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CAN INDIA ACHIEVE

10%GROWTH RATE INGDP?

PREPARED BY:

SHILPA A KUMAR=53

ASHISH SARNA=11

DIANA=16

PRIYA GUPTA=38



DECLARATION

We Ashish Sarna, Shilpa A Kumar, Priya Gupta and Diana

students of JIMS KALKAJI have completed the Module on

¶Can India Achieve 10% Growth Rate In GDP·

for the Trimester II.

The information given in this Module is true to the best of

my knowledge.



Jagannath International Management School,

Kalkaji, New Delhi

Certificate

This is to certify that

Mr. Ashish Sarna (Roll No. 11)

Ms. Diana (Roll No. 16)

Ms. Priya Gupta (Roll No. 38)

Ms.Shilpa.A.Kumar (Roll No.53)

The students of P.G.D.M. Trimester II ³A´ have worked on the Presentation under

my supervision and this is their own work.

It is a part of their academic curriculum and is not intended for any other purpose.

Date: 13th December 2010 Neelam Tandon



CONTENTS

Economy of India

India GDP History

Role of Major Industries in IndiaGDP

Where does India stand?

Standard of living and GDP

Limitations of GDP

How Can India Achieve 10% GDPGrowth

India's GrowthChallenges(CONCLUDING)?



ECONOMY OF INDIA

The economy of India is the eleventh largest economy in the world by nominal GDP and the

fourth largest by purchasing power parity (PPP). Following strong economic reforms from the

socialist inspired economy of a post-independence Indian nation, the country began to develop a

fast-paced economic growth, as free market principles were initiated in 1990 for international

competition and foreign investment. India is an emerging economic power with a very large pool

of human and natural resources, and a growing large pool of skilled professionals. According to

the book 'Contours of the World Economy, 1-2030AD' by Angus Madison, India was the largest

economy from the year 1 AD until the colonial period whereupon it was taken over by other

countries such as China and the U.K. Economists predict that by 2020,India will be among the

leading economies of the world.

India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP)

while the industrial and agricultural sector contribute 28% and 17% respectively Agriculture is

the predominant occupation in India, accounting for about 52% of employment. The service

sector makes up a further 34%, and industrial sector around 14%. The labour force totals half a

billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea,

sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include

telecommunications, textiles, chemicals, food processing, steel, transportation equipment,

cement, mining, petroleum, machinery, information technology enabled services and

pharmaceuticals.

India's per capita income (nominal) is $1,030, ranked 139th in the world while its per capita(PPP) of US$2,940 is ranked128th Previously a closed economy, India's trade has grown fast . India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According tothe World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exportsand imports) was valued at $294 billion in 2006 and India's services trade inclusive of export andimport was $143 billion. Thus, India's global economic engagement in 2006 covering bothmerchandise and services trade was of the order of $437 billion, up by a record 72% from a levelof $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in2006, up from 6% in 1985.



INDIA GDP HISTORY

The India GDP is a combination of all the differential factors, contributing to the welfare of

the India economy. India GDP gives us a combined report of the performance of the Indianeconomy. 'Cost factor' or 'Actual price' method - these are the two methods to calculate

Indian Gross Domestic Product. The main factor that contributed to the growth of India

GDP post 1990s was the opening-up of the Indian economy.

The balance-of-payments crisis of 80s of the Indian economy led to the paradigm shift of

the Indian Economy. The markets were opened up, the Government leveraged the entry of

private investments. As a result of this, more investments flowed into the markets. More so

by the foreign direct investments (FDIs) and foreign institutional investors (FIIs), the India

GDP growth saw a phenomenal increase. Bulk of the Government undertakings were

divested into lots of private business houses.

Gauging the health of the India economy - India GDP is the best tool! Going by figures,

India GDP has already crossed the trillion-dollar mark, other peers in this sphere being

US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil .

After the liberalization era of the India economy, the growth story of the India GDP was

driven by the following sectors of Indian industry -

y Information Technology

y Information Technology Enabled Services

y Telecommunications

y Electronics and

h

ardwarey Automobiles

y Pharmaceuticals and biotechnology

y Consumer durables

y R etail

y Textiles

y Infrastructure

y Construction

y Airlines

y Hospitality

y Power

y Oil and natural gas

y Fertilizers and chemical

The GDP of India, even after the opening up of the economy and other relaxed norms

couldn't survive the aftermath of the global financial crisis. The GDP of India over the past

two fiscals (2008-09 and 2009-10) experienced considerable slowdown.



