A B S u s t a i n a b l e a r t h ®N e w D e l h i , I n d i a

F o r m o r e i n f o r m a t i o n a b o u tu s ; p l e a s e v i s i tw w w . a b s u s t a i n a b l e a r t h . i n o rc o n t a c ta b s u s t a i n a b l e a r t h @ g m a i l . c o m /b h a v e s h j h a 0 8 @ g m a i l . c o m

C o p y r i g h t r e s e r v e d 2 0 1 2 ®Bhavesh Jha

The Economy of India

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

The Indian Economy: An overview

The Indian economy having a GDP of around $752 billion is the world’s 10th largest economy in GrossDomestic Products terms. The economy of India is slowly integrating with the global economies andmaking a presence in the global market. The economic liberalisation started in 1991 proved to be asuccess in order to maintain the diversity of economic investments in different sectors. The stagnanteconomic growth and international market repute has boosted the economy in al fronts. With thepopulation of around 1.25 bn India is the second largest economy in the world after China in terms ofpopulation. The income diversity, poverty, illiteracy and unemployment have been some of the maincauses behind its slow pace of growth. Government of India will have to work hard on different fronts foran efficient and powerful economic infrastructure to reduce poverty, accelerate the fiscal deficit andupgrade the physical infrastructure in the economy. The GDP growth has been around 6.5% in 2011-2012, which shows a slight downfall as per the GDP growth rate of 7.5% in 2006-2007.

There are mainly three sectors in India namely primary, secondary and tertiary sectors which can also beelaborated as agriculture sector, manufacturing sector and services sector respectively. Most of thepopulation is dependent upon the agricultural sector and the economic contribution which is around 19%from this sector has been dismal. Due to the lack of political goodwill, lack of awareness, informationscarcity, inefficient technology, lack of infrastructure etc. this sector is not producing at par although it hasaround 60% of Indian population totally depend on it. Most of our rural population is still dependent onagriculture or related activities. As far as secondary or manufacturing sector is concerned which is themost important sector and said to be the backbone of Indian economy, accounts for 24% contribution toIndian GDP. Around 22% of Indian population is involved in the manufacturing industry. According to astudy by Crisil,” India’s National Manufacturing Policy: Achievable Goals?”, employment generation inIndia has become a prominent issue and if manufacturing growth is raised from 8% p.a. last decade to11% p.a. this decade (2012-13 to 2021-22) that would create a huge employment opportunities of around19 million jobs. There is a need of additional infrastructure and skill development in the masses on a verylarge scale. Also Government should focus on enhancing the awareness about different skill and

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

employment programmes at a local level. Although India has made a progress in various science andtechnology spheres over the last few decades, an innovative knowledge base, efficient and productivemanpower and awareness about the different government programmes on manufacturing sectors are tobe taken care of. Services sector has become a very significant contributor of Indian economy in the lastyears. It is the most efficient sector as far as its contribution in the economy is concerned. Services sectoraccounts for around 57% contribution in the economy and it employs minimum population. Around 18%of Indian population is dependent on the services related activities. Services sector has become the fastedgrowing sectors in the world economy in the last decades and hence Indian services sector has also grownat a very rapid rate and makes an important presence in the global market. The crucial sectors underservices are education and health sector which has been the challenging as well as the largest sub-sectorsin the economy. Government is also looking at public health facilities especially in rural India and planningto build an efficient infrastructure for public health. Foreign Direct Investment FDI in education sector isalso under consideration. The government is planning to facilitate the foreign investors to invest in thehuge education market.

There is a huge mismatch of population/ efficient workforce/ natural resources etc. and these are makingthe economy more diversified in terms of income generation, efficient labour force or employmentgeneration facilities. Different states have been doing really well as far as GDP contribution, BusinessCompetitiveness Index, Education facility, physical infrastructure, Administration etc. are concerned. Butthere are many states that will have to work on the different aspects of development activities.

States’GDP contribution in Indian Economy

The contributions in the national GDP, some of the states have played a very significant role and havesupported the national GDP to boost. The chart describes the contribution of State Gross DomesticProducts (SGDP) at factor cost in Indian Gross Domestic Product GDP basically shows the performance in2010. Clearly, Maharashtra, Uttar Pradesh, Andhra Pradesh, West Bengal, Tamilnadu and Gujarat are top6 contributors accounting for more than 50% of country's GDP with contributions of 14.95 %, 9.18%,

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

8.25%, 7.47%, 7.32% and 7.28% respectively of total GDP of India.

