THE FACTORS AFFECTING

THE INDIAN ECONOMY

BY
KABIR ANDREW KHARE
1-BBM B
08D1111
Introduction
The economy of India, measured in USD exchange-
rate terms, is the twelfth largest in the world, with a
GDP of around $1 trillion (2008). It recorded a GDP
growth rate of 9.1% for the fiscal year 2007–2008
which makes it the second fastest big emerging
economy, after China, in the world. At this rate of
sustained growth many economists forecast that
India would, over the coming decades, have a more
pronounced economic effect on the world stage.
Despite this phenomenal rate of growth, India's large
population has a per capita income of $2,659,
measured by PPP, and $978, measured in nominal
terms (revised 2007 estimate) .The World Bank
classifies India as a low-income economy.
Composition
India's economy is diverse, encompassing
agriculture, handicrafts, textile, manufacturing, and a
multitude of services. Although two-thirds of the
Indian workforce still earn their livelihood directly or
indirectly through agriculture, services are a
growing sector and play an increasingly important
role in India's economy. The advent of the digital
age, and the large number of young and educated
populace fluent in English, is gradually transforming
India as an important 'back office' destination for
global outsourcing of customer services and
technical support. India is a major exporter of highly-
skilled workers in software and financial services,
and software engineering.
Geographic Factors
• Location - India, the 7th largest nation
by area, lies at the north of the Indian
Ocean. The Thar Desert in the north-
west and the Himalayas in the north .
The subcontinent contains necessary
water resources and flat arable land to
sustain its massive population. Many
Eurasian sea trade routes pass through
or close to Indian territorial waters.
Demographic Factors
• Big - India has the world's second largest
population and by 2050 will have the largest.
• Youthful - Due to its high birth rate India has
a young population compared to most aging
nation powers. In the coming decades, while
some major powers witness a decrease in
workforce, India will have an increase. For
example while Europe is well past its
demographic window, U.S. entered its in
1970 (lasting until 2015), China entered its in
1990 (will last until 2025), India won't enter its
window until 2010 (lasting until 2050).
• Global Diaspora - More than 20 million Indians
live across the globe. Under fair opportunities,
they have become socioeconomically
successful.
• English - The importance of English in 21st
century is being debated, but the growing non-
native English speakers makes it the best
contender as a "Global language". Incidently,
India has the world's largest English
speaking/understanding population. It claims one
of the largest workforce of engineers, doctors
and other key professionals, all comfortable with
English. It has the 2nd largest population of
"Fluent English" speakers, second only to the
U.S., with estimates ranging from 150 to 250
million, and is expected to become the world's
largest within a decade.
Political Factors
• Democracy - India is the world's largest democracy,
more than three times bigger than the the next
largest ( U.S.). It has yet been successful, atleast
politically, especially considering its functionality in
difficult ethnic composition.
• Candidate for Security Council - India's bid for a
position in the Security Council (as part of the G4
nations) has received backing from the UK, France,
Russia and China. The U.S. did not support India's
bid but there have been indications that it is waiting
for a more suitable time to allow new members to
UNSC.
• Foreign relations - India has developed relationships with the
world powers like the EU , the U.S., Russia, Japan and also
with the African Union, the Arab World, Southeast Asia and
Israel. In order to make the environment propitious for
economic growth, India is improving its relations with China
and Pakistan.
• Role in international politics - Although India was one of the
founding members of Non-Aligned Movement, it was also a key
backer and ally of the former Soviet Union during the Cold
War. It took a leading initiative to improve relations between
African and Asian countries. India is an active member of The
Commonwealth and the WTO. It has also played regional roles
in South Asian affairs. Currently, India's political moves are
increasingly being influenced by economic imperatives. It is
slowly assuming a role as one of the two Asian powers, the
other being China. The evolving economic integration politics
in the West and in Asia is influencing the Indian political mood
to slowly swing in favour of integration with global economy. It
has also confessed its own visions of a South Asian version of
free trade zone and, over the long run, even a Union. This
process has begun with invitations to its neighbours to
relinquish past animosities and move to make India's
economic growth a pan South Asian phenomenon.
• Multipolarity - A school of international strategists
propose that the current world powers should support
and help India's emergence. One of the debatable
reasons given is that, as an economically strong
democratic citizen of the world, it could help to
balance the powerful but non-democratic forces, and
thus insure a more stable world. On the other hand if
India fails to exist or prosper then the "Theory of
Democracy" is likely to face the biggest setback.
• Economic Growth - India's current fast economic
growth (as the world's second-fastest growing major
economy) has improved its standing on the world's
political stage, even though the country remains one
of the poorest in the world. Many nations are moving
to forge better relationship with India.
