National Income Trend in India

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India is home to 1.24 billion people, which is about 17.5 per cent of the global population. The Indian economy is the 12th largest in USD exchange rate terms. India is the second fastest growing economy in the world. However, it accounts for only 2.98 per cent of world GDP in US dollar terms and 5.0 per cent in purchasing power parity (ppp) terms. Hence, there exists a huge potential for catch up. The global welfare too is linked to progress in India as reflected in the keen global interest in India. But, India seems to inspire and disappoint at the same time. This is reflected in various comments on the Indian economy. The below graph represents the National Income Trend of India for the period of 1950 – 2011.The GDP growth curve is showing a steep slope from 1950s to 1980s with a very little increase of about 1.4 %. The main reasons that hindered the growth are Levels of infrastructure :Infrastructure contributes significantly to economic development both by increasing productivity and by providing amenities that enhance the quality of life. The impact of infrastructure on economic growth is well documented internationally. In the Indian context, elasticities of output with respect to various stocks of infrastructure indicate that the transport and communication sectors play a dominant role in explaining the variations in GDP and its sub-sectors.

 

The index of industrial production is also found to track closely the movements in the composite index of infrastructure industries during the 1980s and the 1990s. Without necessary infrastructure it can be difficult for firms to be competitive in the international markets. This lack of infrastructure is often a factor holding back some developing economies. Development of Technology :Development in technology is a key factor in enabling improved productivity and higher economic growth. Technology of an economy is influencing the lives of its people through an active direct and indirect contribution tothe various socio-economic parameters such as employment, standard of living and diversity among others. With a sufficient investment in R&D, industries with better technologies identify and create new economic opportunities like new products, new production methods, and new productmarket combinations and to introduce their innovative ideas into the market. Thus, with least concentration in research & development, technology fails to grow, which makes it becomes difficult to attain proper growth.Global Currency Trends - A country's debt is denominated in foreign currencies. Like many other money Indian rupee have also tied its knot with some of the big economy of the world as well as the names of UK, US, Japan and Canada. The depreciation or approval in the currency any of these, especially in the US dollar, influences the valuation of the Indian currency in one way or the otherCapital Inflows :A developing country needs capital inflows from foreign investors, either to pursue economic growth or as a result of trading activities, and that to access international capital markets it has to denominate its debts in the currencies of the principal creditor countries and financial centres (i.e., U.S. Dollar, Yen, Euro, Sterling, and Swiss Franc). Thus, economy can grow if the capital inflow is constant or continuously rising. But with very less global interaction, capital inflows are mainly bounded within the countries' territories, leading to stagnate the growth of that economy.Imbalance in interest rates :Missing markets usually arise because of information failure. Because of asymmetric information lenders in credit markets may not be aware of the full creditworthiness of borrowers. This pushes up interest rates for all borrowers, even those with a good credit prospect. Low risk individuals and firms are deterred from borrowing, thus only high risk individuals and firms choosing to borrow. Thus, the credit market in developing economies is under-developed or completely missing, with few wishing to borrow, and with those who wish to lend expecting high loan defaults and hence charging very high interest rates. With such imbalance in the interest rates andinadequate financial markets, thus making the economic growth to dwindle. The Below graph represents the GDP per capita for the year 1950, compared with that of 1990 and 2006.GDP per capitaThis is evident from the fact that it took 40 long years from 1950-51 for India's real per capita GDP to double by 1990-91. But, 1991-92 was a defining moment in India's modern economic history as a severe balance of payments (BoP) crisis prompted far reaching economic reforms, unlocking its growth potential. As a result, in only 15 years, India's per capita income doubled again by 2006-07. If the current pace of growth is maintained, India's per capita income could further double by 2017-18, in 10 years time. While acceleration in India's recent economic growth is noteworthy, maintaining the pace, no doubt, will be challenging.Analysis of the Inflexion points in National Income trendIndia's net income from 1991 to 2012 can be explained in graphical formas: First inflexion point:In 1992 there was the inflexion point in India's economy. The triggers behind growth inflexion was• Taxes: Laws simplified resulting in better compliance and ease of tax payment • Infrastructure: Increased investment in infrastructure e.g., Ultra Mega Power Projects • Liberalization: FDI in key sectors like airports, NBFCs, Insurance, electrical

 

As a result, in only 15 years, India's per capita income doubled again by 2006-07. If the current pace of growth is maintained, India's per capita income could further double by 2017-18, in 10 years time. While acceleration in India's recent economic growth is noteworthy, maintaining the pace, no doubt, will be challenging.Analysis of the Inflexion points in National Income trendIndia's net income from 1991 to 2012 can be explained in graphical formas: First inflexion point:In 1992 there was the inflexion point in India's economy. The triggers behind growth inflexion was• Taxes: Laws simplified resulting in better compliance and ease of tax payment • Infrastructure: Increased investment in infrastructure e.g., Ultra Mega Power Projects • Liberalization: FDI in key sectors like airports, NBFCs, Insurance, electrical equipments, telecommunications, construction etc allowed.The inflexion point was observed at 1992-93 but the reason behind it was the policy reforms in 1991. Major policy changes in 1991 made India to come out of its self reliance system to a competitive world.

 

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