1.1. Rank wise contribution of different states in Indian Economy

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

It can be observed that the majorly north-eastern states have a very less contribution in the economy andthere are about 16 states out of total states which contribute less then 10% of country's GDP.

Almost all the leading states, economies are dependent upon the service sector and manufacturing sectorswhich provides a backbone for states to sustain for a longer period of time.

Maharashtra accounts for a SGDP of Rs/- 480334.74 Cr.The shift from primary to secondary to tertiaryhas been taken place at a faster rate in Maharashtra when compared with the national level. Comparingwith UP the second leading contributor which accounts for Rs/- 294836.02 Cr. only is about half of theMaharashtra’s Contribution. Communication, transport and public administration have accounted for largepart of service growth in Maharashtra. Large international banks, leading financial services companies andinternational courier companies, car hire companies, advertising agencies and engineering companieshave all established themselves in Mumbai. Several law firms, consultancy firms, clearing and forwardingagents, broking firms, merchant bankers, commercial banks and hotels provide the essential supportservices. Maharashtra has the largest share of the total foreign direct investment and foreigncollaborations approved by the Government of India so far. These include Coca Cola, Enron, MercedesBenz, Siemens, Procter & Gamble and Unilever, to name a few.

Educated yet unemployed!

There is a huge disorder if we consider the unemployment and the education scenario in India. Indianeducation sector can be classified as primary, secondary and tertiary education on the basis of thequalifications (degree obtained). The unemployment condition in the economy is becoming a hugechallenge for the economy. An economy which would like to be a superpower till 2020, should not neglectthis prominent issue of educated unemployment.

According it International Labour Organisation, unemployment occurs when people are without jobs andare actively searching for jobs for the last 4 weeks. A developing country like India where around 10% isthe unemployment rate, more then half of its population is below poverty line (BPL) as per ADB BPL of 2$a day; employability has been a cause of concern for government. Proper and efficient technical education

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

and the opportunities thereafter are lacking. Except IITs, IIMs and some top technology and managementinstitutions; the quality of education has been not very satisfactory. Despite producing qualityprofessionals, Institutions put their focus on pomp and show. Industry- academia linkages is lacking anddue to what the graduates are not able to find a satisfactory job after the completion of such professionalcourses like B. Tech, B.E, MBA etc. There is a huge mismatch with the industrial standards of hiring aprofessional and the raw graduates prepared by these institutions. The practical knowhow and attitude oftoday’s graduates are a cause of concern for the industry as well as the economy. According to a study,Engineers in India does not match with the international standards and their productivity is only one thirdof an engineer from USA or UK.

The unemployment scenario after getting the higher education can be discussed as under. The chart looksupon the Indian unemployment and education (primary, secondary and tertiary) scenario till 2005. As perthe chart, % unemployment with primary education in the total unemployed people has dropped over theperiod i.e. 44.7% in 1987 to 29% in 2005. Unemployment with secondary education out of the totalunemployed people has been 32.22% and 37.7% for 1987 and 2005, which shows an increase inunemployment over the period. Unemployment with tertiary education out of the unemployed people hasalso increased i.e. from 23.1% in 1987 to 33.3%.

1.2. Unemployment Vs. Types of Eduction

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

Thus it can be clearly observed that higher the degree higher has become the unemployment rate. This isan alarming fact for the government to focus upon the productivity of our education system. This alsoleads towards employability of the educated people in the country specifically the tertiary educationholders which has been around 1/3rdthe total unemployed population and is increasing.

Unemployment and thus poverty is pushing our highly qualified graduates’ steps back and they feel veryfrustrated and unable to perform and sometimes they are involved in different bad and criminal activities.He is begging here and there to get some jobs. He queues in long line where for one post, there are morethan hundred people. The tremendous pressure from family and society makes them to earn at any cost.Sometimes, some of these strugglers defeat with the situation and the surroundings and he/she takes theextreme step i.e. suicide. If he is able to find a job still he is not paid as per his qualification. He isexploited maximum and the job pressure takes away all his happiness, personal and social space. As perthe international labour law; around 35 hours a week on an average is the criteria of working hours; but inIndia people work 50 hours a week usually. This is the height of the unethical and unsustainable practicesin the Indian job market. Those money could have been spent in some other ventures like in setting upown ventures, enterprises etc.

