Overview

India can be classified as a developing country. It has grown steadily over the last decade or so
to become the 18Th largest economy in the world (as in Total GDP). It has a population over a
billion, with more than 30% of its people living under the poverty line. Over the years it has
become one of the fastest growing economies in the world.
Promotion of economic growth and development
The Indian government is highly focused on bringing changes to the economy and promotes high
economic growth. Realizing the potential of the world market and foreign investors the
government has set up numerous policies which promote investment and provide incentives for
foreign and local investors.
The Fiscal budget for the year 2001/02 was released around mid February; this brought in new
policies and changes including:
There are tax exemptions for 15 years for units in infrastructure and the core sectors (not
specified). This tax exemption will attract more investors to invest their funds in infrastructure
and core sectors, promoting economic growth and benefiting many other businesses and
consumers through flow on effects of improved infrastructure. There will also be high
employment (of skilled and unskilled labor) and better living standards, which contributes to
economic development.
Venture capital made simpler. This will allow small businesses to get started quicker and easier,
and made simpler is likely to suggest the cut down of red tape to allow easy access into the
market. This contributes to economic growth and creates employment and greater
competition and consumer choice (as a result of increasing number of businesses). It will also
attract higher direct foreign investment, which is a great benefit for the nation especially at
trouble periods.
Long term capital gains tax capped at 10% for all. This would mean more people will invest in
shares, which encourages businesses to expand and employment would increase. The value
of the businesses will also increase because shareholders are likely to prefer capital gains over
time rather than instant returns (dividends). The businesses can now invest the profits to
increase its value. This will of course contribute to the economy.
IT given special status. The reason for this is because the Indian government wants to promote
its nation a as a technological advanced nation and in order to do this they must stimulate
the IT sector. The special status means the sector and investors (willing to invest in the sector)
will receive many benefits and incentives from the government to do so.
Tax-free status for bonds targeted at housing development activities. This will not only lead to
higher investment in property development, it will also lead to overall economic development
because housing development activities include housing middle to lower class people, by
providing them a better environment to live in the standards of living are dramatically
improving.
10% surcharge on income tax. This may seem a peculiar decision but the government is trying
to increase its tax base, which it can then distribute back to the public through infrastructure
development, educational programs and housing developments.
There has also been tariff deductions to attract foreign investment and competition. This will
have the effect of improving the competitive nature of import competing industries, and an
over all growth in efficiency and output.
Promoting the economy to foreign investors:
Foreign investment policies
Majority foreign equity allowed in several sectors allowing for easier access for overseas
investors to own and manage businesses in India.
Foreign investment of up to 51% in 35 high priority areas is eligible for automatic approval,
provided by the RBI. These incentives allow foreigners to invest and therefore provide an
inflow of funds into the nation, promoting economic growth and development.
Goods of foreign brand names and trademarks for sale are allowed This shows that the
Indian government has realized the needs for it to become a globally integrated nation.
Foreign companies are permitted to open branches in India - businesses that set up in India
will make good use of the resources available, this includes employment and use of local

materials. This will boost economic growth and development as funds are injected into the
economy.
Incentives for local investors.
The Indian government has created many incentives for domestic investors. Ensuring that the
incentives comply with the economic philosophy of the government.
Tax-free status for the first five years for power projects, businesses involved in exports, units in
free trade zones, infrastructure development and new industries.
Tax deductions of up to 100 per cent on export profits
New industrial undertakings will receive a 30 per cent tax deduction on net income.
Further Economic Development
The Indian government has taken greater concern in the welfare of its people. It has set up
Second National Commission on labor to protect millions of workers. Ensuring they are not
exploited through low wages, unreasonable expectations etc. This has the effect of improving
wage levels, and living standards among the people.
The government also uses a proportion of its expenditure on education, health, water supply,
sanitation, housing, slum development, social welfare, nutrient, rural employment etc. This
ensures the people living below the poverty line (over 30% of the urban population) will receive
enough benefits for them to enjoy a reasonable living standard and the future generation is given
many incentives to shift away from the poverty stricken areas to become financially stable.
The government has also ensured increased availability of health care which has lead to an
improvement in the living standards (improved death rate, birth rate...etc)
Eg: Infant mortality rate has improved from 129/1000 in 1971 to 80 in 1994.
Impact of Globalization
The significant decline in the GDP of a number of East Asian countries, continuing recession in
Japan, lack of capital growth in developing countries, unsustainable fiscal weakness in south
American countries and volatility of capital and Forex markets in developed nations were a
number of causes in world economic down turn in the year of 1998-99. All these factors had major
impacts on India, hence the name the impacts of Globalization on India. These impacts include:
Inflation rose sharply during 1998-99. It reached a height of 8.8 per cent in September 98, then
dropped steeply in January 1999. This rise in inflation was caused by numerous problems; one
of them was the dramatic increase in some agricultural commodities.
v Deceleration in the growth of Indias exports continued, as growth was negative for the first 9
months of 1998.
v The current account deficit fell from 1.6per cent of the GDP in 1997-98 to 1.4 per cent of the
GDP in 1998-99.
v There has also been a deceleration in private inflows, which lead to a lower than expected
net capital inflows between 1998-99.
v Manufacturing growth as a part of the GDP fell to 7.7 per cent in 1996-97 from the previous
years level of 15 per cent. And it fell slightly to 6.8 per cent in 1997-98.
The above impacts show how closely integrated India with the global economy, many
production decisions and government policies must comply with the global market situation in
order for India to continue as a fast growing economy.
v

