Economic Growth in India

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DateEconomic Growth in India

Introduction

Since 1991, India’s economy has rapidly grown and has emerged to be among the top 10% of countries in the world which have experienced economic growth. However, currently, India faces a primary challenge of sustaining its growth. As such, it requires international economic liberalization through reforms that will ensure the economic growth does not slowdown. To that effect, India looks forward to addressing issues such as infrastructure shortages, large fiscal deficit, unreformed financial sector and restrictive labor regulations (Balakrishnan 70).

Economic Growth in India

Revisiting the history of India’s economy, per capita income, increased by only 1% in 1960s. The cause of the stagnated growth was because of the government control in major economic activities such as infrastructure and the restriction of the growth of the private sector. The problem of development during the lag phase was the restriction of foreign investment and control of allocation of national resources through the planned economy. In 1991, the Prime Minister Rao announced adoption of Washington Consensus because of the crisis in the balance of payments. For instance, the interest rates rose up sharply due to a fall in the trading partner, leading to inflation (Balakrishnan 65).

After the announcement, foreign investments began. Recently, large companies such as Coca Cola, General Motors Inc., have signed deals on the New Delhi posters to expand trade with the country. In 1991 and prior to the economic liberation, the Rao watershed reform paved way for Structural adjustment loans. The adjustment loan helped to defray the cost of importing oil due to the shortage that was caused by the closing of the Bombay High Field. In addition, Indian energy commission accepted to link the gas prices to that of the international cost of oil in an effort to encourage private investment in the energy sector. As a result, India encouraged the free-market economy where both the buyers and the sellers from both the government and the private sector controlled the prices of product and services. Furthermore, the country began to undergo the revolution especially after the introduction of the Trade and Capital reform. The strength of the currency (rupee) fell against the international currencies, and the government agreed to comply with the market converted exchange rates. In additional, the government introduced other policies such as dilution of public sector, abolition of the industrial licensing and the rationalization of Tariff Structures (Balakrishnan 80).

The government adopted the gradual process of liberation due to the risks it anticipated were associated with market imperfections of the free market economy. The gradual reform was instigated so that the marketing implication would not underestimate the impact of the integration of the financial markets. The gradual reforms had some benefits to the country’s economic growth. For instance, the gradual liberalization enhanced the relaxation of foreign direct investment restriction and the restrictions of the inward portfolio capital flows. However, for a country undergoing transition from an economic repression to liberalized state, there was the danger of the crisis of the reversed economic growth. For instance, the gradual process would result to a crash in the inadequately regulated financial system (Balakrishnan 85).

Besides the reforms, the critics of the market economy in India allege that the economic sector cannot scuttle the existing political democracy. For instance, if the sellers fail to conform to the established values of the market, it is the role of the political state to lay down the economic reforms at its sovereign power. Nevertheless, ethnicity in India is a major source of conflict based on the way Muslims and Hindu citizens are treated. As such, the International Amnesty has been called upon to restore harmony among the two religions as the country frequently experiences communal violence.

Conclusion

In spite of the warring religion, India has ranked second as the most attractive country for Foreign Direct Investment. According to United Nation’s Conference on Trade and Development’s (Unctad) report, there is high domestic demand and many opportunities which are open to foreign investors. As such, the heightened economic reforms have made India unique for sustainable development and investment (Balakrishnan 135).

Works Cited

Balakrishnan, Pulapre. Economic Growth in India: History and Prospect. New York, NY:

Oxford University Press, 2010. Print.