The Indian Economy is now the 11th largest economy in the world. The 4th largest if measured by Purchasing Power Parity (PPP).
India is now a $1.367 trillion economy. In PPP terms the GDP is $3.862 trillion. The current rate of growth is such that it doubles India's GDP each decade.
Per Capita Income - an inflection point reached
India's per capita income has either just about or will soon cross the $1,000-mark. This translates into an average annual income of roughly Rs 45,000 for every Indian. The $1,000-income is an important economic indicator. China reached this threshold in 2003, and has since unleashed a consumption boom.
The figure of $1000 is considered an important inflection point when accompanied by a few other factors. An economy of the size of at least $500 billion, a healthy and sustainable growth rate in GDP and a large population. India meets all three criteria in this equation.
Growth: One of the fastest growing economies
Over the last 20 years, India has been growing consistently at an average rate of 6-7% per annum. GDP is currently growing 8.5% to 9 % per annum. At this rate it is predicted to be one of the leading economies in the world by the end of this decade.
The Services sector is the fastest growing sector in the economy and accounts for 57% of the GDP. Industry accounts for 28% and Agriculture 15%.
In the context of the present global economic slowdown, it is positive that this economy is primarily driven by domestic consumption. Economies that followed the export-oriented model suffered badly in the past couple of years. The rapidly growing middle class is also expected to lead to a large consumption boom contributing to economic growth.
Contrary to popular perception, growth is also being witnessed in the rural areas ( even though there is still a long way to go). In 2002, the rate of telephony penetration in rural areas was 1.2%; today, it has crossed 21%.The National Rural Employment Guarantee Scheme (NREGA) now covers 50 million households.
Population: Second largest in the world
The country has the second largest population in the world at around 1.2 billion. Roughly half the population is younger than 25. India has one of the youngest populations in the world with a median age of 23 against the global average of 33. Many view this potentially large work force as a "demographic dividend". Several nations have to face the prospect of small work forces supporting aging populations. On the other hand providing jobs to the population is also a big challenge. About 200 million youngsters are expected to enter the Indian workforce in the next decade.
Threats to the Indian Economy
Inflation is high and currently at around 8.62% (Consumer Price Index September 2010).
A large part of the population is below the poverty line - approx one third of the population. This disparity in incomes can become a major threat resulting in social unrest if not addressed.
52% of the population is dependent on agriculture - a sector which is only growing at 3% per annum. 14% of the population is employed by industry and 34% by the services sector.
Unemployment is high at around 9.5%.
It is a difficult country to do business in, with "ease of doing business" ranking a low 134th among various countries.
Aiming for higher growth
A number of studies by International think tanks predict that growth in India will soon overtake China's. India itself recognises the need for a higher growth rate. Sustaining High Growth is the Key said Mr Ashok Chawla, the Finance Secretary. '10% GDP growth is an imperative for poverty alleviation. To achieve double digit growth, agriculture will have to grow at 4%, industry at 12% and services at 10.5%. Over the period 2003-04 and 2007-08, agriculture grew by 4.9%, industry by 8% and services by 10.4%. So, with a little more effort from all key stakeholders, 10% GDP growth can be attained. The key issue is sustaining the high growth over the longer run. To get to 10% GDP growth, investments should rise to 40% of GDP, for which savings rate will need to increase from 35% to 37-38%. The remaining 2-3% will come from external sources. Initiatives are needed to tap the bulk of the household savings that are locked up in physical assets. These need to be converted into financial assets that can generate productive goods and services. The private corporate savings rate too needs to reach a higher level. The land locked up with public sector enterprises should be progressively utilised for productive purposes. A separate body could be created to facilitate this, on the lines of the Divestment Commission.'
India vs China
When discussing India, comparisons are often drawn to China. The two countries have followed completely different economic models. India is following a ground up model while China is pursuing a top-down approach that is a reflection of its command and control economy. India is a democracy, and China is not. India has relied more on its own entrepreneurs while China has relied on FDI. While it cannot be denied that China has shown remarkable progress in economic growth, reduction of poverty, reducing infant mortality, some argue that India's model is the more sustainable one. A final thought - in the eventual analysis, what price democracy and freedom?