This moderate growth of the India economy has given rise to moderate expectations with

respect of India GDP. Though various rating agencies, economists, business houses predict

a healthy growth in India GDP in the next two years, yet skepticism is still the order of the

day. Achieving a 9% GDP growth by 2012 is immensely impractical, looking at the rate at

which things are improving.

India GDP Statistics

India¶s real GDP statistics ±

Indicator 2005 2006 2007 2008 2009

R eal GDP growth

(% growth)9.21 9.82 9.37 7.35 5.36

Trend of Growth Rate of India's GDP

1960-1980: 3.5%

1980-1990: 5.4%

1990-2000: 4.4%

2000-2009: 6.4%

The trend of growth rate of India's economy demonstrates an upward trend.

During the period of 1960 ± 1980 the economy saw a growth rate of 3.5% due

to the roles of major industries in India GDP. In the years from 1980 to 1990

the growth rate showed a marked improvement of 5.4%, while it was slightly

lower in the period from 1990 to 2000 which was at 4.4%. The phase 2000 to

2009 saw a huge improvement and the growth rate of GDP were marked at

6.4%.



ROLE OF MAJOR INDUSTRIES IN INDIA GDP

SECTORSIndustry and servicesIndustry accounts for 28% of the GDP and employ 14% of the total workforce. However, about

one-third of the industrial labour force is engaged in simple household manufacturing only] In

absolute terms, India is 16th in the world in terms of nominal factory output.

Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion inthe production of fast-moving consumer goods. Post-liberalisation, the Indian private sector,

which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. Ithas since handled the change by squeezing costs, revamping management, focusing on designingnew products and relying on low labour costs and technology.

Textile manufacturing is the second largest source for employment after agriculture and accountsfor 26% of manufacturing output. Ludhian produces 90% of woolens in India and is also knownas the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. Dharavi slum in Mumbai has gained famefor leather products. Tata Motors' Nano attempts to be the world's cheapest car.

India is fifteenth in services output. It provides employment to 23% of work force, and it isgrowing fast, growth rate 7.5% in 1991±2000 up from 4.5% in 1951±80. It has the largest sharein the GDP, accounting for 55% in 2007 up from 15% in 1950.

Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the totaloutput of services in 2000. The growth in the IT sector is attributed to increased specialization,and an availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by an increased demand fromforeign consumers interested in India's service exports, or those looking to outsource their operations. The share of India's IT industry to the country's GDP increased from 4.8 % in 2005-

06 to 7% in 2008.In 2009, seven Indian firms were listed among the top 15 technologyoutsourcing companies in the world. In March 2009, annual revenues from outsourcingoperations in India amounted to US$60 billion and this is expected to increase to US$225 billion by 2020.

Organized retail such supermarkets accounts for 24% of the market as of 2008. Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as



"signboard licences" and "anti-hoarding measures" may have to be complied before a store canopen doors. There are taxes for moving goods to states, from states, and even within states.

Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woomedical tourism.

Mining forms an important segment of the Indian economy, with the country producing 79different minerals (excluding fuel and atomic resources) in 2009-10, including iron ore,manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphoriteand silica sand.

Agriculture

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, loggingand fishing accounted for 15.7% of the GDP in 2009-10, employed 52.1% of the total workforce,and despite a steady decline of its share in the GDP, is still the largest economic sector and playsa significant role in the overall socio-economic development of India. Yields per unit area of allcrops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India.However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world.

India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, includingsurface and groundwater, amounting to 1123 billion cubic metres.546,820 square kilometres(211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated. India's

inland water resources comprising rivers, canals, ponds and lakes and marine resourcescomprising the east and west coasts of the Indian ocean and other gulfs and bays provideemployment to nearly 6 million people in the fisheries sector. In 2008, India had the world's thirdlargest fishing industry.

