PROBLEM OF GROWTH IN INDIAN ECONOMY

Business Environment MGT554

Group-4

Submitted to: Jaschetan Deep Kaur

Submitted by: Mayank Sharma Gagan deep Dillon Vishal Katoch Charan Kamal Singh

ECONOMY OF INDIA
The Economy of India is the ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The independence-era Indian economy (before and a little after 1947) was inspired by the economy of the Soviet Union with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao then Prime Minister. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people. India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labour force and considerable foreign investments. India is the fourteenth largest exporter and eleventh largest importer in the world. Economic growth rates are projected at around 7.0% for the 2011-12 fiscal year.

Problems Facing Indian Economy 1. Inflation. Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 6-7%. A record 98% of Indian firms reports operating close to full capacity with economic growth of 9.2% per annum inflationary pressures are likely to increase, especially with supply side constraints such as infrastructure. The wholesale-price index (WPI) rose to an annualised 6.6% in January 2007.

2. Poor educational standards. Although India has benefited from a high % of English speakers. (Important for call centre industry) there are still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate 3. Poor Infrastructure. Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiency s facing the Indian economy. 4. Balance of Payments deterioration. Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months. This deterioration is a result of the overheating of the economy. Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports. Excluding workers remittances India s current account deficit is approaching 5% of GDP.

5. High levels of debt. Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased. It is hoped that economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India s rural poor are yet to receive any tangible benefit from the India s economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of

television in Indian villages the poor are increasingly aware of the disparity between rich and poor.

7. Large Budget Deficit. India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.

8. Rigid labour Laws. As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws.

Unemployment India as a nation is faced with massive problem of unemployment. Unemployment can be defined as a state of worklessness for a man fit and willing to work. It is a condition of involuntary and not voluntary idleness. Some features of unemployment have been identified as follows: 1. The incidence of unemployment is much higher in urban areas than in rural areas. 2. Unemployment rates for women are higher than those for men. 3. The incidence of unemployment among the educated is much higher than the overall unemployment. 4. There is greater unemployment in agricultural sector than in industrial and other major sectors.

Types of unemployment: (1) Voluntary unemployment In this type of unemployment a person is out of job of his own desire doesn't work on the prevalent or prescribed wages. Either he wants higher wages or doesn't want to work at all.

(2) In voluntary unemployment In this type of situation the person who is unemployed has no say in the matter. It means that a person is separated from remunerative work and devoid of wages although he is capable of earning his wages and is also anxious to earn them. Forms and types of unemployment according to Hock are. a. Cyclical unemployment - This is the result of the trade cycle which is a part of the capitalist system. In such a system, there is greater unemployment and when there is depression a large number of people are rendered unemployed. Since such an economic crisis is the result of trade cycle, the unemployment is a part of it. b. Sudden unemployment - When at the place where workers have been employed there is some change, a large number of persons are unemployed. It all happens in the industries, trades and business where people are employed for a job and suddenly when the job has ended they are asked to go. c. Unemployment caused by failure of Industries - In many cases, a business a factory or an industry has to close down. There may be various factors responsible for it there may be dispute amongst the partners, the business may give huge loss or the business may not turn out to be useful and so on. d. Unemployment caused by deterioration in Industry and business - In various industries, trades or business, sometimes, there is deterioration. This deterioration may be due to various factors. In efficiency of the employers, keen competitions less profit etc. are some of the factors responsible for deterioration in the industry and the business. e. Seasonal unemployment - Certain industries and traders engage workers for a particular season. When the season has ended the workers are rendered unemployed. Sugar industry is an example of this type of seasonal unemployment.

Nature of Unemployment in India y Rural y Urban y White-collar Rural unemployment It is rural unemployment which belong to villages, town where is unemployment causes only agriculture and illiteracy in villages. Urban unemployment It is urban unemployment which belongs to urban cities, metro cities, because of increasing population in cities, huge completion, or low demand of man power. White-collar unemployment It is white-collar unemployment which relates to educated employees those have skills to job but jobs are not available for persons.

