Can India Accomplish Economic Marvel
Welcome to jimtrade
Sign In | Join Free
Home > Articles > Can India Accomplish Economic Marvel
Can India Accomplish Economic Marvel
Article Introduction
This article aims to explore the prospects of an economic miracle during the current decade for india. It is almost a decade since india has shifted out of the license raj to a more liberal set-up with gdp growth rate averaging 6 per cent during 1990s. Lets make an attempt to find out whether economic miracle, which is a distant dream, would be achieved easily or is it that it would be an impossible dream.

Article Description
Global Economy is the term for the fact that the economies of most of the worlds nations have become increasingly interconnected. For example, a computer chip designed in America may be produced in a Korean factory for use in a Japanese VCR that is sold in a dozen or more country. The trend has opened many opportunities, but it also creates some problems. Companies often move factories from high labor cost countries like the US, and build them instead in Asia or Mexico.Global Economy also refers to the expansion of economies beyond national borders, in particular, the expansion of production by transnational corporations to many countries around the world. The global economy includes the globalization of production, markets, finance, communications, and the labor force.Due to mixed commonalty and divergent views existing, an economic miracle may be a distant dream and an economic miracle with social justice still farther away. The question is, by choosing to globalise will India be able to transform into a developed country rapidly? There are several indicators, which show where India stands with respect to its peers. To start with, the globalisation index for India has changed only by 2 per cent during the period 1993-97, whereas change in globalisation has been 7 per cent for China, 6 per cent for Singapore and 4 per cent for South Africa during the same period. It is not surprising that China has been able to attract foreign direct investment to the tune of 5 per cent GDP where as for India the GDP figure is only about 0.8 per cent. On many other parameters such as exports, debt ratio and savings, etc, Indias performance has not been impressive. The average annual growth rate in exports for India was 11.3 per cent in 1990s while for China and Mexico it was 13 & 14.3 per cent respectively. Growth of domestic savings as a percentage of GDP for India in 1998 amounted to 20.3 per cent, which is considerably lower than the figures for China and Singapore. Although, India is not close to China in many of the indicators, there is just one area where India beats China comprehensively, and that is technological innovation.

Vital statistics
In a globalised economy, technology is a windmill of growth. World Economic Forum captures the measures such as levity in technological innovation and import of technology by Technology Index and conduciveness of environment for start-ups through a start up index. These two indices can combine to form an economic index called Economic Creativity Index. This index will reflect a countrys growth potential. Out of the 59 countries surveyed in the year 2000, India ranked 38th in all the three indices and was placed higher than China, which was at the 49th position. In the micro-economic competitiveness index, which measures micro-economic foundations of economic development based on a firms operating practices and strategies as well as the business environment in which the firms compete, India stood 42nd against Chinas 49th position. In terms of price hike spiral control India has done slightly well than most outpouring market economies. But on the social front, Indias performance is disappointing with India standing on the 128th position - much lower than the comparable economies. The overall experience of reforms has been somewhat mixed. However, on several parameters we are much better off now than what we were in the pre-reforms period. But the progress seems to be far slower in comparison to emerging market economies. In fact, considering parameters like infrastructure, social sector development and attracting FDI the gap remains wide with several policy issues still waiting to be resolved. America, the worlds largest economy is facing recession. And Japan is also undergoing an economic crisis. The two biggest economies account for 46 per cent of Worlds economies. Almost everywhere stock markets are stumbling. Wont it have an impact on growth of emerging market economies and even globalisation when remittance current account deficit may widen and the rupee may become weak where in the interest rate is likely to be hiked, which may affect investment. More bad news is that negligible agricultural growth is affecting rural consumption, stock market crash and slow industrial growth is affecting urban consumption, and the US recession affecting the Infotech dependent consumption sector.

Investment perks
Foreign investors have been welcomed in India since the economy was opened up in the early nineties. Approval is automatic in many categories of industries. Skilled manpower and professional managers are stated to be available at competitive cost. The countrydeveloped financial sector. The foundations of R&D infrastructure and technical and marketing services are well developed. India has a policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export. It provides a good package of fiscal incentives. The countrys legal and accounting systems are sophisticated. English is widely spoken and understood. The Indian currency is convertible on current account at a market-determined rate. Free and full repatriation of capital, technical fees, royalty and dividends are permitted. No income tax is payable and no profits derived from export of goods. India also provides complete exemption from customs duty on industrial inputs and a corporate tax holiday for five years for 100 per cent export oriented units and units in export processing zones. Corporate tax on the foreign companies of a country, with which agreement of avoidance of double taxation exists, can be one that is lower between the rates prevailing in any one of the two countries and the treaty rate. But a clearance from the Reserve Bank of India is still required for all foreign loans. Indias industrial policy actively promotes foreign investment as indispensable to its international competitiveness. India has gradually reduced its high import tariffs, de-licensed and liberalised imports including those of capital goods. This and many other facilities are being provided to create a lucrative environment for investment in India. However, investors both foreign and domestic still complain that the regulatory system allows far too much leeway for bureaucratic discretion. Foreign companies have a strong market presence; but face stiff local and foreign competition. Foreign firms need to be patient, especially in the infrastructure sector. Red tape and shortage of power are the most frequently encountered hurdles. In short, there still remains room for improvement for both foreign and domestic investments through imaginative policy changes and special drives.

State of infrastructural efficiency
Prospects of rapid economic growth have underlined serious constraints posed by inadequate infrastructure. Ports, roads and railways require sustained investment. India today faces the problems, which most economies have faced at some point in their evolution: the problems associated with urbanisation. Much of the investments flowing into India continue to be in the urban centres. Naturally, Indian urban infrastructure services needs must be met by the private sector. For that domestic and international investors in infrastructure must be welcomed. Ports, roads, railways, oil and gas, power and telecommunications are the six types of infrastructure in which the government seeks sustained investment. About US $ 200 billion investment in infrastructure in India over the next five years is projected as being required. The progress in infrastructural development is inadequate due to various reasons.

Power generation - The private investment required in new projects is estimated at approximately US $ 3 billion per year, assuming that 50 per cent of these funds will be expected on creating power generation capacity and 50 per cent on related transmission capacity. India will need private sector participants in power generation to invest approximately US $ 30 billion over the next 10 years. Coal is the dominant commercial fuel in India, satisfying more than half of Indias energy demand. Power generation accounts for about 70 per cent of Indias coal consumption, followed by heavy industry. Consumption is projected to increase to 465 million tonnes in 2010, from 370 million in 1998. India is the worlds third largest coal producer (after China and United States). Domestic supplies satisfy most of the countrys coal demand. India is investing heavily in new electric power generation capacity, as current generation is below peak demand. Although about 80 per cent of the population has access to electricity, power outages are common. The government has targeted capacity increase of 47,000 megawatt during the period covered by the current Five-Year Plan, between 1997 and 2002, and 111,500 MW by 2007. As of 1998, total installed Indian power generating capacity was 100,000 MW.
Posted : 10/26/2005

Can India Accomplish Economic Marvel