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This is an exemplary article. Added by Yunzhong Hou This article was a sub-article of Superpower in Wikipedia. It has been shifted here as a sub-article of Geopolitical future scenarios, under New Emerging Powers, where it better fits. There are two sister articles on China & EU. The Republic of India could be considered as one of the emerging future superpowers [1] [2] [3] [4]. However, facing many problems, it has a long way to go to realise its potential.

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1 Geographic factors 2 Demographic factors 3 Political factors 4 Economic factors 5 Military factors 6 Cultural factors 7 Page 1 (Next Page: Scenario: Emergence of India 2)

Geographic factors Edit
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Location - India, the 7th largest nation by area, lies at the north of the Indian Ocean. The Thar Desert in the north-west and the Himalayas in the north and north-east protect it from bitter continental cold and also save the monsoons from escaping. The subcontinent contains necessary water resources and flat arable land to sustain its massive population. Many Eurasian sea trade routes pass through or close to Indian territorial waters. [5] Possible future advantages of India's location Energy - Far into the future - as technology develops cheaper means to harness clean/renewable sources of energy - the world will leave the "fossil-fuel age"

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(Figure-7 of [6] ) and (possibly in an even longer run) the "nuclear-fission age" to enter the "renewableenergy age" or the "fusion age" (if/whenever they become economically sustainable/viable) [7] [8] [9]. If the world enters a "solar age" [10], then being an economy in the sunny tropical belt, South Asia will enjoy having both high solar insolation [11] and a big consumer base density [12] at the same place. Also considering the energy consumption for temperature control (a major factor influencing energy intensity), requirements of cooling from excessive solar heat will be more economical than heating for the lack of it. By 2050, solar power may be a major component of India's energy resources. [13] [14][15] [16] [17] [18] [19] [20]

Demographic factors Edit
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Big - India has the world's second largest population and by 2050 will have the largest. [21][22] Youthful - Due to its high birth rate India has a young population compared to most aging nation powers. In the coming decades, while some major powers witness a decrease in workforce, India will have an increase [23]. For example while Europe is well past its demographic window, U.S. entered its in 1970 (lasting until 2015), China entered its in 1990 (will last until 2025), India won't enter its window

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until 2010 (lasting until 2050). Source: Table 16 & 19 in Proceedings of the UN Expert Meeting on World Population to 2300.
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Global Diaspora - More than 20 million Indians live across the globe [24]. Under fair opportunities, they have become socioeconomically successful [25]. English - The importance of English in 21st century is being debated [26] [27] [28] [29], but the growing non-native English speakers makes it the best contender as a "Global language" [30] [31] [32] [33] [34]. Incidently, India has the world's largest English speaking/understanding population [35] [36]. It claims one of the largest workforce of engineers, doctors and other key professionals, all comfortable with English [37]. It has the 2nd largest population of "Fluent English" speakers, second only to the U.S., with estimates ranging from 150 to 250 million, and is expected to become the world's largest within a decade [38].

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Political factors Edit
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Democracy - India is the world's largest democracy, more than three times bigger than the the next largest ( U.S.). It has yet been successful, atleast politically, especially considering its functionality in difficult ethnic composition.[39][40]

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Candidate for Security Council - India's bid for a position in the Security Council (as part of the G4 nations [41]) has received backing from the UK [42], France [43], Russia [44] and China [45]. The U.S. did not support India's bid but there have been indications that it is waiting for a more suitable time to allow new members to UNSC [46] [47]. Foreign relations - India has developed relationships with the world powers like the EU [48], the U.S. [49], Russia, Japan and also with the African Union, the Arab World, Southeast Asia and Israel. In order to make the environment propitious for economic growth, India is improving its relations with China [50] and Pakistan [51]. Role in international politics - Although India was one of the founding members of Non-Aligned Movement, it was also a key backer and ally of the former Soviet Union during the Cold War. It took a leading initiative to improve relations between African and Asian countries. India is an active member of The Commonwealth and the WTO. It has also played regional roles in South Asian affairs [52] [53]. Currently, India's political moves are increasingly being influenced by economic imperatives. It is slowly assuming a role as one of the two Asian powers [54], the other being China. The

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evolving economic integration politics in the West and in Asia is influencing the Indian political mood to slowly swing in favour of integration with global economy [55]. It has also confessed its own visions of a South Asian version of free trade zone and, over the long run, even a Union. This process has begun with invitations to its neighbours to relinquish past animosities and move to make India's economic growth a pan South Asian phenomenon [56] [57] [58] [59] [60] [61][62].
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Multipolarity - A school of international strategists propose that the current world powers should support and help India's emergence. One of the debatable reasons given is that, as an economically strong democratic citizen of the world, it could help to balance the powerful but non-democratic forces, and thus insure a more stable world [63]. On the other hand if India fails to exist or prosper then the "Theory of Democracy" is likely to face the biggest setback.

