India has undergone remarkable changes since 1991. Until that date, India had spent its fifty years of independence as a protectionist state, isolated from the trade with the rest of the world. Its share of world trade had gone from two percent in the 1950s to less than a half of a percent in the late 1980s. At that point, Indias inflation was near the double-digits. Its protectionist strategy had discouraged the production of exports, created recurrent shortages of exchange, and made the balance of payments extremely vulnerable to external markets.
By early 1990, India was very close to defaulting on its external debt obligations. In 1991 India implemented a new strategy that has shot its economy upward to now the fifth largest in the world. In June 1991, India ended its four decades of central planning by implementing advances in agricultural development for export, diversification of its industrial sector, nationwide distribution, and an educational system aimed at providing a large quantity of high quality human resources. India has also made extreme changes to its economic policies to stimulate domestic and foreign investments and trade.
Initially, growth declined, but soon after growth increased and is continuing to. India has had an average growth rate of 5% between 1992-1995. Growth reached 7% in 1996. Indias GDP growth has been impressive. Its 1993 per capita estimate was only $309 million and in 1995 Indias GNP per capita was $340 million, as reported by the Worldbank. The World Factbook reported an estimated GDP per capita of $1,500 for 1995. Close to 40% of India’s population of 952 million are in poverty. Agriculture employs 70% but only accounts for a third of the Indias GDP.
India has the highest number of poor people out of any country, containing a quarter of the worlds poor. Indias inflation rate has remained fairly high and was 9% in 1995. Changes in Indias economic policies have caused substantial industrial growth, primarily in capital goods. As a result, a large middle class has abounded almost equal to the entire U. S. population in number. Indias huge middle class consumer sector has attracted the world. Foreign direct investment is fifteen times greate! r than it was before reforms and 10% of world portfolio investment in emerging markets have been put into India.
Indias exports have been rising in world exports. The main items exported are diamonds, textiles, leather products, carpets, dyes and food. Their major exports to the U. S. are textiles/clothing and jewels. Indias largest trading partners are currently the U. S. and the EU. Trade with the Asia-Pacific region is escalating. The chart below shows the contrast in world export growth rates and Indias export growth rates over the past four decades. India, reportedly, exported $29. 96 billion worth of goods in 1995.
In the past decade, Indias exports have grown by 21. % on an average. Indias clothing and textile export far exceeds the world average of other countries. Indias large population and lack of education for over half of its residents enables it to take advantage of its huge labor force making it one of Indias biggest resources. In recent years India has put emphasis on upgrading its educational system to produce many scientists and engineers. Expanding its quality human resources has enabled India to become more active in the telecommunications market. Along with the growth of education and the middle class, consumerism is growing.
Indias imports have increased exponentially to satisfy the growing desires of its people and to improve its infrastructure. Indias main imports are aircraft and parts, telecommunications services/equipment, computer software, electric power generation, urban mass transportation and food processing and packaging equipment. Most of these items will be used to promote internal and external trade. Wood and paper are also imported frequently. The nations expenditures on goods and services have increased almost 14% each year for the past seven years.
In 1995, India imported $33. 5 billion in goods. Over the past decade imports have grown by 16. 5% on average. India is extremely far in debt. In March 1995 India had $97. 9 billion in foreign debt. The World Bank reports that India is its largest single borrower, owing $49 billion at the end of 1997. India has never defaulted on payments, even in the bad economic times during the early 1990s. India has used this money to improve its infrastructure, telecommunications, and production technology. All of this will help to improve Indias economic growth.
India keeps $17 billion in currency reserves, which is reportedly a “healthy amount”. Investors are confident that India will grow. Although India has made great strides and is expected to grow more it will still need to make more strides if it hopes to obtain a greater economic prosperity for all of its people. At this time education is still greatly lacking. The World Bank has stated that “while the number of scientists and engineers is among the highest in the world, India as a hole has unacceptably high levels of illiteracy and low learning achievement.
More than half the population over 15 years old and two-thirds of all women over 15 years old are illiterate. Adult workers average only 2. 4 years of schooling… One out of three school-age children is not enrolled in school, particularly girls or those from the poorest households and disadvantaged groups. ” If these statistics withstand over time, there will be no hope of India ever raising its GDP per a capita and will remain an LDC. Indias other obstacles include reducing its fiscal deficit.
India has done so, but at the expense of state expenditures in the important areas of health, education, roads, and irrigation. The government has been increasing its spending on expensive subsidies for water which is causing a loss. Lack of infrastructure has also stifled Indias growth and will continue to until there are adaquate means to transport goods efficiently. Indias population is ever expanding with a population growth rate of 1. 64%. The total fertility rate is 3. 2 children per a woman. The birth rate is 25. 94 births per 1,000 in the population compared to the death rate of 9. 1 deaths per ,000 people.
Although the birth rate has declined due to the improved use of birth control, the ever increasing population will burden Indias economy more and increase the poverty levels. Indias culture and maintains that people should be married at a relatively early age (before late 20s) and have children. It is also highly desired to have a male child so this may increase the population by “trying again” for a boy. Over time India may have to change its traditional ways of thinking in order to curb overpopulation. India may have many more hurdles to face, but its rapid growth cannot be denied.
The growth is predicted to be maintained. India is facing many of the same problems that other developed nations have. India is overcoming them and is well on its way to becoming a developed industrialized nation. How they quickly they react to their hurdles will be the factor which decides how long it will be until they have a strong economy and a wealthy nation. They have the resources and recently they have demonstrated their excellent decision making abilities in the world market. Indias rate of progress the past six years has been astounding. I hope to see it continue.