Indian Economy After the 1990’s
India has followed central planning for most of its independent history, which have included extensive public ownership, regulation, red tape, and trade barriers. After the 1991 economic crisis, the central government launched economic liberalization. India has turned towards a more capitalist system and has emerged as one of the fastest growing large economies of the world. This time, I’ll focus on the development of the Indian economy after the 1990’s, and then analyze the reasons of its development in this period.
According to my research, there are three major driving forces behind India’s economic growth and prosperity after economic reforms of 1991: increased foreign direct investment, India’s expertise in information technology and increased domestic consumption because of a growing middle class population.
The combination of foreign direct investment and expertise in information technology help to produce thousands of new jobs and create a growing middle class that in turn create increased domestic consumption and that result, again, in more foreign direct investments to meet the demand of Indian consumers. India’s growing middle class is the backbone of its economy and it is expected that about half of its population will fall into the category of middle class by 2040 with a substantial amount of disposable income. The last phase of growth comes from a growing information technology industry and service industry.
To specifically, economic development in India depends on the various sectors that constitute the Indian economy: agriculture, services and manufacturing industries.
As far as agriculture is concerned, India is the second largest in volume of output. Certain related sectors of agriculture have played a major role in the development of the Indian economy by providing employment to a number of people in the forestry, fishing and logging industries. In 2009, the agricultural sector contributed 17.5% to the entire GDP, and more than 50% of the total labor force working in India is employed in the agricultural sector. Production volume has gone up in Indian agriculture at a consistent rate since the 1950s. Much of this improvement can be attributed to the five-year plans that were established for the development of Indian agriculture. Developments in irrigation processes, as well as various modern technologies used have
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contributed to the overall advancement of agricultural processes.
In the industrial arena, India is 14th in terms of volume of factory output. Various developmental initiatives are also being carried out in the areas of gas, mining, electricity and quarrying. All these sectors contribute significantly to the GDP, and provide jobs to India’s citizens.
India is regarded as the 15th best economy in terms of production in the services sector. A sizable amount of the Indian workforce is also employed by the service sector. In the ten-year period between 1990 and 2000, the rate of growth has been 7.5%, up from 4.5% during the 30-year period from 1951 to 1980. India becomes a hub for information technology and a knowledge-based economy. Because of the availability of a highly talented technical workforce and improved protection of intellectual property, many western firms shift their research and development departments to India in order to reduce their R&D cost. India is able to pick up most of the outsourcing from western countries because of the low cost. India is the major recipient of the outsourced call centers, medical billing centers and other business administration and insurance related services. India’s economy is now supported by its own expertise in information technology, larger capital market, improving infrastructure and growing middle class with increasing disposable income. Verticals, such as information technology, software development, call centers, IT outsourcing, Business Process Outsourcing (BPO) and other IT-enabled services, have been the biggest contributors in the services sector of the Indian economy. An increasing number of Indian companies have emerged as leading global players.
To sum up, agriculture, services and manufacturing industries play a vital role in the development of the Indian economy. The IT outsourcing, software and BPO industries, in particular, have helped skyrocket India’s economic development in recent years.
And now for India, the Top 10 economic and development challenges in 2014 are that: Sustainable growth; Inclusive growth; Demographic dividend; Inflation; Rapid urbanization; Land reforms; Centre-state dynamics; Older citizens; India-China trade; India-Pakistan trade.
And in my opinion, to make India’s economic growth more sustainable, India needs a second generation of reforms to speed up privatization of government owned businesses, improve financial and legal systems to protect
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investment and modernize its infrastructure. It is also important to introduce business friendly tax reforms, upgrade labor laws to the international level and eliminate bureaucracy to attract more international corporations with more investment.
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