Growth Experience of India as one of the Nation regarded as a Developing Country
In the modern days, developing countries have experienced massive growth in terms of economic development and expansion. In most developing countries, such as India, economic growth has been attributed to the accumulation of productive factors that include capital and labour, investment, and productivity factors that are relevant to economic expansion. Indeed, industrialisation is a significant boost to a country’s economy and its productivity. In addition, the consequent development of factories, technological change, and industries in the developing countries are also central elements that are influencing the economic growth. Between 2014 and 2015, India recorded a 7.2% economic growth; while between 2015 and 2016, the Indian economic growth increased by 7.6% (Arvanitidis, Pavleas, and Petrakos 2009). Therefore, the Indian economy is one of the most growing globally. Moreover, as a developing state, the Indian economy will continue developing at a breakneck pace (Arvanitidis et al., 2009). Therefore, this paper will focus on examining both the proximate and underlying factors that are contributing to the growth and expansion of Indian economy. The paper will also discuss major policies that are leading to the development of Indian economy, as some of the policies that economic stagnating nations can use to better or develop their economies. Finally, this paper will be based on the theoretical and empirical models of economic growth; primarily, Solow and Lewis economic development models.
In India, the emergence of technology is regarded as a primary source of economic development, as different technological changes are significantly contributing to the expansion of the country’s economy (Barnes 2013). The National Association of Software and Service Companies (NASSCOM) claims that due to the introduction of IT services export in India, there has been an overall development of the country’s economy. Between 2010 and 2011, the industry produced a total revenue estimate of $88.1 billion, which is an essential element of India’s economic growth (Barnes 2013). In essence, IT and technology changes in India are one of the most significant components leading to the national economic growth and expansion.
The Solow model of the economic development state that technology progress is exogenous on the economic prosperity, and it is likely to determine the development of the economy of the developing countries (Schütt 2003). Thus, the Solow model and its assumption of the growth of the economy of a nation have a direct relationship with the case of the developing of the Indian economy. According to the Solow model, technology grows at an exogenous rate. Therefore, if a country does not have technological progress, its economy, and growth are likely to come to a halt or fail to expand comprehensively (Schütt 2003). Arguably, the Indian economy is at its current status due to the aspect of technology change and technologically based innovations.
Another factor that is contributing to economic development in India is the aspect of the income level and distribution. The income level and its distribution context affects the adjustment, sustainability of an economy, and the quality of economic growth (Corbacho and Schwartz 2002). In addition, in a country where the level of income is high, and the issue of income inequality is dealt with efficiently, people accumulate savings that are later on used for investment (Petersen and Schoof 2015). Consequently, this creates a higher capital stock, which produces a high gross domestic product (GDP) (Petersen and Schoof 2015). More explanations on the issue of income and savings, and the way the two elements affect the economy of a nation, can be explained according to assumptions outlined in the Solow Model. According to Solow model, the amount of the money that a country saves from the income level and investment are key determinants of economic growth and the standard of an economy. From the aspect of income level and savings, a country can execute various welfare that will build its economy positively. Additionally, as proposed by the Solow Model, when a country saves and invests more, people acquire a high level of income and allocations for economic growth are experienced. When people are earning a high income, a nation will experience the high level of savings, which will affect economic development in a meaningful way.
In India, reforms in the manufacturing industry have also played a significant role in the increase of income level, Changes that have been implemented in the sector have seen both unskilled and skilled employees gaining a high level of income. For example, in 2015 and 2016, the India’s per capita income escalated by 7.4%, which was estimated to be Rs 93,293 (The Economics Times 2017). From the same context, it has been highlighted that the increase in India’s per capita income in 2015-15 was different from that of the preceding period, as the per capita income was Rs 86.879, lower than that of the year 2015/16 (The Economics Times 2017). In essence, it has been argued that due to the increase of India’s income level for the employees in the country, the rapid growth of the country’s economy has been experienced in last few years (Kniivilä 2007). Upon the increase of income level, labour capital income in India has changed, which has led to the extensive growth of the services sector and therefore, causing a massive change in the country economy.
Additionally, capital accumulation is a major factor in economic growth and development. Capital accumulation is responsible for increasing per worker output in an economy. Hence, capital accumulation enhances economic growth in the long-run perspective. Capital accumulation is directly connected to financial variables. Therefore, in any developing country, capital accumulation is expected to be a favourable influence of economic growth.
