Macroeconomic Study on the Economy of India

Introduction

This study has aimed to analyse the macroeconomic variables of India from 1980 to 2012 that covers the Indian economic trend before, during and after both the Asian and global financial crisis; by analysing the factors like GDP, unemployment, inflation, interest rates and trade flows this paper would provide an in-depth understanding on the microeconomic policy of the government. By securitising the available data of the variables, this paper will identify the key trends of the economy and suggest necessary policy modification by adopting theoretical paradigms of macroeconomics that would intimately conclude with key recommendations.

Background

Lal & Clement (2005, p.4) pointed out that previously a British colony, India with Soviet influence introduced mostly closed economies after the independence, the economic policy of India was not just a so-called socialist economy, but an amalgamation of governmental interference also with private sector development with is a mixed form of market economy under central planning. Corbridge (2009, p.1) added that the dynamically conservative economic policy of India from its independence lead the country to a smooth gradual economic development and its shifts in the era of globalization accelerated the economic growth to a higher stage by establishing it as the superpower of the global information technology market.

Overview of Important Macroeconomic Variables

Gross domestic product (GDP)

GDP is the sum of aggregate goods and services produced in a country within a financial year determined summation of gross value added by all inhabitant industries and sectors of the economy engaged in production including all kinds of taxes and reducing the value that is not included into outputs (United Nations 2003, p.123).

The conceptual framework of production has been taken into consideration by the SNA¹ to measure the GDP, all products, and services of every individual producer, all supplies to the product other than own, products, and services delivered for consumption, households including domestic production generated by the paid stuff are taken into account to calculate GDP. GDP is an economic indicator that is established as a mostly used economic growth, but there are debate and gaps between the GDP calculation where sometimes some factors are drooped out otherwise overlapped and indicating economic development of a nation in practical scenario human development index.

Organisation for Economic Co-operation and Development (2012, p.4) reported that the economy of India has grown at a remarkable speedy motion for the last two decades that integrated through a comprehensive set of structural reformations which were necessary to explore its market to the overseas by an open economy instead of conservative norms. To attain a higher GDP growth, the country integrated regulatory and institutional reforms essential to encounter with the raising challenges of globalization where measure the GDP, India has set out the standard Indicator set, satellite account, risk assessment measures along with quantitative and qualitative surveys of directed by the United Nations.

The continuously increasing share in the global output and trade of India has placed the country at third position out of all countries of the world, determined by the purchasing power parities PPP along with the OECD average calculated on the average of 34 member states while the emerging economy of India illustrated its GDP growth for last six decades-

The figure above illustrated that the GDP growth rate of India has been climbing upwards historically, in 1950 to 2010 it moved from more than 1% to about 7%, while the growth of per capita income moved between 3% to about 9% growth per year.

Labour market and unemployment rate

Tejaswi (2013) stated that the government failed to decrease the unemployment rate from 2009 because of the adverse impact of global financial turmoil particularly in the EU member states. At the same time, Tejaswi (2013) addressed that the young people of India are not skilled enough due to a lack of government initiatives to establish more vocational schools and colleges for the students; however, multinational companies and foreign-invested SMEs are now interested to recruit a huge number of professionals, employees, and managers from India. Therefore, the central and local government of India should give more importance to the skill development programs; however, the subsequent table shows the unemployment rate for 2017 to 2012 –

Table 1: Unemployment Rate of India from 2006 to 2012.

Performance of Different sectors

Agricultural Sector

According to the report of the Library of Congress (2004, p. 10), this country has shifted its status from a food importer to a food exporter; in addition, it is a dominant sector while it helps to earn a significant part of national GDP from this sector. Library of Congress (2004) stated that 46% of the total landscape is cultivated and 16% of the land is double cropped; moreover, India Brand Equity Foundation (2013) stated that it is the foundation of the Indian economy since this nation is the second prime food producer in the globe and over 60% of the total population engaged with this sector directly or indirectly.

On the other hand, the central and local governments have taken many fruitful initiatives to transform this sector and experience rapid agricultural expansion, for instance, ensuring easy credit facilities, developing technologies, and turning towards green revolution, optimum utilization of land, and other natural resources and so on. Most importantly, India will earn more than $22 billion by exporting agricultural products, but the farmers (particularly from the states of Andhra Pradesh, Maharashtra, and Kerala) are not happy with the loan policy of the banks, price of the products, unity of the traders and so on; in addition, they committed suicide because of debt and crop failure.

Information Technology

According to the report of Indexmundi (2013), this sector has played a significant role in the national economy to face the global economic downturn successfully in 2010 and experience continues growth; however, the following figure shows the growth rate of this sector –

Ficci (2012, p.3) stated that worldwide spending in IT products and services augmented notably and this sector is expected to earn revenues of $130 billion by the next two years; however, the main challenges are cyber security and quality management, close competitors like BPO service providers of Bangladesh and China offer highly skilled labour force at minimal wages, and so on.

Exports from India (2008 to 2012)

Simoes (2012) stated that mineral products, stone, chemicals & allied industries, textiles, transportation, metals, and machinery segments have flourished the economy of India; however, the following table gives more information –

Table 2: Total exports from 2006 to 2012.