Economic Factors
• Blooming Economy - The economy of India is currently the world's fourth
largest in terms of real GDP after the USA, China and Japan, and the second
fastest growing major economy in the world, averaging at an annual growth
rate of 7.1%. Its record growth was in the third quarter of 2003, when it grew
higher than any other emerging economy at 10.4%. Based on its current
growth rates, India's economy is estimated to surpass Japan as the third
largest economy by the end of 2006.
– Primary Sector - India manages to grow enough food to feed its populace.
– Secondary Sector - India is still relatively a small player in manufacturing
when compared to many world leaders. Some new trends suggest a better
future.
– Tertiary and Quaternary Sector - India currently has an expanding IT
industry.
• Science/Tech - India is trying to develop more high skilled, English speaking
people to fit in the future knowledge economy. India is becoming one of the
world's leading producers of computer software. With mushrooming R&D
centres, it is experiencing a slow but steady revolution in science and
technology. A typical example of India's rising scientific endeavours - It was
the 3rd nation to found a National Space Agency called ISRO, after the USSR
and the U.S..
• Tourism - India's tourism infrastructure is yet poor when
compared to the 'best of the world' standards. Yet its
diverse and fascinating history has led to the creation of
a booming tourism industry. Foreign visitors presently
spend more than US $15.4 billion annually in India. Many
travellers find it an eye-opening (for some, even
enlightening) experience, even when the hassles of life
in developing India like inefficiency, pollution,
overcrowding, etc somewhat lessen the pleasure aspect.
Monuments like the Taj Mahal is just tip of the ice-berg
that this land has to offer. As its tourism infrastructure
develops, it could emerge as one of the biggest tourist
attractions.
• Energy - To reduce the energy crisis, India is presently
constructing ~ 9 civilian nuclear power reactors and
several hydro-power stations. Recently it also made a
civilian nuclear energy deal with the US and EU. In recent
years, India joined China to launch a vigorous campaign
to acquire oil fields around the world and now has stake
in several oil fields (in the Middle East and Russia).
Military Factors
• Total Strength - India maintains the Indian Armed Forces (3rd
largest no. of active troops) and the Indian Paramilitary Forces
(over a million strong, forming the world's largest paramilitary
force). Combined, the total armed forces of India are 2,414,700
strong, the world's 2nd largest, after China.
– Army - The Army of India, as the Indian army was called before
1947 under British dominion, played a crucial role in checking the
advance of Imperial Japan into South Asia during World War-2.
Today the Indian army is the 3rd largest land force after Chinese
and U.S. forces.
– Air Force - The Indian Air Force is the 4th largest air force in the
world. India recently flew its first indigenously manufactured
combat aircraft. It is presently developing a 5th generation aircraft
known as Sukhoi Su-47 with Russia.
– Navy - The Indian Navy is the world's 4th largest navy. It operates
one of the only two Asian aircraft carriers. It also plans to induct
two other aircraft carriers by 2008.
• Nuclear Weapons - India possesses them and the
means to deliver these over long distances. India is
not a signatory to the Non-Proliferation Treaty on
Nuclear Weapons (arguing on security concerns;
also complains NPT to be discriminatory).
• Arms Import - India is currently one of the world's
largest arms importer, spending an estimated US
$16.97 billion in 2004. India has made military
technology deals with the Russian Federation, U.S.,
Israel and the EU.
• Current major roles - The Indian Armed Forces plays
a crucial role in anti-terrorist activities and
maintaining law and order in the disputed Kashmir
region. It has also participated in several United
Nations peace-keeping missions, currently being the
2nd largest contributor to the UN peace keeping
force.
Cultural Factors
• History - India has a long history of cultural intercourse
with many regions of the world. Its cultural influence has
spread through the philosophy of religions like Jainism,
Sikhism, Hinduism and Buddhism (particularly in East
and SE Asia). Many foreign religions - Christianity, Islam,
Judaism, Zoroastrianism, Bahá'í Faith - have found home
and followers in India. India has no history of
imperialism. Indian culture has always spread naturally
or through widespread emigration to foreign lands.
• Bollywood - India's film industry, often known as
"Bollywood", produces more feature films than any other
(though not all of great quality). In a year, it sold 3.6
billion tickets, more than any other film industry in the
world ( In comparison, Hollywood sold 2.6 billion tickets
in a year).
• Unity in Diversity of world view - The
scale of multi-ethnic, multi-lingual,
multi-religious people trying to
cohabitate here is unparalleled in the
world. The subcontinent's long and
diverse history has given it a unique
eclectic culture, claimed to be one of its
great intangible assets. It is also often
associated with spirituality. India's
diversity forces it to either evolve strong
foundations of tolerance and survive, or
face break-up.
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