population lived below that absolute poverty line in 2010, down from 36 percent in 2005, according to the World Bank report.[165]
Since the early 1950s, successive governments have implemented various schemes to alleviate poverty, under central planning, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure.[166] In 2005, Indian government enacted the Mahatma Gandhi National Rural Employment Guarantee Act, guaranteeing 100 days of minimum wage employment to every rural household in all the districts of India.[167] The question of whether these government spending programs or whether economic reforms reduce poverty, by improving income of the poorest, remains in controversy.[168] In 2011, the Mahatma Gandhi National Rural Employment Guarantee programme was widely criticised as no more effective than other poverty reduction programs in India. Despite its best intentions, MGNREGA is beset with controversy about corrupt officials, deficit financing as the source of funds, poor quality of infrastructure built under this program, and unintended destructive effect on poverty.[169][170][171]

Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10.[94] While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in the organised sector, two-thirds of which are in the public sector.[173] The NSSO survey estimated that in 2004–05, 8.3% of the population was unemployed, an increase of 2.2% over 1993 levels, with unemployment uniformly higher in urban areas and among women.[174][175] Growth of labour stagnated at around 2% for the decade between 1994–2005, about the same as that for the preceding decade.[167] Avenues for employment generation have been identified in the IT and travel and tourism sectors, which have been experiencing high annual growth rates of above 9%.[176]
Unemployment in India is characterised by chronic (disguised) unemployment. Government schemes that target eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decline in organised employment due to the decreased role of the public sector after liberalisation has further underlined the need for focusing on better education and has also put political pressure on further reforms.[177][178] India's labour regulations are heavy even by developing country standards and analysts have urged the government to abolish or modify them in order to make the environment more conducive for employment generation.[179][180] The 11th five-year plan has also identified the need for a congenial environment to be created for employment generation, by reducing the number of permissions and other bureaucratic clearances required.[181] Further, inequalities and inadequacies in the education system have been identified as an obstacle preventing the benefits of increased employment opportunities from reaching all sectors of society.[182]
Child labour in India is a complex problem that is basically rooted in poverty, coupled with a failure of governmental policy, which has focused on subsidising higher rather than elementary education, as a result benefiting the privileged rather than the poorer sections of society.[183] The Indian government is implementing the world's largest child labour elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organisations are also involved. Special investigation cells have been set up in states to enforce existing laws banning the employment of children under 14 in hazardous industries. The allocation of the Government of India for the eradication of child labour was $21 million in 2007.[184] Public campaigns, provision of meals in school and other incentives have proven successful in increasing attendance rates in schools in some states.[185]
In 2009–10, remittances from Indian migrants overseas stood at 250,000 crore (US$45.5 billion), the highest in the world, but their share in FDI remained low at around 1%.[186] India ranked 133rd on the Ease of Doing Business Index 2010, behind countries such as China (89th), Pakistan (85th), and Nigeria (125th).[187]
Women in India are mainly employed in agriculture and caring for livestock with only about 20% of the employed women engaging in activities outside agriculture. When employed, women earn substantially less than men, only about 66% of the male incomes in agriculture and 57% of the male incomes outside agriculture.[188]

Economic trends and issues

Commercial office buildings in Gurgaon.
In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India’s GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2043.[189] In spite of the high growth rate, the report stated that India would continue to remain a low-income country for decades to come but could be a "motor for the world economy" if it fulfills its growth potential.[189]
According to the official estimates, Indian economy is expected to grow at 7.6% (+/- 0.25%) in the fiscal year 2012–2013.[190] However, leading financial organisations and economic think-tanks expect Indian economy to grow slower than official projections.
Indian economic growth outlook April, 2012 – March, 2013
Organisation Estimated GDP growth rate Month of projection
International Monetary Fund[190] 6.1% July 2012
World Bank[191] 6.9% June 2012
Asian Development Bank[190] 6.5% July 2012
Nomura[192] 5.8% June 2012
Morgan Stanley[193] 5.8% June 2012
JP Morgan[194] 6-6.5% June 2012
Goldman Sachs[195] 6.6% May 2012
Bank of America- Merrill Lynch[195] 6.5% May 2012
HSBC[196] 6.2% June 2012
Standard Chartered[197] 6.2% June 2012
Centre for Monitoring Indian Economy [198] 7.2% July 2012
Main article: Agriculture in India
Slow agricultural growth is a concern for policymakers as some two-thirds of India’s people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation.

