INDIA’S DEVELOPMENT PROSPECTS

PRESENTED BY-SHASHI PRATAP SINGH

STATE OF THE ECONOMY

The Economy of India  is the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity.

Currently, India grew at 7.5 per cent in the October-December quarter, overtaking China’s 7.3 per cent to become the fastest growing major economy in the world.

Agriculture sector is the largest employer in India's economy but contributes a declining share of its GDP (13.7% in 2012-13).

Its manufacturing industry has held a constant share of its economic contribution (21.5% in 2103)

The fastest-growing part of the economy has been its services sector- accounting for 64.8% of India’s GDP (as in 2013).

India was the 19th-largest merchandise and the 6th largest services exporter in the world in 2013.

India's current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter.

The unemployment rate for 2012–13, according to Government of India's Labour Bureau, was 4.7% .

India with 18% of total world's population, had 20.6% share of world's poorest in 2011.

AGRICULTURE SECTOR

Despite the focus on industrialization, agriculture remains a dominant sector of the Indian economy both in terms of contribution to gross domestic product (GDP) as well as a source of employment to millions across the country.

Agriculture plays a vital role in the Indian economy. Over 70 per cent of the rural households depend on agriculture as their principal means of livelihood.

Agriculture, along with fisheries and forestry, accounts for one-third of the nation's GDP and is its single largest contributor.

The total share of Agriculture & Allied Sectors (Including agriculture, livestock, forestry and fishery sub sectors) in terms of percentage of GDP is 13.9 percent during 2013-14 at 2004-05 prices.

Agricultural exports constitute a fifth of the total exports of the country. The country is also the largest producer, consumer and exporter of

spices and spice products in the world and overall in farm and agriculture outputs, it is ranked second.

OVERVIEW

Agriculture and allied sectors like forestry, logging and fishing accounted for 17% of the GDP and employed 51% of the total workforce in 2012.

India ranks second worldwide in farm output. India accounts for 10% of the world fruit production

It also has the world's largest cattle population (193 million). It is the second largest producer of wheat, rice, sugar, groundnut and inland fish.

Agriculture's contribution to GDP has steadily declined from 1951 to 2011, yet it is still the largest employment source.

Crop yield per unit area of all crops have grown since 1950,due to the - special emphasis placed on agriculture in the five-year plans, steady improvements in irrigation, technology, application of modern agricultural practices, provision of agricultural credit and subsidies since the Green Revolution in India.

AGRICULTURE

Share of Agriculture in GDP Growth Rate In Agriculture

Inadequate infrastructure and services. Lack of Rural Agricultural Market Small Land- Holdings Population Pressure Slow and Uneven Growth Problems relating to Finance Problems relating to Irrigation Lack of Mechanization

MAIN PROBLEMS IN THE AGRICULTURAL SECTOR

A ROADMAP TO AGRICULTURE

Need national common market for farm goods. Agricultural strategy must focus on raising yield,

productivity Technology must focus on land productivity and water

use efficiency. Favour constitutional clause for common farm goods

market Financial support to extend irrigation and soil health for

enhancing agricultural productivity. Raising the agricultural credit. Creation of a unified national agricultural market to

fetch a fair price for the farm produce.

INDUSTRIAL SECTOR

Industries are the mainstay of the Indian economy. They help to promote regional development, eradicate poverty as well as uplift the

standard of living of the people. India's vast domestic market, skilled and technical manpower as well as low production

and R&D costs have been making India a manufacturing hub. It has made considerable achievement in terms of output and employment. The Government of India has been undertaking several policy measures and incentives,

from time and time, in order to promote rapid industrialization in the country. The major step in this direction has been the announcement of Industrial Policy

Resolution, initially passed in 1948 and then in 1956 and thereafter in 1991. Such industrial policies have been designed to accelerate the development process in the

Indian industry. Their broad objectives are to:- Maintain a sustained growth in productivity Enhance gainful employment Achieve optimal utilization of human resources Attain international competitiveness and to transform India into a major partner and

player in the global arena. They focus on deregulating Indian industry as well as allowing it flexibility in responding to

market forces.

OVERVIEW

Industry accounts for 26% of GDP and employs 22% of the total workforce.