The societal environment needs to be more practical and entrepreneurial. Instead of finding a job anEngineer or an MBA can use his/her expertise to open up his venture, which not only provides him/her

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

mental satisfaction but also the reward in terms of better economic gains. They would be able to generatemore economic contribution to the society and also the jobs, which will enhance the inclusive growth anddevelopment of society at large. We are not able to make a bankable and feasible business plans aftergetting these higher studies. Then what is the utilization of the studies they have done. Instead ofproducing job seekers, governments, institutions should take up a stand towards making graduates jobmakers. Through the use of business incubators at institutions, they can also enhance their saleability inthe market.

Instead one should think and find one’s real instinct, strengths and interests which can be nurtured into anidea. This idea can be transformed into an enterprise. The enterprise can provide not only self economicsustainability for an individual who starts it but also it generates employment for others as well.

Academic institutions should pay more attention towards the industry demands. Through propercommunication and interactions with the industry they should not only design the course but also theyshould increase more practical on job trainings in curriculum in terms of internships. Generally for an MBAinternship is of 4 months on an average. This should be increased to 10-12 months so that a graduatelearn the different dimensions and complexities of businesses and be more capable of handling thesituations in the management process. Time has gone when only the lectures, attending classes andattaining qualifications were more than enough for a graduate to satisfy the role profile of any company.Graduates need to be more practical, efficient and productive in the complex business environment thesedays.

Literacy Rate vs. Per Capita Income

A literate and qualified person is supposed to be more effective and efficient worker. Literate populationcan enhance the prosperity in the society and find better jobs and hence help in raising the income level inthe country. Usually an educated, qualified labour force is more productive than an illiterate and unskilledlabour force. According to Census 2011, a person aged seven years and above who can both read andwrite in any language, is treated as ‘literate’.

The graph exhibits literacy rates and per capita income generation of Indian states. The graph shows thatliteracy does not always matter for a high income generating individual. There are various internal and

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

external factors which affect this correlation of a literate and a more income generating individual. Incomeinequality with respect to the literacy rate shows the dynamics of Indian regional income biasness. Kerala,Mizoram, Tripura, Goa and Delhi are the top 5 literate states while Delhi, Haryana, Goa, Maharashtra andGujarat are top 5 states as far as income generation per capita is concerned.

Note: Short forms are as: AN- Andhra Pradesh, AP- Arunachal Pradesh, AS- Assam, BR- Bihar, CH- Chhattisgarh, DL- Delhi, GO- Goa, GJ- Gujarat, HR-Hariana, HP- Himachal Pradesh,JK- Jammu & Kashmir, JH-Jharkhand, KR-Karnataka, KL- Kerala, MP- Madhya Pradesh, MH- Maharashtra, MN-Manipur, MG-Meghalaya, MZ- Mizoram, NG- Nagaland, OR- Orissa, PN- Punjab, RJ- Rajasthan, SKM- Sikkim, TMN- Tamilnadu, TPR- Tripura, UP- Uttar Pradesh, UTK-Uttarakhand, WB- West Bengal.

1.3. Literacy Rate vs. Per Capita Income

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

North India shows a diverse profile of states in income per capita and literacy rate. Delhi being the first inper capita income generation and Bihar in the other hand has lowest per capita income. Also Delhi is fifthin literacy rate and Bihar has least literacy rate. North eastern states (like Mizoram, Tripura, SikkimNagaland, Manipur, Meghalaya, Assam) with Orissa despite having a very good literacy rate and it is 80%on an average still not able to increase their per capita income which is on average 35000 Rs/- incomparison to other relative states. West Bengal also has a literacy rate of around 77% is not able togenerate per capita income in comparison to the leading states like it. Bihar is having the least per capitaincome and literacy rate as well.

Haryana is far behind as per the graph in literacy rate ranking which shows that literacy doesn’t totallydependent upon the income per capita.

Southern Indian states are performing moderately which shows that their literacy rate on an average is81% and they are able to generate 71000 Rs/- per capita income on an average. Despite of being toprankers in literacy rate Kerala and Mizoram are not able to make it in top 5 as far as per capita income isconcerned.

West India’s performance is also very good with its literacy rate and per capita income.

However as per the trend line it can be emphasised that the increase in per capita income has a positivecorrelation with literacy rate. Taking the literacy scenario all over India it is evident that some of thestates justifies the hypothesis of literate and with a income generating capability but in some of the statesshows a very negligence impact of literacy on the income generation.

Micro, Small and Medium Enterprises MSMEs and Employment Generation

MSMEs sector is known to be the backbone of any economy and especially in the case of a developingeconomy it is of immense importance. According to the Ministry of Micro and Small Industry,Government of India, MSMEs have been classified in two classes i.e. Manufacturing Enterprise andServices Enterprise. viz. Manufacturing sector and Services Sector. The Manufacturing Enterprise

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

is defined in terms of investment in Plant & Machinery. The enterprises engaged in providing or renderingof services and are defined in terms of investment in equipment are called Service Enterprises.

