CHALLENGES OF ECONOMIC

DEVELOPMENT IN INDIA

By
• RAVI
• RAVI
• RAJESH
• RAJESH
• RAMAMOORTHY
• RAJARANJINI
 ECONOMIC DEVELOPENT

• Qualitative measure of progress in an economy.

• It refers to development and adoption of new

technologies, transition from agriculture based to
industry based economy, and general improvement in
living standards.

• Measuring Economic Development

==GDP==the sum total value of goods produced in a
particular year
•The economy of India is the eleventh
largest economy in the world by nominal GDP and
the fourth largest by purchasing power.

• By 2008, India had established itself as the

world's second-fastest growing major economy.
 SECTORS:

• AGRICULTURE
• PHARMACEUTICALS
• NATURAL RESOURCES
• BANKING AND FINANCE
• INDUSTRY AND SERVIES
 AGRICULTURE
• India's large agricultural subsidies are hampering productivity-enhancing
investment. Overregulation of agriculture has increased costs, price risks
and uncertainty. Government intervenes in labor, land, and credit markets.
India has inadequate infrastructure and services.

•  World Bank also says that the allocation of water is inefficient,

unsustainable and inequitable. The irrigation infrastructure is deteriorating.

•  The overuse of water is currently being covered by over pumping

aquifers, but as these are falling by foot of groundwater each year, this is a
limited resource.

• Illiteracy, general socio-economic backwardness, slow progress in

implementing land reforms and inadequate or inefficient finance and
marketing services for farm produce.

• Inconsistent government policy. Agricultural subsidies and taxes often

changed without notice for short term political ends.
• The average size of land holdings is very small (less than 20,000 m²) and
is subject to fragmentation, due to land ceiling acts and in some cases,
family disputes. Such small holdings are often over-manned, resulting in
disguised unemployment and low productivity of labour.

• Adoption of modern agricultural practices and use of technology is

inadequate, hampered by ignorance of such practices, high costs and
impracticality in the case of small land holdings.

• Irrigation facilities are inadequate, as revealed by the fact that only

52.6% of the land was irrigated in 2003–04,[12] which result in farmers still
being dependent on rainfall, specifically the Monsoon season.

• A good monsoon results in a robust growth for the economy as a whole,

while a poor monsoon leads to a sluggish growth.[13] Farm credit is
regulated by NABARD, which is the statutory apex agent for rural
development in the subcontinent.

• At the same time overpumping made possible by subsidized electric

power is leading to an alarming drop in aquifer levels.[14][15][16]
 PHARMACEUTICALS
• The government force the industry to reach a level necessary for global
competitiveness. However, they have also exposed some of the
inadequacies in the industry today. Its main weakness is an
underdeveloped new molecule discovery program.

• Even after the increased investment, market leaders such as Ranbaxy and
Dr. Reddy’s Laboratories spent only 5-10% of their revenues on R&D,
lagging behind Western pharmaceuticals like Pfizer, whose research
budget last year was greater than the combined revenues of the entire
Indian pharmaceutical industry.

• This disparity is too great to be explained by cost differentials, and it

comes when advances in genomics have made research equipment more
expensive than ever.

• The drug discovery process is further hindered by a dearth of qualified

molecular biologists. Due to the disconnect between curriculum and
industry, pharmas in India also lack the academic collaboration that is
crucial to drug development in the West.
R&D
• Both the Indian central and state governments have recognized R&D as
an important driver in the growth of their pharma businesses and
conferred tax deductions for expenses related to research and
development.

• They have granted other concessions as well, such as reduced interest

rates for export financing and a cut in the number of drugs under price
control. Government support is not the only thing in Indian pharma’s
favor, though; companies also have access to a highly-developed IT
industry that can partner with them in new molecule discovery.

LABOUR FORCE
• India’s greatest strengths lie in its people labor force that is the base of
its competitive advantage. Although molecular biologists are in short
supply, there are a number of talented chemists who are equally as
important in the discovery process.

• In addition, there has been a reverse brain-drain effect in which

scientists are returning from abroad to accept positions at lower salaries
at Indian companies.
• Once there, these foreign-trained scientists can transfer the
benefits of their knowledge and experience to all of those who
work with them. India’s wealth of people extends benefits to
another part of the drug commercialization process as well.

• With one of the largest and most genetically diverse populations

in any single country, India can recruit for clinical trials more
quickly and perform them more cheaply than countries in the
West. Indian firms have just recently started to leverage.
 INDUSTRIAL SERVICES

-India is the 14th factory output in world.