Other items of export include metals, refined copper and copper alloys, machinery like transmission apparatus for radio, telephone and TV, floating or submersible drilling platforms, garments, transportation and agricultural products (such as Rice, wheat, onion).

Table 3: – The main export collaborates of India.

Imports (2007 to 2011)

The report of Simoes (2012) demonstrated that mineral products, stone, electronics are the main import items; however, the subsequent table provides more data about imports of goods –

Table 4: – Total Imports from 2007 to 2012.

According to the report of Simoes (2012), China, the US, the UAE, Australia, KSA and Germany plays a vital role in the export sector, as a result, the next tables show more data in this aspect –

Table 5: – The main Import collaborates of India.

Trade Balance (2007 to 2012)

Jagota & Guha (2013) stated that trade deficit from oil and non-oil sectors have increased significantly from the last 5 years and this deficit will increase within the next quarter of the year because India witnessed a $20 billion trade deficit in the last 3 quarters of this fiscal year. Furthermore, Jagota & Guha (2013) argued that trade deficit increased due to a decrease of industrial production and policy hurdles in the domestic market; however, the next table shows trade deficit –

Table 6: Trade balance from 2007 to 2010.

Foreign Direct Investment

Table 7: FDI inflows and outflows from 2009 to 2012.

Budget surplus (+) or deficit (-)

Indexmundi (2013) mentioned that budget deficit means the situation where expenditures exceed total revenues of the country; however, the following table shows the data for 2012 –

Table 8: Budget surplus (+) or deficit (-).

Inflation rate and Exchange rate

Table 9: Key indicators from 2009 to 2012.

Macroeconomic Analysis of Indian Economy

The greatest potential of the Indian economy is the higher youth composition of the demography concerning the other countries along with the elevated national saving rate that generated good opportunity of investment for infrastructure and industrialisation as well as sustainable growth of a private sector that contributed the overall economy with greater productivity. Moreover, the labour legislation of the country has strongly safeguarded the working and helped to develop labour-intensive industries that ultimately supported with a high growth rate that was socked in 2009 following the wave of the global financial crisis; but the Indian economy recovered by 2010, although there was another declaims of GDP in 2011-12 while GDP growth was 6½%. On the other hand, the following are the GDP present situation –

The Trading Economics (2012, p1) pointed out that the historical GDP growth rate of India from 1951 until 2012 was at an average of 5.85% raised highest 10.20% in December 1988 and the lowest record -5.20% in 1979 while 1991 also another fall in GDP and destabilised the macroeconomic environment. Fontanella-Khan (2012) reported in the Financial Times that due to weakening of the rupee and severe balance-of-payments calamities including the current account crisis caused such a drop in GDP growth rate, besides OECD data the historical GDP records that are presented in the above figure.

Recommendation

As the unemployment rate is increasing over time, the government needs to establish more vocational training centres and encourage young people to become skilled labour while multinational companies and different project managers have created job opportunities in all over the world for skilled labour. Moreover, the high GDP growth rate in India does not demonstrate the actual position of the people’s lifestyle; therefore, the government should provide more attention to the agricultural sector to save a significant part of the society because the farmers of this country faced serious challenges to repay loans for which they commit suicide.

The government of India should focus more on the IT sector, social and political development, power sector improvement, demand of Indian consumers, reduction of corruption and gender difference, and the implementation of the reform plan to develop the economy in the future.

Conclusion

Indian GDP has dramatically come out from the declaiming trend in 2011 although the major superpowers are still striving with recessionary impact; the core potency of the Indian economy is its well-designed macroeconomic policy, along with its high level of national savings, youth demography with defined birth rate, where agriculture has the largest contribution with growing service sectors. The national savings turn into an investment that generates new employment opportunities with the growing balance of payment, with such growing GDP growths are not always indicates a homogenous development of India, there is tremendous poverty, growing unemployment rate with social and geopolitical unrest.

Reference List

Corbridge, S. (2009). The Political Economy of Development in India since Independence. Web.

Ficci. (2012). Sector Profile: Information technology (IT). Web.

Fontanella-Khan, J. (2012). Indian GDP growth slides to 5.3%. The Financial Times. Web.

Indexmundi. (2013). Country Profile of India. Web.

India Brand Equity Foundation. (2013). Agriculture Sector in India. Web.

Jagota, M. & Guha, R. (2013). India Trade Gap Widens in January. The Wall Street Journal. Web.

Lal, A. K. & Clement, R. W. (2010). Economic Development in India: The Role of Individual Enterprise. Asia-Pacific Development Journal, 12(2), 1-10. Web.

Organisation for Economic Co-operation and Development. (2012). India Sustaining High and Inclusive Growth. Web.

Planning Commission. (2012). Data for use of Deputy Chairman, Planning Commission. Web.

Simoes, A. (2012). The Observatory of Economic Complexity. Web.

Tejaswi, M. J. (2013). Unemployment rate in India to go up: Kelly Services. Web.

Trading Economics. (2012). India GDP Annual Growth Rate. Web.

United Nations. (2003). Integrated Environmental and Economic Accounting 2003. Web.

Footnotes

1. System of National Accounts.