The definition of Micro, Small and Medium Enterprises can be looked as under

Manufacturing Sector

Description INR USD($)

Micro Enterprises Up to Rs. 25Lakhs Up to $ 62,500

Small Enterprises Above Rs. 25 Lakhs & up to Rs. 5Crores

Above $ 62,500 & up to $ 1.25million

Medium Enterprises Above Rs. 5 Crores & up to Rs.10 Crores

Above $ 1.25 million & up to $2.5 million

Services Sector

Description INR USD ($)

Micro Enterprises Up to Rs. 10Lakhs Up to $ 25,000

Small Enterprises Above Rs. 10 Lakhs & up to Rs. 2Crores

Above $ 25,000 & up to $ 0.5million

Medium Enterprises Above Rs. 2 Crores & up to Rs. 5Crores

Above $ 0.5 million & up to $ 1.5million

1.4. Definition of MSME (Ministry of Small and Medium Enterprises, Government of India)

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

In India, MSMEs account for a 45% contribution in industrial output, 40% of exports. This sector createsaround 1.3 million jobs every year and produce more than 8000 quality products for the Indian andinternational markets. Micro and small enterprises play a very significant role in ensuring the economicgrowth and activities at very local level, which makes the economy employment-friendly and alsocontributing to greater regional balance in levels of inclusive development.

The chart below shows no. for MSMEs and employment generation in India for the last 10 years.According to the chart, it is illustrated that over the period of time the increase in no. of MSMEs andemployment have grown at the rate of 29% and 31% respectively. However the growth in theemployment has not been feasible enough. The average increase (%) for the period has been more or lesssame around 4% for both i.e. employment increase and MSMEs increase. The employment increase fromthe previous year has been maximum in 2005-06 and is around 6%.

1.5. MSMEs and Employment Generation

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

The government’s initiatives, simpler legal procedures, promotion of public private partnerships andstakeholders’ co-operations will certainly bring productivity and generate jobs. A number of problemsmust be addressed like absence of adequate and timely finance, knowledge and information about thedifferent government policies, lack of technology, low production capacity, ineffective marketing strategy,constraints on modernisation & expansions, non availability of highly skilled labour at affordable cost etc.Government should take different initiatives to promote small and medium enterprises. Different policymeasures and awareness programmes with financing opportunities governments can elevate the financialand physical health of MSMEs sector. Since MSMEs have the power to consume all the labour forceprovided their capacities are maintained and they are able to expand. Government must promote theMSMEs sectors and enhance the economic prosperity of the huge human resources in the economy. Thereis an inter-linkage among them which can be shown as: promotion of MSMEs-employmentgeneration-economic freedom-poverty eradication-literacy-standard of living improved.

Labour Participation in India

According to World Bank, “Labour force participation rate is the proportion of the population ages 15 andolder, which is economically active and all the people who supply labour for the production of goods andservices during a specified period”. Labour force participation in India has also been a cause behind a lowper capita income generation. The labour participation rate has a direct and positive consequence in thedevelopment of the economy. Labour force consists of Men and Women labour force. Traditionally, it hasbeen observed that women should not work and thus gradually women are considered to be inferior totheir men counterparts when it comes to work.

The Indian workforce participation rate has decreased tremendously especially after the industrial reformand post 1995 when it was around 60%. As India with the economic dynamics, geography, culture andworkforce is very similar to China, it would be interesting to see the human workforce participation inthese two Asian giants. Both India and China have emerged as two largest markets in the world with aview to improving efficiency and enhancing stability of their different sectors. The chart presents differentfacts about labour participations in both the economies. Interestingly, Indian labour participation rate hasbeen healthier in comparison to Chinese till 1995 which was approximately similar at 60% at that time.

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

Further, the trend line shows a budding wide gap of Chinese and Indian labour participation specificallyafter 1993-1994.

1.6. Indian and Chinese Workforce participation

The labour force participation for 1980 show 61% and 56% for India and China respectively which hasbeen 57% and 70 % for Indian and China in 2010. China has grown on an average of 0.46% on anaverage over the period while India shows a negative average growth of around 0.06% over the takenperiod, an alarming bell for the Government.

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

China has increased its labour participation in the economy. Specifically the female work forceparticipation has increased tremendously in China. The women workforce participation in India has been ameagre 33% whereas same for China is 69% almost double, which certainly gives an increasing edge tothe total participation rate. This also shows better productivity of the Chinese workforce and contributionto the GDP of China.