According to the World Bank, India's industrial manufacturing GDP output in 2012 was 10th largest in the world on current US dollar basis.

The Indian industrial sector underwent significant changes as a result of the economic liberalization in India economic reforms of 1991, which

removed import restrictions, brought in foreign competition, led to the privatization of certain government owned public sector industries, liberalized the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods.

INDUSTRY

SHARE OF INDUSTRY IN GDP

Uneven Growth Unbalanced Industrial Structure Regional Concentration Poor Performance of Public Sector Industries Lack of Infrastructure Lack of Capital Inadequate Generation of Employment Opportunities Under-Utilization of Capacity

MAIN PROBLEMS IN THE INDUSTRIAL SECTOR

Improving the business regulatory framework Human asset development Improving technology and value addition in manufacturing Developing effective clusters for growth of SMEs (small and medium

enterprises) Emphasis should be given to creation of appropriate skill sets among

the rural migrant and urban poor to make growth inclusive. Enhance global competitiveness of Indian manufacturing through

appropriate policy support. Ensure sustainability of growth, particularly with regard to the

environment. Tune-up FDI and trade policies to attract quality investment in critical

areas. Improve business regulatory framework: ‘cost of doing business’,

transparency, incentives for R&D, innovation etc. Better consultation and co-ordination in industrial policy making.

A ROADMAP TO INDUSTRY

SERVICE SECTOR

The service industry forms a backbone of social and economic development of a region.

Its growth rate has been higher than that of agriculture and manufacturing sectors.

It covers a wide range of activities, such as trading, transportation and communication, financial, real estate and business services, as well as community, social and personal services.

It is a large and most dynamic part of the Indian economy both in terms of employment potential and contribution to national income.

The most important services in the Indian economy has been health and education. They are one of the largest and most challenging sectors and hold a key to the country's overall progress.

A strong and well-defined health care sector helps to build a healthy and productive workforce as well as stabilize population.

Education is the most crucial investment and an essential element in human resource development. It strongly influences improvement in health, hygiene and demographic profile.

OVERVIEW

India's services sector has the largest share in the GDP, accounting for 57% in 2012, up from 15% in 1950.

 It is the 12th largest in the world by nominal GDP, and fourth largest when purchasing power is taken into account.

The services sector provides employment to 27% of the work force. In India, services sector, as a whole, contributed as much as 68.6 per

cent of the overall average growth in gross domestic product (GDP) between the years 2002-03 and 2006-07.

The share of the Indian IT industry in 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 technology outsourcing companies in the world.

Information technology and business process outsourcing are among the fastest-growing sectors, and contributing to 25% of the country's total exports in 2007–08.

INDIA’S SERVICE SECTOR

Share Of Service Sector In GDP

Growth Rate In Service Sector

GROWTH DRIVERS

INVESTMENT IN PHYSICAL

INFRASTRUCTUREINVESTMENT IN SOCIAL

INFRASTRUCTURE

IMPROVING GOVERNANCE

ENCOURAGING INNOVATION

OPPORTUNITIES AND RISKS

DEVELOPING MANUFACTURING

SECTOR

INVESTMENT IN PHYSICAL INFRASTRUCTURE

Sustained increase in infrastructure is expected to be one of the crucial factors for sustaining strong growth during the current decade.

Significant investment in physical infrastructure will also lead to employment generation, increased production efficiency, reduction in cost of doing business and improved standard of living.

Physical infrastructure facilitates the easy and wider diffusion of information and technology, enlarges markets and promotes more innovations.

Physical infrastructure affects the location decisions of the investors and firms. This helps more industrialization and provision of more employment opportunities and thus high GDP.

INVESTMENT IN SOCIAL INFRASTRUCTURE

Improvement in social infrastructure will help the country to move toward inclusive growth.

Social infrastructure mainly encompasses the health and education system.

Improvement in health and sanitation facilities can be achieved through improvement in access to and utilization of health, family welfare and nutrition services .

Investment in human capital through education, training, health and medical facilities is an investment that yields additional output and brings an economic return that is difficult to calculate but decisively significant.

Education and skills improve productivity that in turn leads to higher income and improvements in livelihoods. The benefits of good education are not confined to individual economic prosperity, it is vital for a country’s economic performance.

