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A Study of the Indian Economy

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Introduction

A Study of the Indian Economy India has the 2nd largest population in the world. It is in a stable democracy, it has an excellent rail network and civil service courtesy of the British and it is well placed geographically to do business with the Far East. Yet in 1990 India was branded as "a backward country...with surprisingly little innovation thanks to the over excessive licensing and protection by the state."(World Trade Organisation.). And still at the end of the millennium, even after nearly 7% trend growth in the decade, India still has a GDP of only $440 per capita - 112th on the list of countries. This is a poor state of affairs. Why is this happening? For my coursework I have decided to study the Indian economy in the last 10 years, specifically those areas related to its excellent economic growth over the last 10 years. I will be comparing India's growth with that of the UK and will be expressly looking at why it has taken so long for India, with its ample land and labour resources, to start to grow to something approaching its potential after 40 years of independence in 1992. I will be looking at the causes of such growth and asking the question that with India's vast resources with 6% compound growth is really the best it can achieve. ...read more.

Middle

4. Increasing efficiency of industry I will be concentrating on the increasing quality of capital equipment and labour, rather than land and enterprise. Land is difficult to improve compared to capital and labour and the enterprise factor comes a little into the improving of labour. However enterprise is impossible to quantify and therefore I will ignore it for this coursework. Labour There are many ways in which labour can be improved to increase economic growth. Quantity can be increased by natural population growth. More people working ensure higher output leading to economic growth. Some economists believe that investment in human capital (spending on education and training) is the most determinant of economic growth. Better educated people will generally produce higher output than those with less education. Therefore the economy will grow at a faster rate with a better educated workforce. Also net immigration and changes in demographics (a higher proportion of one age group from the other) will increase the number of people in the work force, thus increasing output. Capital Capital is often referred to as "the key to economic growth." Many western countries have facilitated their economic growth by increasing primarily their capital stocks. The stock of capital goods increases when gross investment (total investment) exceeds capital consumption i.e. ...read more.

Conclusion

He also made use of Soviet style 5 Year Plans, which gave targets for all the major industries to fulfil. He also stopped international companies like Coke and Ford from selling their products in India. Sheltered behind protective walls and used to a policy of planning, Indian industry became increasingly less productive and useless. Thanks to the lack of trade foreign machinery wasn't used, so when the investment rate was high it was being used to buy Indian goods, which thanks to the lack of competition at home and abroad wasn't up to scratch. There was a definite problem with productivity of machinery. There were also some definite problems with the substantial public sector. It went well beyond the conventional confines of public utilities and infrastructure like health, transport, police and the army. This just became inefficient, due to no incentive to innovate and a lack of productivity and efficiency in the enterprises. We therefore have 3 main reasons why India's economy has underperformed in the last 50 years. 1. Over licensing and too much bureaucratic control over investment, production and trade 2. Foreign investment policies geared towards protectionism 3. A substantial public sector, far bigger than any western country in scale and breadth. We will now look at all 3 and see how the Indian government has tried to combat all 3 which led to such success during the 1990's Over licensing The controls of trade and industry in India are truly vast. ...read more.

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