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmericand black pepper. It also has the world's second largest cattle population with 175 million headsin 2008. It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, aswell as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of theworld fruit and vegetable production respectively. India is also the second largest producer andthe largest consumer of silk in the world, producing 77,000 million tons in 2005.

Banking and finance

The Indian money market is classified into the organised sector (comprising private, public andforeign owned commercial banks and cooperative banks, together known as scheduled banks);and the unorganised sector (comprising individual or family owned indigenous bankers or moneylenders and non-banking financial companies (NBFCs)). The unorganised sector and microcredit



are still preferred over traditional banks in rural and sub-urban areas, especially for non- productive purposes, like ceremonies and short duration loans.

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, andmade it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture,

small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their socialand developmental goals. Since then, the number of bank branches has increased from 8,260 in1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000during the same period. The total deposits increased from 5,910 crore (US$ 1.34 billion) in1970-71 to 3,830,922 crore (US$ 869.62 billion) in 2008-09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007,only 32,270 out of 500,000 villages are covered by a scheduled bank.

The public sector banks hold over 75% of total assets of the banking industry, with the privateand foreign banks holding 18.2% and 6.5% respectively.Since liberalisation, the government hasapproved significant banking reforms. While some of these relate to nationalised banks (like

encouraging mergers, reducing government interference and increasing profitability andcompetitiveness), other reforms have opened up the banking and insurance sectors to private andforeign players.

More than half of personal savings are invested in physical assets such as land, houses, cattle,and gold. India's gross domestic saving in 2006-07 as a percentage of GDP stood at a high32.7%.

Energy and power India's oil reserves meet 25% of the country's domestic oil demand. As of 2009, India's total

proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion

cubic metres. Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari

Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan.

In 2009, India imported 2,560,000 barrels (407,000 m3) of oil per day, making it one of largest

buyers of crude oil in the world.The petroleum industry in India mostly consists of public sector

companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation

Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private

Indian companies in oil sector such as Reliance Industries Limited (RIL) which operates the

world's largest oil refining complex.

As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of

which thermal power contributed 64.6%, hydroelectricity 24.7%, other sources of renewable

energy 7.7%, and nuclear power 2.9%. India meets most of its domestic energy demand through

its 106 billion tonnes of coal reserves. India is also believed to be rich in certain renewable

sources of energy with significant future potential such as solar, wind and biofuels (jatropha,

sugarcane). India's huge thorium reserves ² about 25% of world's reserves ² is expected to fuel

the country's ambitious nuclear energy program in the long-run. India's dwindling uranium



reserves stagnated the growth of nuclear energy in the country for many years. However, the

Indo-US nuclear deal has paved the way for India to import uranium from other countries.

EXTERNAL TRADE AND

INVESTMENT

Global trade relations

India's economy is mostly dependent on its large internal market with external trade accountingfor just 20% of the country's GDP. In 2008, India accounted for 1.45% of global merchandisetrade and 2.8% of global commercial services export. Until the liberalization of 1991, India waslargely and intentionally isolated from the world markets, to protect its economy and to achieve

self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitativerestrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals;these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictionsensured that FDI averaged only around US$200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians. India's exports were stagnant for the first 15 years after independence, dueto the predominance of tea, jute and cotton manufactures, demand for which was generallyinelastic. Imports in the same period consisted predominantly of machinery, equipment and rawmaterials, due to nascent industrialization.

Since liberalization, the value of India's international trade has increased sharply. India's major trading partners are the European Union, China, the United States and the United Arab Emirates.The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billionwith an increase of 18.06% over the previous year. In 2006-07, major export commoditiesincluded engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major importcommodities included crude oil and related products, machinery, electronic goods, gold andsilver. Its September 2010 exports were reported to have increased 23% year-on-year to US$18.02bn, while its imports were up 26.1% at $27.14bn. At US$13.06bn August's trade gap wasthe highest in 23 months but the economy is well on the road to cross $200 billion mark inexports for the financial year 2010-11.

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 andits successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continuedits opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies.



Balance of payments Since independence, India's balance of payments on its current account has been negative. Since

liberalisation in the 1990s (precipitated by a balance of payment crisis), India's exports have been

consistently rising, covering 80.3% of its imports in 2002±03, up from 66.2% in 1990±91. India's

growing oil import bill is seen as the main driver behind the large current account deficit. In2007-08, India imported 120.1 million tonnes of crude oil, more than 3/4th of the domestic

demand, at a cost of $61.72 billion.

