Page 9 - DECO303_INDIAN_ECONOMY_ENGLISH

Indian Economy

Notes Self Assessment

Fill in the blanks:
1. Indian economy is an under developed economy in which …………………… is the back
bone of Indian economic.

2. …………………… is also a basis feature of Indian economy.
3. …………………… of India’s population are on the below poverty line.
4. The people of India remain …………………… for the lack of utilization of resources of the
country.

Notes India is a country of mixed economy.

1.2 Major Issues of Development in India

In this section, you will learn about the issues that arise during the development of an economy.
The major issues of development of India are the problems faced by Indian economy:
1. Inflation: Fuelled by rising wages, property prices and food prices inflation in India is an
increasing problem. Inflation is currently between 6–7%. A record 98% of Indian firms
report operating close to full capacity. With economic growth of 9.2% per annum
inflationary pressures are likely to increase, especially with supply side constraints such
as infrastructure. The wholesale-price index (WPI) rose to an annualised 6.6% in January
2007.

2. Poor educational standards: Although India has benefited from a high percentage of
English speakers (important for call centre industry). Whereas, there is still high levels of
illiteracy amongst the population. It is worse in rural areas and amongst women. Over
50% of Indian women are illiterate.
3. Poor infrastructure: Many Indians lack basic amenities like access to running water. Indian
public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of
Indian fruit rots before it reach the market; this is one example of the supply constraints
and inefficiency’s facing the Indian economy.
4. Balance of payments deterioration: Although India has built up large amounts of foreign
currency reserves the current account deficit has deteriorated in recent months. This
deterioration is a result of the overheating of the economy. The aggregate supply of the
economy is not able to meet aggregate demand so consumers are sucking in imports.
Excluding workers remittances India’s current account deficit is approaching 5% of GDP.
5. High levels of debt: Buoyed by a property boom the amount of lending in India has grown
by 30% in the past year. However, there are concerns about the risk of such loans. If they
are dependent on rising property prices it could be problematic. Furthermore, if inflation
increases further, it may force the RBI to increase interest rates. If interest rates rise,
substantially, it will leave those indebted facing rising interest payments and potentially
reducing consumer spending in the future.
6. Inequality has risen rather than decreased: It is hoped that economic growth would help
drag the Indian poor above the poverty line. However, so far economic growth has been
highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s

4 LOVELY PROFESSIONAL UNIVERSITY