— World Bank: "India Country Overview 2008"[172]

Agriculture is an important part of Indian economy. In 2008, a New York Times article claimed, with the right technology and policies, India could contribute to feeding not just itself but the world. However, agricultural output of India lags far behind its potential.[199] The low productivity in India is a result of several factors. According to the World Bank, India's large agricultural subsidies are hampering productivity-enhancing investment. While overregulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure such as rural roads, electricity, ports, food storage, retail markets and services are inadequate.[200] Further, the average size of land holdings is very small, with 70% of holdings being less than one hectare in size.[201] The partial failure of land reforms in many states, exacerbated by poorly maintained or non-existent land records, has resulted in sharecropping with cultivators lacking ownership rights, and consequently low productivity of labour.[202] Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs, illiteracy, slow progress in implementing land reforms, inadequate or inefficient finance and marketing services for farm produce and impracticality in the case of small land holdings. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating.[200] Irrigation facilities are inadequate, as revealed by the fact that only 39% of the total cultivable land was irrigated as of 2010,[97] resulting in farmers still being dependent on rainfall, specifically the monsoon season, which is often inconsistent and unevenly distributed across the country.[203]

Overview of the index of perception of corruption, 2010
Main article: Corruption in India
Corruption has been one of the pervasive problems affecting India. A 2005 study by Transparency International (TI) 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 in the previous year.[204] A follow-on 2008 TI study found this rate to be 40 percent.[205] In 2011, Transparency International ranked India at 95th place amongst 183 countries in perceived levels of public sector corruption.[206]
In 1996, red tape, bureaucracy and the Licence Raj were suggested as a cause for the institutionalised corruption and inefficiency.[207] More recent reports[208][209][210] suggest the causes of corruption in India include excessive regulations and approval requirements, mandated spending programs, monopoly of certain goods and service providers by government controlled institutions, bureaucracy with discretionary powers, and lack of transparent laws and processes.
The Right to Information Act (2005) which requires 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 and opened up avenues to redress grievances.[204]

The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-agriculture establishments with 10 or more employees.[166]
The current government has concluded that most spending fails to reach its intended recipients. A large, cumbersome and tumor-like bureaucracy sponges up or siphons off spending budgets.[211] India's absence rates are one of the worst in the world; one study found that 25% of public sector teachers and 40% of public sector medical workers could not be found at the workplace.[212][213]
The Indian economy has an underground economy, with an alleged 2006 report by the Swiss Bankers Association suggesting India topped the worldwide list for black money with almost $1,456 billion stashed in Swiss banks. This amounts to 13 times the country's total external debt.[214][215] These allegations have been denied by Swiss Banking Association. James Nason, the Head of International Communications for Swiss Banking Association, suggests "The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them."[216][217]
Main article: Education in India
India has made huge progress in terms of increasing primary education attendance rate and expanding literacy to approximately three-fourths of the population.[218] India's literacy rate had grown from 52.2% in 1991 to 74.04% in 2011. The right to education at elementary level has been made one of the fundamental rights under the eighty-sixth Amendment of 2002, and legislation has been enacted to further the objective of providing free education to all children.[219] However, the literacy rate of 74% is still lower than the worldwide average and the country suffers from a high dropout rate.[220] Further, there exists a severe disparity in literacy rates and educational opportunities between males and females, urban and rural areas, and among different social groups.[221]

Shown here is the Chennai Port.
See also: Transport in India, Indian Road Network, Ports in India, Electricity sector in India, States of India by installed power capacity, Water supply and sanitation in India, and Communications in India
In the past, development of infrastructure was completely in the hands of the public sector and was plagued by slow progress, poor quality and inefficiency.[222] India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment,[166][223] and most public infrastructure, barring railways, is today constructed and maintained by private contractors, in exchange for tax and other concessions from the government.[224]
While 80% of Indian villages have at least an electricity line, just 44% of rural households have access to electricity. Some half of the electricity is stolen, compared with 3% in China. The stolen electricity amounts to 1.5% of GDP.[225][226] Transmission and distribution losses amount to around 20%, as a result of an inefficient distribution system, handled mostly by cash-strapped state-run enterprises.[227] Almost all of the electricity in India is produced by the public sector. Power outages are common, and many buy their own power generators to ensure electricity supply.[228] As of December 2011,the monthly electricity production was at 73,000 GWH,[229] with an installed capacity of 1.86 GW.[115] In 2007, electricity demand exceeded supply by 15%.[228] However, reforms brought about by the Electricity Act of 2003 caused far-reaching policy changes, including mandating the separation of generation, transmission and distribution aspects of electricity, abolishing licencing requirements in generation and opening up the sector to private players, thereby paving the way for creating a competitive market-based electricity sector.[230] Substantial improvements in water supply infrastructure, both in urban and rural areas, have taken place over the past decade, with the proportion of the population having access to safe drinking water rising from 66% in 1991 to 92% in 2001 in rural areas, and from 82% to 98% in urban areas. However, quality and availability of water supply remains a major problem even in urban India, with most cities getting water for only a few hours during the day.[231]
[edit]Economic disparities
Main articles: Economic disparities in India and Poverty in India
India continues to grow at a rapid pace, although the government recently reduced its annual GDP growth projection from 9% to 8% for the current fiscal year ending March 2012. The slowdown is marked by a sharp drop in investment growth resulting from political uncertainties, a tightening of macroeconomic policies aimed at addressing a high fiscal deficit and high inflation (going well beyond food and fuel prices), and from renewed concerns about the European and US economies. Although the Government was quite successful in cushioning the impact of the global financial crisis on India, it is now clear that a number of MDG targets will only be met under the Twelfth Five Year Plan (2012–17)..

