Can India sustain its present economic growth rate? India is an emerging economy that is witnessing unprecedented levels of economic expansion. It is widely expected that India may overtake China as the world’s fastest growing major economy by 2015. However it is not easy to sustain high levels of economic growth rates. There were a number of countries that experienced a high economic growth rate but were unable to sustain it for a long period of time. In order to determine whether India can sustain its economic growth rate we need to study the various factors that create an impact on India’s economy.
There are several factors that have positive impact on India’s economic growth rate. The first is India’s demography. India is experiencing a surge in its working-age population. The second factor is the economic reforms of early 1990’s in India. These economic reforms have unleashed an explosion of pent-up commercial energy and have led to the creation of a dynamic private sector in India. The third factor is that India has a large domestic demand due to which it is relatively less prone to ups and downs of the international trade.
India’s demographic profile indicates that one hundred million people are likely to join the workforce by 2020, which will also lead to a decrease in dependency ratio. World Trade Organization [WTO] (2010) predicts that India will account for a quarter of the increase in world’s labor force over the next 20 years (India, 2010). This increase in population can lead to higher savings and better productivity, which in turn will create an even more vibrant consumer culture and boost investment of all kinds.
It is important to note that the demographic dividend was the driving force of the Middle Kingdom’s turbocharged economic growth (Sharma, 2010). Furthermore, Indian government introduced economic reforms in early 1990s. Tariffs were cut down drastically. Government lessened its control over private businesses. Private firms were forced to compete with the world’s best firms. Competition forced Indian firms to improve. The Indian firms are now increasingly becoming global companies. Indian firms have a large domestic demand. This demand is a bit unique.
The local consumers demand cheap products instead of fancy products and the Indian firms try to fulfill their demand. “India is the last frontier, says Moon B. Shin, the Korean boss of LG Electronics Indian subsidiary. By which he means India has the largest number of people who have not yet bought many electronic goods”(A bumpier but freer road, 2010) . None the less it is hard to ignore the early signs of some of the same sorts of problems in Indian economy that afflicted many erst-while high growth nations during the mature stages of their boom.
Indian economy has long been troubled by crony capitalism and widespread corruption. This problem is showing its effects on the economic stability of India. Businessmen complain about absence of fair competition in India. Another obvious bottleneck in India’s economic growth is lousy infrastructure. The Indian Prime Minister acknowledges this problem; he once said “There is a large deficit in our physical infrastructure which affects our economic development adversely” (Dhara,2010). The roads in rural India are mostly unpaved and there are potholes, lack of public transport and traffic jams in urban areas of India.
Urban population will double from 2009 consensus figure of 290m to 590m by 2030. McKinsey reckons in order to keep pace, the country needs to spend $ 1. 2 trillion on urban infrastructure (Radjou, 2010). India also faces a shortage of skills. The workforce may be young and growing, but 40% are illiterate and another 40% failed to complete high school. The literacy rate of India is only 66%. Shortage of skill aggravates the problem of developing the infrastructure (Chrystal & Lipsey, 2003). Builders, electricians and plumbers are often scarce.
Nevertheless, Indian government is trying its level best to tackle these problems. Efforts are under way to get the private sector involved in building world class infrastructure. The skill shortage, too, is being addressed. The literacy rate is rising quickly. Among 15-24 years old, it is over 80%. In an attempt to curb corruption and make India more business friendly, several reforms are being introduced. All these corrective efforts coupled with the favorable factors will ensure that India will be able to sustain its current economic growth rate.
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