Although India is still a net importer, since 1996±97 its overall balance of payments (i.e.,including the capital account balance) has been positive, largely on account of increased foreigndirect investment and deposits from non-resident Indians; until this time, the overall balance wasonly occasionally positive on account of external assistance and commercial borrowings. As aresult, India's foreign currency reserves stood at $285 billion in 2008.

Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and

39.2% respectively in June 2009. The steep decline was because countries hit hardest by theglobal recession, such as United States and members of the European Union, account for morethan 60% of Indian exports. However, since the decline in imports was much sharper comparedto the decline in exports, India's trade deficit reduced to 252.5 billion rupee.

India's reliance on external assistance and commercial borrowings has decreased since 1991±92,and since 2002±03, it has gradually been repaying these debts. Declining interest rates andreduced borrowings decreased India's debt service ratio to 4.5% in 2007. In India, ExternalCommercial Borrowings (ECBs) are being permitted by the Government for providing anadditional source of funds to Indian corporates. The Ministry of Finance monitors and regulatesthese borrowings (ECBs) through ECB policy guidelines.

Foreign direct investment in India

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in telecommunication, informationtechnology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policiesresulted in a significant hindrance. However, due to some positive economic reforms aimed atderegulating the economy and stimulating foreign investment, India has positioned itself as oneof the front-runners of the rapidly growing Asia Pacific Region.India has a large pool of skilled

managerial and technical expertise. The size of the middle-class population stands at 300 millionand represents a growing consumer market.

Durinf 2000-10, the country attracted $121 billion as FDI. The inordinately high investmentfrom Mauritius is due to routing of international funds through the country given significantcapital gains tax advantages; double taxation is avoided due to a tax treaty between India andMauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDIchannel.



India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures.

Industrial policy reforms have substantially reduced industrial licensing requirements,

removed restrictions on expansion and facilitated easy access to foreign technology and

foreign direct investment FDI. The upward moving growth curve of the real-estate sector

owes some credit to a booming economy and liberalized FDI regime. In March 2005, the

government amended the rules to allow 100 per cent FDI in the construction business. Thisautomatic route has been permitted in townships, housing, built-up infrastructure and

construction development projects including housing, commercial premises, hotels, resorts,

hospitals, educational institutions, recreational facilities, and city- and regional-level

infrastructure.

The contributions of various sectors in the Indian GDP for 1990-1991 are as

follows:

Agriculture: - 32%

Industry: - 27%

Service Sector: - 41%


follows:

Agriculture: - 20%

Industry: - 26%



follows:

Agriculture: - 17%

Industry: - 29%




WHERE DOES INDIA STAND?

India is positioned as one of th

e major economies worldwide interms of the purchasing power parity (PPP) of the gross domestic

product (GDP) by chief financial units of the world such as the

International Monetary Fund, the CIA and the World Bank.

In terms of agricultural output India is the second largest.

Industries related to the agriculture have also played an important

role in the up gradation of the nation¶s economy by opening up

employment avenues in the forestry, fishing and logging sectors.

For the elevation in the production volume in Indian agriculture

various five year plans should also be given due credit.

Improvements in irrigation methods as well as usage of modern

technologies have also added value to the agriculture processes.

In terms of factory output India ranks 14th in quantity produced by

industrial sector. Gas, mining, electricity and quarrying industries

also play major developmental roles and contribute in a major way

to the GDP.

The components that decide the GDP growth in India can be

divided under three broad categories like:

y Agriculturey Industry

y Services



STANDARD OF LIVING AND GDP

GDP per capita is not a measurement of the standard of living in an

economy. However, it is often used as such an indicator, on the

rationale that all citizens would benefit from their country's

increased economic production. Similarly, GDP per capita is not a

measure of personal income. GDP may increase while real incomes

for the majority decline. For example, in the US from 1990 to 2006

the earnings (adjusted for inflation) of individual workers, in

private industry and services, increased by less than 0.5% per year

while GDP (adjusted for inflation) increased about 3.6% per

year.[21]

The major advantage of GDP per capita as an indicator of standard

of living is that it is measured frequently, widely, and consistently. It

is measured frequently in that most countries provide information

on GDP on a quarterly basis, allowing trends to be seen quickly. It is

measured widely in that some measure of GDP is available for

almost every country in the world, allowing inter-country

comparisons. It is measured consistently in that the technical

definition of GDP is relatively consistent among countries.