— World Bank: India Country Overview 2011[172]

A critical problem facing India's economy is the sharp and growing regional variations among India's different states and territories in terms of poverty, availability of infrastructure and socio-economic development.[232] Six low-income states – Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh – are home to more than one third of India's population.[233] Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.[234]
The five-year plans, especially in the pre-liberalisation era, attempted to reduce regional disparities by encouraging industrial development in the interior regions and distributing industries across states, but the results have not been very encouraging since these measures in fact increased inefficiency and hampered effective industrial growth.[235] After liberalisation, the more advanced states have been better placed to benefit from them, with well-developed infrastructure and an educated and skilled workforce, which attract the manufacturing and service sectors. The governments of backward regions are trying to reduce disparities by offering tax holidays and cheap land, and focusing more on sectors like tourism which, although being geographically and historically determined, can become a source of growth and develops faster than other sectors.[236][237] In fact, the economists fail to realize that ultimately the problem of equitable growth or inclusive growth is intricately related to the problems of good governance and transparency.
In 2011 Engineering Jobs in India have been showing signs of steady growth.[238]
Critics of the neoliberal turn to policymaking in India, and the world in general, since the mid-1980s have pointed out that the growth process under a neoliberal regime is inherently anti-poor. Most of the dividends of economic growth is cornered by the already well off. In parallel with an inegalitarian growth process, neoliberalism also whittles down whatever welfare State measures might have been in place before its adoption. Inegalitarian growth and erosion of State assisted welfare provisioning increases socio-economic inequality drastically. Drawing on some recent research, this article has provided empirical evidence in support of such a view.
Two comparison groups provide a powerful and disturbing insight into India’s growth process. First, there are many countries which have grown at rates very similar to India’s but which have managed to register marked declines in socio-economic inequalities. In stark contrast to this, India has witnessed an increase in socio-economic inequality since 1990. Second, in comparison to its close neighbours, with whom India has many geographical, climactic, cultural and social commonalities, India emerges as the worst performer among the South Asian countries.
The growth process currently underway in India is inherently biased against the poor, the marginalized and underprivileged. If economic growth is to lead to substantial improvements in the living standards (measured by indicators of well being like life expectancy, literacy, infant mortality) of the vast majority of the world’s population, a radically different socio-economic paradigm must be put in place of the currently dominant neoliberal one. [239]


Datt, Ruddar; Sundharam, K.P.M. (2009). Indian Economy. New Delhi: S. Chand Group. p. 976. ISBN 978-81-219-0298-4.
Drèze, John; Sen, Amartya (1996). India: Economic Development and Social Opportunity. Oxford University Press. p. 292. ISBN 978-0-19-564082-3.
Kumar, Dharma (2005). The Cambridge Economic History of India, Volume II : c. 1757–2003. New Delhi: Orient Longman. p. 1115. ISBN 978-81-250-2710-2.
Nehru, Jawaharlal (1946). The Discovery of India. Penguin Books. ISBN 0-14-303103-1.
Panagariya, Arvind (2008). India: The Emerging Giant. Oxford University Press. p. 514. ISBN 978-0-19-531503-5.
Raychaudhuri, Tapan; Habib, Irfan (2004). The Cambridge Economic History of India, Volume I : c. 1200 – c. 1750. New Delhi: Orient Longman. p. 543. ISBN 978-81-250-2709-6.
Roy, Tirthankar (2006). The Economic History of India 1857–1947. Oxford University Press. p. 385. ISBN 978-0-19-568430-8.
Papers and reports
"Economic reforms in India: Task force report" (PDF). University of Chicago. p. 32.
"Economic Survey 2009–10". Ministry of Finance, Government of India. p. 294.…...

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