Don’t use the word ‘recession’ for the Indian economy. In economics, a recession generally describes the decrease of a country’s gross domestic product (GDP) for at least two successive quarters. By that explanation, India is not in a recession. Whilst the country’s public danced in trance at the colourful festival of Ganesh Maha-Utsav, the genious finance minister, Pranab Mukherjee released news that India was to lend up to $10bn to the IMF. Things seem fairly upbeat for this rapidly growing country.
India’s economy has been hit by the slowdown yet it is still growing! How? Why? At a time when the world economy is likely to shrink for the first time in six decades, India is moving in the other path, forecasting 6 to 7 percent growth in its GDP this year. With an average yearly GDP growth rate of 5.8% for the past two decades, India’s economy is among the fastest growing in the world. It has the world’s second biggest work force, with 516.3 million people working in some of the biggest sectors in the world. Why is India doing so well though, even in these tough times? Well it’s a combination of many factors.
Due to the participation of the industries and the rigid environment, the economy is moving towards non-stop development. Furthermore, highly competent, specialist and English-speaking experts have formed a spine for India. With the help of increasing purchasing power, the Indian market has changed into a vibrant, rapidly growing consumer market. India also exports and imports large volumes of consumer goods and advanced technology to keep current its manufacturing power. IT has also been significant in the speedy globalisation of India, with exports from this area alone expected to top $60 billion by 2010.
On top of this, traditional sectors such as agriculture, industry, banking and natural resources have all been growing. India ranks 2nd in worldwide farm output and it accounts for 60% of this sector’s employment. India’s large service industry accounts for 54% of the country’s GDP and again employs many people. It is also thought that a turnaround in productivity has been instrumental. The main cause is the increase in efficiency of private sector firms in the face of growing competition. The underlying causes for this increase in efficiency have been the acceleration in international trade, financial sector growth and investments in information and communication technology.
So, it is very easy to see why India is growing so fast. The up-coming economy, with help from its vast amount of resources and population, is building up to such an extent that reports forecast that India’s GDP will surpass Italy, France and the UK by the middle of the next decade (around 2015). It will then overtake Germany, Japan and finally the US before 2050, to emerge as the second-largest economy after China.
India is faring better than much of the world for a couple of reasons. Its financial sector had limited contact to the failed subprime loans that shattered many banks. Moreover, it is still about 60 percent rural, served largely by family firms and thus beyond the shocks of globalization.
However, it’s not all good news for India. Although this week India’s major business groups say the worst is over for the country, as it achieved 6.1% growth for this quarter, there are other problems that are affecting India.
1. Reduced output
2. Reduced job opportunities
3. Stock market still hasn’t fully recovered
4. Real estate market’s business has begun to slow down
5. GDP has come down and the GDP forecast for the next two quarters are only average.
The effects of the downturn were always going to hit India, but for many it is better than originally thought. Problems were always going to be faced, but for now India’s economy is moving from strength to strength. The country hopes that the last year has only been a blip, as they try to put behind the effects of a worldwide recession.
Interesting to read, what are your thoughts about the US’s preceptions of China being currency manipulators? Do you believe the currency is undervalued? Or does the US need to face up to the facts that they will no longer be the economic power house they once had been, and that the growth of other BRIC economies could actually help developed countries to step out from the recession in the short run?