-Manufacture sector with addition to
Mining,Quarrying,Electricity & Gas.
- Indian cities have continued to liberalize but excessive &
burdensome business regulations remain problems in some cities l like
kochi & kolkatta.
- Post-liberalisation,the Indian private sector,which run by
connections was faced with foreign competition.
- It handled the change by squeezing costs,revamping
management,focusing on designing new products and relying labor
cost and technology.
Services
 India is 15th in services output.
 Service industry employs -23% on work force with a
growth rate of 7.5%
 It has the largest share in the GDP, accounting for 53.8%
 The growth in IT sector ,attributed to increased
specialisation of a large pool of low cost, highly skilled,
educated and fluent English-speaking workers on the
demand side.
 The number of professionals employed by IT and ITES
sectors is estimated at around 1.3 million as on March
2006.
Banking & Finance
In 2007, Banking in India is generally mature in terms of supply
product range & reach-even, but India still remains a challenge for
the private sector and foreign banks.

In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets
relative to other banks in comparable economies of Asia.

The Reserve Bank of India is an autonomous body, with minimal

pressure from the government.

The stated policy of the Bank on the Indian Rupees is to manage

without any fixed exchange rate.

Currently, India has 88 scheduled commercial banks (SCBs).

Banking & Finance

 They are -:
 28 Public Sector Banks- 75% of total assets of the
banking industry.
 29 Private Banks - 18.2%
 31 Foreign Banks- 6.5%.
 They have a combined network of over 53,000 branches
and 17,000 ATMs.
India’s Resource consumption

 They are 2.

1) Oil.

2) Natural Gas.
Oil

 India had about 5.6 billion barrels of proven oil

reserves , which is the second-largest amount in the Asia-
Pacific region behind China.
 Most of India's crude oil reserves are located in the
western coast (Mumbai High) ,although considerable
undeveloped reserves located in the state of Rajasthan.
 In 2006, India produced an average of about 8,46,000
barrels per day (bbl/day). of total oil liquids, of which
77% & 33% was crude oil 648,000 bbl/day.
 During 2006, India consumed an estimated
2.63 Mbbl/day (418,000 m3/day) of oil.
Natural Gas

 As per the Oil and Gas Journal, India had 38 trillion cubic
feet (TCF) of confirmed natural gas reserves.
 A huge mass of India’s natural gas production comes
from the western offshore regions,Mumbai High
complex.
 The onshore fields are in Assam,AP, and Gujarat states
are also major producers of natural gas.
 India imports small amounts of natural gas and in 2004,
India consumed about 1,089×10^9 cu ft of natural gas.
 This is the first year in which the country showed net
natural gas imports.
 INFLATION

 The rate at which the general level of prices for

goods and services is rising And subsequently
purchasing power is falling.

 Central banks attempt to stop inflation to keep the

excessive growth of prices to a minimum. 
 TYPES OF INFLATION

 Demand-Pull inflation

 Cost-Push inflation

 Structural inflation
 CAUSES OF INFLATION
 Over- Expansion of Money Supply

 Increase in Population

 Expansion of Bank Credit

 Deficit Financing

 Poor Performance of Farm Sector

 High Administrative Pricing

 EFFECT OF INFLATION
The effect of inflation on

 Business Community

 Fixed Income Groups

 Farmers

Investors
 CONTROL OF INFLATION
• Monetary policy

• Fixed exchange rates

• Gold standard

• Wage and price controls

• Cost-of-living allowance
 DEFLATION

• Definition :

“Is a state of disequilibrium in

which a contraction of purchasing
power tends to cause, or is the effect
of, a declining of the price level”.
 EFFECTS OF DEFLATION
• Deflation adversely affects the level of
production, investment activity, employment,
and income level in an economy.

• During deflation, when .prices are falling

rapidly but the cost of production does not fall
correspondingly, producers incur heavy losses
and curtail employment and output.

• This causes aggregate income to fall and

aggregate demand to decrease, with prices
falling further and so on.
• Business pessimism emerges and gradually
is commonly described as “poverty in the
midst of plenty” because economic activity,
income, output, employment diminish
miserably and ample resources remain
unutilised or underemployed.

• Much of the poverty during deflation due to

deficiency of demand.

• Lack of effective demand causes poverty in

the midst of plenty
 CONTROL OF DEFLATION
• Deflation can be checked by making attempts to raise the level
of aggregate effective demand.

• Effective demand can be uplifted partly by inducing the people

to spend more on consumption and partly by stimulating
investment expenditure in the economy.

• Marginal propensity to consume in an economy can be raised by

a redistribution of income from the rich to the poor classes.

• Thus, anti-deflationary measures involve a progressively high

income-tax and other forms of direct taxation and a subsidies
programme to poor people.
• Similarly, measures should be taken to induce investment.
• In this context, a lowering of the rate of interest by increasing
money supply, provision of adequate tax relief to corporation’s
programme of public investment to provide social overhead
capital, and public projects which do not compete with private
enterprise and rendering all facilities to raise marginal efficiency
of capital in the private sector, are very essential.

