India is one of the fastest growing economies in the world. Its journey from being one of the poorest country to the sixth largest economy is quite interesting. Some analytics say the Indian economy could expand with an unbelievable rate. But there are still a lot of things that are putting breaks on India’s economic growth in the future. Higher unemployment rate and economic inequality are some of the major problems. But even with all these problems Indian economy has grown incredibly. In the last two decades it has lifted more than 271 million people out of poverty. But the question now is; Can the Indian economy grow with same speed in the future? What is slowing down the growth of Indian economy? Read this blog carefully to get a brief idea about Indian economy.
INDIAN ECONOMY FROM 1700-1991
- India was a former British colony. British rule in India ended in 15th August 1947. In this 300 years of rule, India was literally looted by the Britishers. India’s share in the world economy was 24.4% in 1700 but it went down to 4.2 percent till 1950.
- India adopted the Soviet economic model to recover its broken economy. This model brought five-year development plan. It also nationalized major industries like mining, insurance, banking, telecommunication and transportation. This policies were for promotion and safeguard of domestic industries.
- Also India’s past experience with global trade was not pretty good. This is because under the name of global trade the western countries entered India and looted it. Hence India decided to grow its economy on its own and not actually allow large foreign investments. As a result of this Indian economy didn’t grow that much.
- Due to corruption and license issues private industries were limited. High poverty percentage and unemployment were also some of the big issues. But all of this started to change from 1991.
- In 1991 the soviet union collapsed. They were India’s main trading partner. Also due to the Gulf war, crude oil prices were high and this was not good for any developing country like India.
- This lead to increase in poverty rate and India’s foreign reserves started to drain with much higher speed. So to save the Indian economy India went to the international monetary fund for loan. But to get this loan India agreed to reform its economic model from socialist economy to capitalist economy.
INDIAN ECONOMY FROM 1991-2021
- So after 1991 reforms India adapted economic policy of Liberalization, Privatization, Globalization; also known as LPG.
- After these reforms India actually saw a massive economic growth. India’s private sector showed a huge boost and created millions of jobs.
- Particularly India’s IT sector was growing incredibly. By 2007 India’s IT sector was generating nearly 23 billion dollars and by 2018 it was generating nearly 167 billion dollars. IT sector has increased its contribution to India’s GDP from 1.2% in 1998 to 7.7% in 2017.
- The Indian economy has grown nearly nine times since 1991. In 2019 India surpassed UK as its former colonizer in terms of GDP.
WHAT RECENTLY SLOWED DOWN THE ECONOMIC GROWTH OF INDIA?
- From last few years Indian economy is struggling to keep up its higher GDP growth. India’s automobile construction and agriculture sector has been hit hardly and there are many reasons behind that.
- One of the major reason is the banking sector. While going through economic growth Indian banks have given massive loans for businesses and infrastructure projects but some customers fail to repay its debt and due to high non-profitable asset banks are now hesitating to give loans for businesses.
- The trade war between U.S and China slowed down the foreign investment.
- India’s GST implementation for tax collection damaged the small businesses. Yet it was a good move for the economy in longer run and we could see benefits of implementing GST in coming years. But in short run it has done the damage.
- Some economists also blame the government for the demonetization stunt in 2016. This resulted in disturbance of cash flow in the economy. Also the damages to the economy due to COVID-19 pandemic are still unknown.
- Due to this India’s GDP in the first quarter of 2021 is 3.1%. This is the lowest GDP since 2013 and lower GDP means lower job creation. Today India’s unemployment rate is highest in the last 45 years.
FUTURE OF INDIAN ECONOMY
- Economic growth of a country mainly depends upon the time required for basic conversion from agricultural sector to industrialization. The technologies developed by the western countries like US and UK are helping in reducing this time period. By using these technologies countries like India can growing easily.
- India has 1.3 billion population. Out of this 65% population is below the age of 35. This means India has large amount of workforce available to work.
- Also nearly 10 percent of population in India speaks English and this gives them advantage over other countries like China (In China only less than one percent of Chinese population speaks English). This will give businesses more advantage in India as English is the most popular language used for global trade in the world.
- Different countries and companies are facing lot of problems to operate their industries from China. This is due to U.S China trade war and rising labor costs. So these companies are looking for new countries with similar advantage as China and India could be that option.
- India’s more than 50 population works in agriculture sector still India became the fifth largest economy in the world. India could be first largest economy if they become a fully industrialized economy.
Now we have to understand that India is in the same position as was China 15 years ago. But India has lot of advantage over China. This does not mean India will take over Chinese economy or US economy but India is going to pull out a lot of its population from poverty with right management and economic reforms. Also with massive infrastructure development Indian economy will see a massive growth in the future.
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