Page 88 - DMGT401Business Environment

Unit 3: Economic Environment of Business

Asian Paints has spreads its business in more than 20 countries with its manufacturing capacity Notes
spread all over Asia. In the last decade, not only did the Indian economy become global, Indian
companies also achieved global standards.

3.2 Problems of Growth

Socialist countries, which used the word "Capitalist" in a very abusive sense, are now inviting
companies from these very capitalist countries to invest in their countries and to provide
employment to their people. After approximately sixty years of its journey, the following are
the chief characteristics of the Indian economy, which are the basic hindrances in its path of
growth:
1. Low Per Capita Income: India is one of the most underdeveloped countries in terms of per
capita income. In 1998 India's Purchasing Power Parity estimate of GNP per capita was as
low as $1,700, around 1/17th of USA's PPP of estimate of GNP per capita, which stood at
$29,340.
2. Inequitable Distribution of Income and Poverty: The distribution of income and wealth in
India is inequitable. The license and permit which were initiated to check concentration of
economic power soon degenerated into a tool of creating inequalities and concentration
of economic power in a few hands. We see that a few business houses were able to obtain
licenses and they produced everything from pins to trucks, and that too of substandard
quality. This was possible because of the artificial limitation placed on capacity expansion,
which created a scarcity of practically every commodity in India. From kerosene to cement
everything was available in black, which created a parallel black economy in the country.
There was also an inequitable concentration of economic wealth.
Not only this but poverty, is also a serious problem of the Indian economy. In 1993-94, the
Planning Commission noted that 36% of India's population lived below the poverty line
during that year. This estimate of poverty thus conclusively proves that the gains of more
than four decades of economic growth in India have failed to reach vast sections of our
society.
3. Dominance of Agriculture: In 1998, agriculture contributed 25% to the total GDP. On the
other hand, about 65% of India's population is still dependent on agriculture for its
livelihood. In contrast, the US only 3% of the population is engaged in agriculture, which
is not only sufficient for the country but also for exports to the world. Dependency on
agriculture of such a large population is a major reason for poverty in India.

4. Rapid Growth of Population: India is facing a situation of population explosion as death
rates are falling without a corresponding decline in birth rate. Population growth is the
highest in the villages and among the poor people. This makes the problem more acute.

Example: According to the 2001 census, the population of India has crossed over one
billion. Because of this, over the years, per head availability of agricultural land has steadily
declined, which is today less than 2 hectares per head.

This increasing population eats up the fruits of development and the rate of economic
growth remains sluggish. In fact today we are caught in a trap of population, poverty and
illiteracy.

Did u know? According to Human Development Index (HDI), India with a value of 0.545,
ranks at 132 and 131 in term of real GDP per capita.

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