Cause of Unemployment in India 1) Rapid Population Growth: It is true that the increasing labour force requires the creation of new job opportunities at an increasing rate. But in actual practice employment expansion has not been sufficient to match the growth of the labor force, and to reduce the back leg of unemployment. This leads to unemployment situation secondly; the rapid population growth indirectly affected the unemployment situation by reducing the resources for capital formation. Any rise in population, over a large absolute base as in India, implies a large absolute number. It means large additional expenditure on their rearing up, maintenance, and education. As a consequence, more resources get used up in private consumption such as food, clothing, shelter and son on in public consumption like drinking water, electricity medical and educational facilities. This has reduced the opportunities of diverting a larger proportion of incomes to saving and investment. Thus, population growth has created obstacles in the way of first growth of the economy and retarded the growth of job opportunities.

2) Limited land: Land is the gift of nature. It is always constant and cannot expand like population growth. Since, India population increasing rapidly, therefore, the land is not sufficient for the growing population. As a result, there is heavy pressure on the land. In rural areas, most of the people depend directly on land for their livelihood. Land is very limited in comparison to population. It creates the unemployment situation for a large number of persons who depend on agriculture in rural areas.

3) Backward Method of Agriculture: The method of agriculture in India is very backward. Till now, the rural farmers followed the old farming methods. As a result, the farmer cannot feed properly many people by the produce of his farm and he is unable to provide his children with proper education or to engage them in any profession. It leads to unemployment problem. 4) Defective education: The day-to-day education is very defective and is confirmed within the class room only. Its main aim is to acquire certificated only. The present educational system is not job oriented, it is degree oriented. It is defective on the ground that is more general then the vocational. Thus, the people who have getting general education are unable to do any work. They are to be called as good for nothing in the ground that they cannot have any job here; they can find the ways of self-employment. It leads to unemployment as well as underemployment. 5) Lack of transport and communication: In India particularly in rural areas, there are no adequate facilities of transport and communication. Owing to this, the village people who are not engaged in agricultural work are remained unemployed. It is because they are unable to start any business for their livelihood and they are confined only within the limited boundary of the village. It is noted that the modern means of transport and communication are the only way to trade and commerce. Since there is lack of transport and communication in rural areas, therefore, it leads to unemployment problem among the villagers. 6) Inadequate Employment Planning: The employment planning of the government is not adequate in comparison to population growth. In India near about two lakh people are added yearly to our existing population. But the employment opportunities did not increase according to the proportionate rate of population growth. As a consequence, a

great difference is visible between the job opportunities and population growth Impact of unemployment 1. Loss of Human Resources: The problem of unemployment causes loss of human resources. labourers waste their maximum time in search of employment. 2. Increase in Poverty: Unemployment deprives a man of all sources of income. As a result he grows poor. Therefore, unemployment generates poverty. 3. Social Problems: Unemployment breeds many social problems comprising of dishonesty, gambling, bribery, theft etc. As a result of unemployment social security is jeopardized. 4. Political Instability: Unemployment gives birth to political instability in country. Unemployed persons can easily be enticed by antisocial elements. They lose all faith in democratic values and peaceful means. They consider that Government is worthless which fails to provide them work. 5. Exploitation of Labour: In the state of unemployment, labourers are exploited to the maximum possible extent. Those labourers who get work have to work under adverse condition of low wages. All this tells upon the efficiency of labourers greatly influence the pattern of employment opportunities in the country. Being poor, a person does not make any gainful use of existing resources. 6. More Emphasis on Capital Intensive Techniques: In the case of Western countries, where capital is in abundant supply, use of automatic machines and other sophisticated equipment are justified while in our country abundant labour, results in large number of unemployment. 7. Defective Education System:

India's education policy merely produces clerks and lower cadre executives for the government and private concerns. The open door policy at the secondary and university level has increased manifold unemployment among the educated that are fit only for white collar jobs. 8. Slow Growth of Tertiary Sector: The expansion of tertiary sector comprising commerce, trade transportation etc. is limited which could not provide employment even to the existing labour force, what to think about new entrants. As a result of this, there is a wide scale of unemployment among engineers, doctors, technically trained persons and other technocrats. 9. Decay of Cottage and Small Scale Industries: The traditional handicraft has a glorious past and was the main source of employment especially to the village crafts-men, artisans as well as nonagricultural workers. Unfortunately, most of rural traditional crafts have been ruined or faded partly due to the unfavourable policy of the foreign rulers and partly due to tuff competition from the machine made goods. Consequently, these labourers were out of job. Most of them turned as landless labourers. 11. Less Means for Self-Employment: Another hurdle in generation of more employment opportunities is that there are inappropriate means for self-employment in rural and semi-urban areas of the country.