The major disadvantage is that it is not a measure of standard of

living. GDP is intended to be a measure of total national economic

activity² a separate concept.

The argument for using GDP as a standard-of-living proxy is not

that it is a good indicator of the absolute level of standard of living,

but that living standards tend to move with per-capita GDP, so that

changes in living standards are readily detected through changes inGDP.



LIMITATIONS OF GDP TO JUDGE T HE HEALT H OF AN

ECONOMY

GDP is widely used by economists to gauge the health of an economy, as its variations arerelatively quickly identified. However, its value as an indicator for the standard of living isconsidered to be limited. Not only that, but if the aim of economic activity is to produceecologically sustainable increases in the overall human standard of living, GDP is a perversemeasurement; it treats loss of ecosystem services as a benefit instead of a cost. Other criticismsof how the GDP is used include:

y W ealth distribution ±GDP does not take disparity in incomes between the rich and poor into account.

y N on-market transactions ±GDP excludes activities that are not provided through themarket, such as household production and volunteer or unpaid services. As a result, GDP

is understated. Unpaid work conducted on Free and Open Source Software (such asLinux) contribute nothing to GDP, but it was estimated that it would have cost more thana billion US dollars for a commercial company to develop. Also, if Free and Open SourceSoftware became identical to its proprietary software counterparts, and the nation producing the propriety software stops buying proprietary software and switches to Freeand Open Source Software, then the GDP of this nation would reduce, however therewould be no reduction in economic production or standard of living. The work of NewZealand economist Marilyn Waring has highlighted that if a concerted attempt to factor in unpaid work were made, then it would in part undo the injustices of unpaid (and insome cases, slave) labour, and also provide the political transparency and accountabilitynecessary for democracy. Shedding some doubt on this claim, however, is the theory that

won economist Douglass North the Nobel Prize in 1993. North argued that the creationand strengthening of the patent system, by encouraging private invention and enterprise, became the fundamental catalyst behind the Industrial Revolution in England.

y U nderground economy ±Official GDP estimates may not take into account theunderground economy, in which transactions contributing to production, such as illegaltrade and tax-avoiding activities, are unreported, causing GDP to be underestimated.

y N on-monetary economy ±GDP omits economies where no money comes into play at

all, resulting in inaccurate or abnormally low GDP figures. For example, in countrieswith major business transactions occurring informally, portions of local economy are noteasily registered. Bartering may be more prominent than the use of money, evenextending to services (I helped you build your house ten years ago, so now you help me).

y GDP also ignores subsistence production.y Quality improvements and inclusion of new products ±By not adjusting for

quality improvements and new products, GDP understates true economic growth. For instance, although computers today are less expensive and more powerful than computersfrom the past, GDP treats them as the same products by only accounting for the monetaryvalue. The introduction of new products is also difficult to measure accurately and is notreflected in GDP despite the fact that it may increase the standard of living. For example,even the richest person from 1900 could not purchase standard products, such as



antibiotics and cell phones that an average consumer can buy today, since such modernconveniences did not exist back then.

y W hat is being produced ±GDP counts work that produces no net change or that

results from repairing harm. For example, rebuilding after a natural disaster or war may produce a considerable amount of economic activity and thus boost GDP. The economic

value of health care is another classic example²it may raise GDP if many people aresick and they are receiving expensive treatment, but it is not a desirable situation.Alternative economic estimates, such as the standard of living or discretionary income per capita try to measure the human utility of economic activity. See uneconomic growth.

y Ex ternalities ±GDP ignores externalities or economic bads such as damage to theenvironment. By counting goods which increase utility but not deducting bads or accounting for the negative effects of higher production, such as more pollution, GDP isoverstating economic welfare. The Genuine Progress Indicator is thus proposed byecological economists and green economists as a substitute for GDP, supposing aconsensus on relevant data to measure " progress". In countries highly dependent onresource extraction or with high ecological footprints the disparities between GDP and