OPPORTUNITIES AND RISKS

Sectors like infrastructure and transportation are essential for the progress of the economy.

Finding additional opportunities within these areas to increase competitive edge would be crucial for determining growth in the short-and long-run.

The reliance on technology for increasing productivity and efficiency will also be essential in determining the future of different sectors of the economy and the Indian economy as whole.

Thus, even though the current outlook of India economy is positive, if the underlying structural issues are not addressed, it could be detrimental to aspirations of the people of India.

ENCOURAGING INNOVATION

The intellectual capital of the workforce and youth in the country plays a significant role in the sustainable growth of its economy.

The new IP Policy could be a step in the right direction to encourage greater investor confidence and capital inflows.

India still stands lower than other nations in terms of efforts and investments made towards developing research and innovation in the country.

For instance, the number of patents filed by the country is barely noticeable in comparison to advanced countries such as US and Japan.

Innovation will enable both the creation of next-gen entrepreneurs and reaching the ideal production efficiency in different sectors.

Ineffective measures to encourage the same would lead to stagnant and unsustainable growth in the economy.

IMPROVING GOVERNANCE

There have been numerous campaigns and policies that have been initiated to drive the success of Indian economy and increase prosperity. While the efforts are welcome, it would be futile if these are not accompanied by suitable changes in the bureaucracy and the way in which the society functions.

India's extremely low rankings on the Global Corruption Perception Index is highly disconcerting and continues to have a detrimental domino effect on the country's growth and competitiveness.

Stronger efforts need to be made to eradicate this social illness from the country.

The removal of archaic laws is also seen as a positive development for the economy and society.

DEVELOPING THE MANUFACTURING SECTOR

Service sector continues to spearhead financial growth in the country relative to the other sectors, and agricultural sector continues to provide high employment. The looming red flag is still the manufacturing sector, and it's underperformance since long.

Manufacturing has a crucial role to play in driving incremental growth. It is a source of job creation and it will also act as a catalyst to improve the ease of doing business in India and will attract more investors.

While campaigns such as 'Make in India' have been set in place to improve its contribution, it is also necessary to strengthen the existing manufacturing organizations and make them competitive.

It can be done by utilizing technology, unlocking the creative energies of their employees, investing in research & development, etc.

Within the manufacturing domain, it would also be helpful if all the stakeholders identify the specific sectors to focus on.

Rate of corporate tax to be reduced to 25% over next four years. Tax-free bonds for projects in rail road and irrigation PPP model for infrastructure development to be revitalized and govt. to bear majority of

the risk. Target of 8.5 lakh crore of agricultural credit during the year 2015-16. A national skill mission to consolidate skill initiatives spread across several ministries to

be launched. Measures to curb black money. Benami Transactions (Prohibition) Bill to be introduced

in the Parliament. Job creation through revival of growth and investment and promotion of domestic manufacturing – “Make in India”. Improve ease of doing business - Minimum Government and maximum governance Self-Employed Talent Utilization (SETU) will encourage young innovative entrepreneurs

in the technology start-up sector. 

GOVERNMENT INITIATIVES

The Reserve Bank of India forecast the economy to grow at 5.5 per cent in 2014-15 and at 6.3 per cent in next financial year 2015-16.

According to Indian Finance Ministry the annual growth rate of the Indian economy is projected to have increased to 7.4% in 2014-15 as compared with 6.9% in the fiscal year 2013-14.

Growth in India is expected to rise to 5.6 per cent in 2014 and pick up further to 6.4 per cent in 2015 as both exports and investment increase," the International Monetary Fund said in its latest World Economic Outlook (WEO) report.

The Asian Development Bank (ADB) projected India’s economy to grow by 7.8 per cent in 2015-16. This is lower than the official estimate of 8.1-8.5 per cent, but higher than China’s estimated growth of 7.2 per cent in 2015.

India could become the world's seventh biggest nation in terms of private wealth, with a 150 per cent increase in total, from US$ 2 trillion in 2013 to US$ 5 trillion in 2018, as per a recent study by the Boston Consulting Group (BCG).

INDIA’S FUTURE GROWTH PROSPECTS