Steps to reduce unemployment 1) Betterment of the Employment Exchange: - Employment exchange is a mere formality in many countries, so it is important that employment exchange offices synchronize correctly and quickly with private companies which provide the maximum job opportunities. Government should grant more funds and powers to its employment exchange terminal.

2) Providing Better Educational Facilities to Citizens: - Education creates employment, so a country with good educational facilities will have less unemployment 3) Elimination of Child Labor: - When underage children start making money, they will look for more options to make money. Schools are made for children and vice versa. Elimination of child labor can definitely help people to go for better options. 4) More Job Fairs: - Government should initialize and create more job fairs which form a bridge between companies which have employment opportunities and people who need employment. 5) Increase in Government Grants to Public Sector Companies: - Public sector companies are also known to create hundreds of job opportunities. So an increase in grants to these companies will imply better functioning which will eventually help people who are unemployed. 6) Improving Pay Scales to Reduce Unemployment by Choice:- Many people choose to be unemployed to do things they like or to avoid working on low pay scales. Improving pay scales in government and public sectors will give fewer options for people to stay unemployed by choice. 7) Legalizing Many Unconventional Methods of Earning: - There are many modes of making money which are considered illegal in many places but are done secretly. Good examples of it are prostitution, gambling and betting. Legalizing these activities will create more employment, taxes for the government and would reduce exploitation.

PROBLEMS OF POVERTY Poverty is one of the main issues, attracting the attention of sociologists and economists. It indicates a condition in which a person fails to maintain a living standard adequate for a comfortable lifestyle. Though India boasts of a high economic growth, it is shameful that there is still large scale poverty in India. Poverty in India can be defined as a situation when a certain section of people are unable to fulfil their basic needs. India has the

world's largest number of poor people living in a single country. Out of its total population of more than 1 billion, 350 to 400 million people are living below the poverty line. Nearly 75% of the poor people are in rural areas, most of them are daily wagers, landless labourers and self employed house holders. There are a number of reasons for poverty in India. Poverty in India can be classified into two categories namely rural poverty and urban poverty. Corruption is the main cause of poverty in India. There is also a high population growth rate, although demographers generally agree that this is a symptom rather than cause of poverty. While services and industry have grown at double digit figures, agriculture growth rate has dropped from 4.8% to 2%. About sixty percent of the population depends on agriculture whereas the contribution of agriculture to the GDP is about eighteen percent. The surplus of labour in agriculture has caused many people to not have jobs. Farmers are a large vote bank and use their votes to resist reallocation of land for higherincome industrial projects.

Causes of Poverty in India

y y y y y

y y y y y

High level of dependence on primitive methods of agriculture High population growth rate High Illiteracy (about 35% of adult population) Regional inequalities Protectionist policies pursued till 1991 that prevented high foreign investment Unequal distribution of income. High population growth. Illiteracy. Large families. Caste system.

Government has introduced a number of antipoverty programs since independence to alleviate poverty. These include various employment guarantee programmes such as National Rural Employment Programme, Rural Landless Employment Guarantee Programme etc. Recently, Government has initiated National Rural Employment Guarantee Program (NREGP). As per

NREGP, the government will provide 100 days of employment per year to whosoever is willing to work. NREGP is considered as a landmark program in poverty alleviation measures. One of the major problems with poverty alleviation programs is their implementation. Rajiv Gandhi once said that out of 100 paisa allocated for poor only 14 paisa reaches them. But in spite of their weaknesses, poverty alleviated program can be credited for their success in alleviating poverty to an extent. Greater public-private partnership and committed and efficient bureaucratic machinery is required to tackle poverty.

The steps taken by government to remove urban poverty are:

y y y y

Nehru Rozgar Yojna. Prime Minister Rozgar Yojna. Urban Basic services for the poor Programme. National social Assistance Programme.

But these processes can be helpful only if the policies go to those people for whom it is meant. The clash between the central government and the state government often results in the lack of implementation of these policies. So it is very important that the governments do not play power politics when it comes to a serious issue such as poverty.

Measures to Prevent Unemployment and Poverty Economic reforms, changes in the industrial policy and better utilization of available resources are expected to reduce the problem of unemployment and poverty that results from it. The economic reform measures need to have major impacts on the employment generating potential of the economy. The governmental bodies are also required to initiate long term measures for poverty alleviation. Generation of employment opportunities and equality in income distribution are the two key factors that are of utmost importance to deal with the dual problem of unemployment and poverty.