GPI can be very large, indicating ecological overshoot. Some environmental costs, suchas cleaning up oil spills are included in GDP.

y Sustainability of growth ±GDP is not a tool of economic projections, which wouldmake it subjective, it is just a measurement of economic activity. That is why it does notmeasure what is considered the sustainability of growth. A country may achieve atemporarily high GDP by over-exploiting natural resources or by misallocatinginvestment. For example, the large deposits of phosphates gave the people of Nauru oneof the highest per capita incomes on earth, but since 1989 their standard of living hasdeclined sharply as the supply has run out. Oil-rich states can sustain high GDPs withoutindustrializing, but this high level would no longer be sustainable if the oil runs out.Economies experiencing an economic bubble, such as a housing bubble or stock bubble,

or a low private-saving rate tend to appear to grow faster owing to higher consumption,mortgaging their futures for present growth. Economic growth at the expense of environmental degradation can end up costing dearly to clean up.

y One main problem in estimating GDP growth over time is that the purchasing power of money varies in different proportion for different goods, so when the GDP figure isdeflated over time, GDP growth can vary greatly depending on the basket of goods usedand the relative proportions used to deflate the GDP figure. For example, in the past 80years the GDP per capita of the United States if measured by purchasing power of potatoes, did not grow significantly. But if it is measured by the purchasing power of eggs, it grew several times. For this reason, economists comparing multiple countriesusually use a varied basket of goods.

y Cross-border comparisons of GDP can be inaccurate as they do not take into accountlocal differences in the quality of goods, even when adjusted for purchasing power parity.This type of adjustment to an exchange rate is controversial because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries. For instance, people in country A may consume the same number of locally produced applesas in country B, but apples in country A are of a more tasty variety. This difference inmaterial well being will not show up in GDP statistics. This is especially true for goodsthat are not traded globally, such as housing.



y Transfer pricing on cross-border trades between associated companies may distort importand export measures.

As a measure of actual sale prices, GDP does not capture the economic surplus between the price

paid and subjective value received, and can therefore underestimate aggregate utility.



HO W CAN INDIA ACHIEVE 10% GDP GRO W T H?

What must be done? Focus on urban or rural markets, globalize or be inward looking,

build rockets or provide free power, run a national employment scheme or support

entrepreneurs, are some of the conflicting approaches that need to be resolved. Our policies

should reflect a combination of approaches to create wealth across all sections of society.

Some innovative ideas:

S pecial economic zones for education ( S EZE): India sent about 76,000 students to

the US in 2002-03. If each parent remitted an average of R s 15 lak h a year, India¶s

contribution to the US economy was about $2.6 billion. Most students go abroad because

the demand for quality education exceeds supply. Further, seat availability is reduced by

reservations. Conversely, college managements complain they are not allowed to fix fees

that reflect actual costs and are subject to excessive government control.

These centres of excellence would be governed by the Central government and

administered by a regulator. There would be no restrictions on fees/ salary for the faculty

or tie-ups/equity investment by foreign universities. Admission would be on merit only.

These SEZE¶s should be able to not only retain at least 40 per cent of the students in India

but attract foreign students, too. At 2002-03 levels, it implies a fall in remittances of about

$1 billion.

Empowering rural India: The Gujarat government has introduced a unique

scheme called Jyotir Gram Yojna. Due to inadequate power generation and excessive

consumption by the agricultural sector, load shedding was unavoidable. With an

investment of R s 1,300-1,500 crore, the government decided to provide single/three-phase

electricity connections to domestic and cottage industry consumers in all villages with a

population more than 3,000. This way, line one is for agricultural and line two for domestic

use. Homes are assured power for about 20 hours a day and the farmer gets a minimum of

eigh

th

ours. So far, about 14,000 villagesh

ave been covered.

Near-uninterrupted power at home has given an impetus to diamond polishing and cottage

industries. At a cost of between R s 6,000-10,000, villagers have started Ghanti ² a

diamond-polishing unit. Average monthly income is between R s 3,000- R s 4,500. Earlier,

villagers went to cities for work but reverse migration has started now. Home industry

allows homemakers to work in their spare time, which results in empowerment of women.