Positive effects of Globalisation

Prior to Th 80s when the Indian government undertook major reforms to relax restrictions on
foreign trade and investment it suffer from a very low GNP growth rate of below 3.5%, but as a
result of opening up to the global market GNP growth is averaged at 5-6% per year.
Indian Businesses are able to find new markets overseas to sell their products to, they will have
the advantage of cheap resources such as labour.
Entrepreneurs from foreign nations are also able to make efficient use of these resources when
they set up business in India. This of course leading to greater employment levels, greater
output and overall economic development and growth.
Average real wages of unskilled labour has increased, which will lead to an increase in the
standard of living

There have been signs of improvements in living standards in the general population a s a
result of economic growth and globalisation. Poverty ratio has declined dramatically from
56.4% of the rural population in 1973-74 to 37.3% in 1994. The urban poverty ratio has also fallen
significantly form 49% in 73-74 to 32.4 in 1993-94. These are all results of job creation and
developments undertaken by the government and private institutions
Due to the reduction in barrier import competing businesses have become more competitive
leading to greater efficiency and better-priced and quality goods.
Due to Globalisation developing nations such as India become more modernised as new
technology and industries can quickly be adopted.
Due to Globalistaion exports have risen dramatically leading to economic growth
An indirect result of Globalisation is the improvement in infrastructure.
Employment creations a s a result of an expanding economy. Additional employment
opportunities of 29.74 million jobs were created between Jan 94 to March 97

Negative effects of Globalisation

q Globalisation has lead to environmental damage in India (as with many developing nations).
Due to large-scale industrialisation urban slums have formed, air and water pollution has
dramatically increased. Multinational firms have exploited resources belonging to the country
and lead to land degradation. Delhi for example is the 4Th most polluted city in the world.
q Though foreign investment will promote economic development in the short term, the profits
earned from the business venture move out of the country. There is also a possibility that at
times of recession investors (in portfolio investment) may withdraw their funds causing further
problems.
q Domestic resources such as labour maybe exploited my large production based firms. These
firms may also abuse natural resources and use them inefficiently.
q Domestic producer being overpowered my overseas giants, who already have competitive
advantages over the domestic producers, and have more funds to invest. This will lead to the
closure of many domestic owner firms.

Statistics
These statistics reflect the impact of the Asian financial crises on India, and its overall performance
between 1996-98.
Gross domestic product for example has fallen due to low aggregate demand, while Gross Domestic
Investment has increased due to higher incentive to invest surplus funds.
1997
1998
1999
GDP Growth(%)
8
6.1
6.2
Exports (as % of GDP)
10.9
11
10.7
Imports (as % of GDP)
14.1
13.8
14.2
Gross Domestic Investment (% of GDP)
25.6
23.6
29
Savings and investment
1996 - 97
1997 - 98
Gross domestic savings
24.4
23.1
Gross domestic investment
25.7
24.8
The slump in savings and investment is once again due to the impacts of the Asian financial crises
Sectors real growth rates
1997 - 98
1998 99
Agriculture
-1.0
5.3
Industry
5.9
4.7
Manufacturing construction
6.8
5.7
Mining
4.1
2
services
8.2
6.7
Agriculture continues to be a major growth point as it is a major part of exports
Inflation

Bibliography
www.indianeconomy.com
www.economicwatch.com

2000
3.6%

www.indiagov.org/economy/menu
www.ioe.org

2001 JAN
8.2%