• As an anti- deflationary measure, a programme of public

investment should be financed by borrowing rather than taxation.

• Deficit financing may also be helpful in this context. There

should be proper planning and public works policy and the
programme should be properly implemented. In short, deflation
also should be attacked by various other weapons.

• A monetary or fiscal policy alone cannot be very effective. There

should be a well-knit co-ordination of monetary and fiscal policies
with other measures to combat deflation.
 FIVE YEARS PLAN
• The first Indian Prime Minister, Jawaharlal Nehru presented the first five-
year plan to the Parliament of India on 8 December 1951.

ELEVENTH PLAN (2007-2012)

OBJECTIVES:

• Income & Poverty

• Education
• Health
• Women and Children
• Infrastructure
• Environment
• INCOME AND POVERTY

 Accelerate GDP growth from 8% to 10% and then maintain at 10% .

 Increase agricultural GDP growth rate to 4% per year to ensure a
broader spread of benefits
 Create 70 million new work opportunities.
 Reduce educated unemployment to below 5%.
 Raise real wage rate of unskilled workers by 20 percent.
 Reduce the headcount ratio of consumption poverty by 10 percentage
points.

• EDUCATION

 Reduce dropout rates of children from elementary school from 52.2%

in 2003-04 to 20% by 2011-12
 Develop minimum standards of educational attainment in elementary
school.
 Increase literacy rate for persons of age 7 years or above to 85%
 Lower gender gap in literacy to 10 percentage point
 Increase the percentage of each cohort going to higher education from
the present 10% to 15% by the end of the plan
• HEALTH

 Reduce infant mortality rate to 28 and maternal mortality ratio to

1 per 1000 live births
 Reduce Total Fertility Rate to 2.1
 Provide clean drinking water for all by 2009 and ensure that there
are no slip-backs
 Reduce malnutrition among children of age group 0-3 to half its
present level

• WOMEN AND CHILDREN

 Raise the sex ratio for age group 0-6 to 935 by 2011-12
 Ensure that at least 33 percent of the direct and indirect
beneficiaries of all government schemes are women and girl
children
 Ensure that all children enjoy a safe childhood, without any
compulsion to work
• INFRASTRUCTURE

 Ensure electricity connection to all villages and BPL households by

2009 and round-the-clock power.
 Ensure all-weather road connection to all habitation with
population 1000 and above (500 in hilly and tribal areas) by 2009,
and ensure coverage of all significant habitation by 2015
 Connect every village by telephone by November 2007 and provide
broadband connectivity to all villages by 2012
 Provide homestead sites to all by 2012 and step up the pace of
house construction for rural poor to cover all the poor by 2016-17.

• ENVIRONMENT

 Increase forest and tree cover by 5 percentage points.

 Attain WHO standards of air quality in all major cities by 2011-12.
 Treat all urban waste water by 2011-12 to clean river waters.
 Increase energy efficiency by 20 percentage points by 2016-17.
 RETAIL SECTOR
 Increase in per capita income which increases
the household consumption

 Demographical changes and in the standard of

living

 Change in patterns of consumption and

availability of low-cost consumer credit

 Improvements in infrastructure.

 Entry to various sources of financing

 CORRUPTION
 Corruption has been one of the pervasive problems
affecting India.

 The economic reforms .

 2005 study by Transparency International (TI).

 The Right to Information Act.

 India at 88th place with 2.9%.

A bribe rate card applicable in Bangalore.

 Birth/Death certificate [genuine cases] - Rs 250/-

 Birth/Death certificate [fake cases] - Rs 500+

 Burying a dead body:

Rs 100 to shift the body from van 

Rs 150 for the person who gives a bath 
Rs 500-Rs 2500 for post-mortem
Rs 1000 to bury the body 
Key points that have been suggested
by the India Economy Survey 2009.

 Economy can grow around 7 percent in 2009/10.

 If US economy bottoms out, India can easily look

at 7% upwards growth.

 The Economy will get back to its growth path of

around 9% in medium term.

 The Fiscal deficit target is suggested to be set at

3 percent of GDP at the earliest.
 Inflation is suggested to be a non-
issue moving forward.

 Public to hold greater equity in public sector

banks. 

 Calibrated monetary policy approach is

suggested for early return to high growth path.

 Foreign Direct Investment should be allowed

to seek regulatory reforms in higher education.
Indicator 2005 2006 2007 2008 2009
Real GDP
growth  9.21 9.82 9.37 7.35 5.36
(%
growth)
CONCLUSION