I ndus economic free trade zone ( I EFTZ): After 1947, the Sindhi community is hurt

because unlike others, they do not have a state to call their own. We also know that the

Sindhi community is successful globally. Is there a way by which India could satisfy their

need for a state and attract capital?

We could start the IEFTZ in Kutch. Why Kutch? Three reasons. One, Indus area and the

Kutch are geographically close to each other. Two, there is similarity between Sindhi and

Kutchi languages. Three, Kutch needs lots of investment, which NR I Sindhis can provide.

There was once a proposal to create a state of Sindh in Kutch.

Carving out a separate state of Gujarat is a non-starter. Instead, IEFTZ could have a

clearly demarcated area. Broad contours of the scheme are: All Indians could invest here

but preference would be given to the Sindhi community. They would be allowed special

facilities for preservation of Sindhi culture. The IEFTZ could be a joint venture between

the government and the Sindhi community. If the average Sindhi believes there is money to

be made coupled with making a contribution to preservation of Sindhi culture, I am sure

the IEFTZ idea would fly. India needs many more ideas to achieve its potential.



INDIA'S GROWTH CH ALLENGES(CONCLUDING) Indeed, despite India's strong first-half showing, a high budget deficit and rising inflation

pose a considerable threat the country's economic growth.

While the central-government-budget deficit appears tolerable at 8% of GDP, provincial

governments also run budget deficits - in amounts equal to an additional 4%-5% of GDP.

That gives India a consolidated budget deficit of 12%-13% of GDP, meaning its fiscal

position is on par with that of Greece, Britain and Ireland.

However, India's saving grace may be the fact that its public debt level is relatively low at

around 60% of GDP. A large portion of that is domestically held, as well, primarily in the

banking system, which is largely state controlled.

Indian Prime Minister Manmohan Singh says a medium term plan to halve the fiscal

deficit by 2013-14 is in the works and that growth isn't expected to suffer as a result.

"We are giving a strong push to investment in infrastructure, relying on private public

partnership as much as possible to reduce the burden on scarce public resources," said

Singh. "We expect to grow by 8.5% in 2010-11 and we hope to go back to 9% in 2011-12.

This is an ambitious goal and we recognize that we have much to do to achieve it."

India's infrastructure sector has doubled over the last five years, from 4% of GDP to 8%,

according to th

e country's Planning Commission.Th

e government currently is offeringinvestment opportunities in the infrastructure sector that are worth more than $850 billion,

according to Muk herjee.

As a result, India's six core infrastructure industries - crude oil production, petroleum

refinery production, coal production, cement production, finished steel production, and

electricity generation - grew by 5% in May after growing by 5.4% in April.

Long-term, India is looking to invest $1 trillion in infrastructure over the next seven years.

However, the plan for controlling inflation is less clear.

India's wholesale price index, the primary inflation gauge for the country, rose 10.2% in

May alone. Food prices in particular have seen a spike. They were up 0.7% in the week

ended June 12 from the previous seven days, and 16.9% from a year earlier.

The government also has deregulated gasoline prices and raised the cost of diesel and



cooking fuel, which could push June headline inflation above 11%.

The country's current-account deficit, which widened to a record $13 billion in the first

quarter, couldweaken the rupee further. The currency already is the worst performer in

Asia this quarter after the Korean won.

The R eserve Bank of India (R BI) started raising interest rates in March to combat the

decline, and some analysts had speculated that the central bank would announce another

increase before its next scheduled meeting on July 27. However, a liquidity crunch in the

country's banking sector has made that unlikely.

´INDIA CAN ACHIEVE UPTO 9% GDP GROWTH RATE,BUT

STILL IF THERE WILL BE MORE IMPROVEMENT IN

HEALTH OF

INDIA(INFRASTRUCTURE,EMPLOYMENT,CORRUPTION,EC

ONOMIC STABILITY ETC),THEN THERE WILL BE A

LITTLE CHANCE TO GET 10%GROWTH RATE.µ



BIBLIOGRAPH Y

REFERENCE FROM:

1. GOOGLE SITE

2. ECONOMIC TIMES

3. BUSSINESS MAGAZINES







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