The government of India should take measures and start encouraging women work force to participatemore since figures show a decreasing trend in the labour participation. Facilitation of technical educationfor girls and support will certainly enhance their economic position. The participation would help ingrowing inclusively and will lead India to be in the league of super economies.

As the expansion of services sectors in Indian and Chinese economy, the manual (physical) labourdemand has been decreased over the years as the expansion in services sector jobs; both the sexes havean equal footing in the contribution to the economies these days.

Studies shows that educated women bring better educated and healthier children and thus carry socialand economic productiveness in the economy. Women economic empowerment not only increases the percapita economic contribution in the society but their saving attitude and best of the utilisation techniquesmake them a better investor. Economically empowered women are more likely to spend money onimproving health, education, infrastructure and poverty. A relative higher rank in Human DevelopmentIndex factors like health, education, per capita income etc can also be shown as a proof of a better andeconomically empowered women status in Chinese economy.

The chart shows Indian and Chinese women participation rates over the period which exhibits few pointslike; The participation of women has been more than double in China (around 70%) comparing to India(around 33%) over the period. It shows the rapid growth and boost in economic activities.

The chart shows an increase trend in women participation in both the countries. In India, it increased till1996 and the highest participation has been 34% whereas In China, it improved till 1992 and the highestwas around 73 %. According to the figures and trend line, it is clear that Indian women workforce hasconsistently participated despite a dip in2001-2002, whereas Chinese women participation in labour hasstarted decreasing specifically in the period 1995-2009 for China.

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

1.7. Women workforce participation in India and China

There can be mainly two reasons for a lower participation rate of women workforce in India and a lowerwage rate in comparison to their men counterparts. They are first the discrimination and second by choiceof lower paying jobs like clerical. The gender discrimination occurs even before women become a labourforce. It happens at birth when sex-selection technology is employed to ensure fewer female births. Thegender in equality, safety, lack of family support, infrastructure etc. is still creating a problem in thismodern era of 21st century. The successful and optimum utilization of the economy’s workforce is verysignificant and the workforce includes both males and females. Gender balance in the workplace hasbecome a necessity for a better growth and economic equality and workplace diversity. Different initiativesneed to be taken at a personnel and organisational front.

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

Indian Economic growth

India has had rapid economic growth after opening up its economy in 1991. According to United Nations UNreport, India with a higher savings and investment rates in the economy is projected to get a bettereconomic growth in coming years, even as most of the Asia-Pacific economies are likely to expand at aslower pace.

The chart exhibits the economic growth rates for different economies in the last five year period. HereEuro zone (17 of the European Union member states together have formed Euro zone and acceptedcurrency as “euro” only), U.S.A. U.K and BRICs (Brazil, Russia, India and China) have been taken to showthe status of growths for leading developed and developing economic

1.8. Economic growth comparisons

The information, images, and/or data contained in the study are copyrighted by the owner and may not be distributed, modified, reproduced in whole or inpart without prior permission.

The growth rates show that developing nations are growing at a faster rate in comparison of thedeveloped nations. E.g. China, India Brazil and Russia have maintained a steady but constant growth(AVG.) of 10%, 8%, 6% and 6% respectively. Specifically the major developing economies like China andIndia have performed well and have been representing the huge Asian market. In the period 2008-2009,the recession affected very badly to about all the economies. Still the stability and strong market in Indiaand China have shown a comeback beyond expectation. As per the chart also, it is clear that all theeconomies had a negative growth rate except these two; like -0.2%, -6.6%, -2.4%, -4.9%, -4.1% forBrazil, Russia, U.S.A., U.K. and Eurozone respectively.

An estimate of World Bank says that an additional 64 million people are living in extreme poverty on lessthan US$1.25 a day by the end of 2010 as a result of the global recession. Low export dependency, alarge consumption base and the high share of employment and income come from rural areas.Government’s focus and initiatives at local level will help in sustaining the economic growth at large. Indiais among the most attractive destinations globally, for investments and business and FDI had increasedover the last few years. With the inclusive work force participation, development of infrastructuralfacilities, encouraging small and medium enterprise MSMEs sector, government can fill the gap of incomedisparity in different regions. Better policy measures and awareness programmes regarding many of thegovernment initiatives for the betterment of society can do wonders for an inclusive society and nation.Better employment prospects, better technical education and programmes on poverty eradication andpublic health must be priory concerned. An action oriented approach in a very aggressive manner wouldbe needed to facilitate a better livelihood and better market conditions for the society.