As a component of economic development, capital accumulation is based on Lewis theory of economic growth (Ahmad and Malik 2009). In reflection to Lewis’ Model of economic growth, the economic growth of a country depends on the concept that includes the accumulation of knowledge and the acquisition of capital from relevant sectors established to economise the nation and its growth (Clark 2006). In the case of India, it is presented that storage services, real estate, and renting services are the crucial sectors that are associated with the country’s economic growth through capital accumulation. As such, the storage service and real estate sector are capital intensive. They, therefore increase capital accumulation in India, which is also contributing to economic growth.
Conversely, for the Indian economy to develop, the country’s policymakers base their commercial policies on the economic policies that have been structured by the International Monetary Fund (IMF) and the World Bank (Basole 2016). When India started following the IMF and World Bank policies of development, the country’s economy transformed, with the economic structure of India developing intensively. The IMF and World Bank policies would result in the substantial increase in the growth rate of the Indian economy. Moreover, upon the exploitation of the Indian economy by the private sector, the IMF economy development policies would help India implement competitiveness in the different industrial sector, which would later enhanced economic improvement and growth (Mukherji 2009). As such, the IMF and World Bank’s economic policies are benefiting India.
One of the policies that the IMF has introduced to be used by India for economic growth include tight monetary policies. Through this policy, the central monetary authority in India is supposed to restrict credit and increase interest rates whenever applicable (International Monetary Fund 1996). The IMF has also initiated policies to control fiscal deficits. When the total expenditure of the country exceeds its revenues, the overall public sector will be affected, which will in turn influence the economic growth of the country. These efforts have helped in economic adjustment, sustainable fiscal consolidation performance, and providing an outstanding position to structure economic reforms.
The annual gross domestic product in India has been influencing the growth of its economy. The Indian yearly GDP has continued to increase in the past years. For instance, between 2001 and 2011, the GDP grew from 4.945% to 5.48% (The World Bank 2017). Between 2005 and 2016, the Indian annual GDP dropped from 9.825% to 6.8% (The World Bank 2017). In 2017, the GDP level of India is at 7.2%, which is an increase of GDP level in the country. As such, the real economic growth in India can be defined by the rate in which the domestic product (GDP) is changing from one year to another. Since the Indian GDP represents the market value of all commodities and services being produced at a particular period, it is clear that manufacturing industries in the country are growing, which is in turn leading to economic expansion. Agricultural production is another reasonable variable that is impacting the Indian economy positively. For instance, in 1961, the cereal yield in India was 92,239,016, and after a decade, the harvest in the area increased to 99,673,104. In 2000, Indian cereal harvest was 102,402,400, and in 2011, the yield was at 100,625,700 (FAOSTAT, 2017). Although the agricultural production in India has been fluctuating, the farm sector is playing a strategic role in the process of developing Indian economy. Production and farming activities in India are supportive to the economy, as both have the element of economic inputs and outputs growth.
In comparison with Brazil, the Indian GDP is contributing an essential part of the economic expansion. In 2001, the Brazilian GDP was 1.392% and in 2011, the GDP was 3.974%, which indicates that the GDP was not high like the case of India. Similarly, in 2005, Brazil GDP was at 3.202%, but in 2014, the GDP decreased to 0.504%. (The World Bank 2017). As at in 2017, the Brazil GDP is at 0.263, as it continues to decrease over the years. This indicates that the Brazilian GDP is affecting the country’s economy adversely. Besides, compared to the Indian GDP, it can be stated that India’s economy is at a much better stage.
In essence, India’s fast growth has been dependent on different factors. The IMF and the World Bank have introduced factors such as income level, technological changes, capital accumulation, and policies that are integral to the Indian economy. From the arguments that Solow and Lewis present regarding economic development, it is apparent that all factors discussed in this paper are important and have a role to play in the development of the Indian economy. In parallel with the remarkable economy of India, it is apparent that the world financial bodies are influencing the economic growth of India, as India is using international growth policies to expand its economic foundation. As such, to ensure a faster development of the Indian economy, the country needs to design and implement other prominent economic development policies. For instance, India can consider applying trade liberalisation policies that enhance and maintain economic growth. The state can also consider liberalising of technology import, as this will allow India to trade efficiently with importing countries, and hence, accelerate the economic growth rate. Finally, the Indian government can take into consideration working in partnership with the business community in the country, and design incentives that will enhance capital accumulation and adaptation of components, such as technology, for economic expansion purposes.
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