Historically, from 2000 until 2011, India's average quarterly GDP Growth was 7.45 percent reaching an historical high of 11.80 percent in December of 2003 and a record low of 1.60 percent in December of 2002.
India's diverse economy includes traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services.
Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force.
The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.
Factors behind the favorable emerging market in India
In simple terms, emerging market is used to evaluate the socio economic scenario of the country in terms of the growth of the market and industrial development. According to the recent survey, there are around 28 emerging markets in the world out of which India ranks in the second place.
The main factors behind this booming emerging market are the economic liberalization and the perfect competition market, the high standard of living and per capita income, the development of medical facilities and infrastructure, the increase in foreign investments and so on. Over the few years, there has been a significant growth of the Indian market which has resulted in the high Gross Domestic Product (GDP). The average annual growth rate ranges between 6 to 7 %. The growth rate of GDP was around 6.7 % during the financial year 2008-09
Problems Facing Indian Economy
1. Inflation.
Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 6-7%. A record 98% of Indian firms report operating close to full capacity (2)With economic growth of 9.2% per annum inflationary pressures are likely to increase, especially with supply side constraints such as infrastructure. The wholesale-price index (WPI), rose to an annualised 6.6% in Janu 2007 (1)
2. Poor educational standards.
Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate
3. Poor Infrastructure.
Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy.
4. Balance of Payments deterioration.
Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months. This deterioration is a result of the overheating of the economy. Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports. Excluding workers remittances India’s current account deficit is approaching 5% of GDP
5. High levels of debt.
Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future
6. Inequality has risen rather than decreased.
It is hoped that economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s rural poor are yet to receive any tangible benefit from the India’s economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3)
7. Large Budget Deficit.
India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education