Economic factors Edit
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Economic Growth - India's current fast economic growth (as the world's second-fastest growing major economy) has improved its standing on the world's political stage, even though the country remains one

of the poorest in the world. Many nations are moving to forge better relationship with India. [65] [66]

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Blooming Economy - The economy of India is currently the world's fourth largest in terms of real GDP (PPP) after the USA, China and Japan, and the second fastest growing major economy in the world, averaging at an annual growth rate of 7.1% [67]. Its record growth was in the third quarter of 2003, when it grew higher than any other emerging economy at 10.4% [68]. Based on its current growth rates, India's economy is estimated to surpass Japan as the third largest economy (in PPP) [69] by the end of 2006. Primary Sector - India manages to grow enough food to feed its populace. Secondary Sector - India is still relatively a small player in manufacturing when compared to many world leaders. Some new trends suggest a better future. [70] [71][72] [73] [74] [75] Tertiary and Quaternary Sector - India currently has an expanding IT industry. [76] [77] [78]

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Science/Tech - India is trying to develop more high skilled, English speaking people to fit in the future knowledge economy [79] [80]. India is becoming one of the world's leading producers of computer

software. With mushrooming R&D centres, it is experiencing a slow but steady revolution in science and technology [81] [82][83]. A typical example of India's rising scientific endeavours - It was the 3rd nation to found a National Space Agency called ISRO, after the USSR and the U.S.. It was first Asian nation to send satellites into space, starting with Aryabhata in 1975 [84] [85]. By 2008 it plans to send an unmanned mission to the Moon [86] [87] [88]. India is among the world leaders in remote sensing [89], a technology coming to great use, among others, to Indian fishermen & farmers [90]. India is also trying to join international R&D projects - e.g. it has recently joined the European Galileo GPS Project [91] and the ITER for fusion energy club [92]. Some Indian educational and research institutions like IIT [93], IIM, IISc and AIIMS are among the world's best.
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Tourism - India's tourism infrastructure is yet poor when compared to the 'best of the world' standards. Yet its diverse and fascinating history has led to the creation of a booming tourism industry. Foreign visitors presently spend more than US $15.4 billion annually in India [94] [95][96]. Many travellers find it an eye-opening (for some, even enlightening) experience, even when the hassles of life in developing India like inefficiency, pollution, overcrowding, etc somewhat lessen the pleasure

aspect [97] [98]. Monuments like the Taj Mahal is just tip of the ice-berg that this land has to offer. As its tourism infrastructure develops, it could emerge as one of the biggest tourist attractions. The world is just starting to re-discover India. [99][100]
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Energy - To reduce the energy crisis, India is presently constructing ~ 9 civilian nuclear power reactors and several hydro-power stations [101] [102]. Recently it also made a civilian nuclear energy deal with the US [103] and EU [104]. In recent years, India joined China to launch a vigorous campaign to acquire oil fields around the world and now has stake in several oil fields (in the Middle East and Russia) [105] [106] [107] [108].

Military factors Edit
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Total Strength - India maintains the Indian Armed Forces (3rd largest no. of active troops) and the Indian Paramilitary Forces (over a million strong, forming the world's largest paramilitary force). Combined, the total armed forces of India are 2,414,700 strong, the world's 2nd largest, after China. Army - The Army of India, as the Indian army was called before 1947 under British dominion, played a crucial role in checking the advance of Imperial Japan into South Asia during World War-2. Today

the Indian army is the 3rd largest land force after Chinese and U.S. forces. Air Force - The Indian Air Force is the 4th largest air force in the world. India recently flew its first indigenously manufactured combat aircraft. It is presently developing a 5th generation aircraft known as Sukhoi Su-47 with Russia. Navy - The Indian Navy is the world's 5th largest navy. It operates one of the only two Asian aircraft carriers. It also plans to induct two other aircraft carriers by 2008.
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Nuclear Weapons - India possesses them and the means to deliver these over long distances. India is not a signatory to the Non-Proliferation Treaty on Nuclear Weapons (arguing on security concerns; also complains NPT to be discriminatory). Arms Import - India is currently one of the world's largest arms importer, spending an estimated US $16.97 billion in 2004. India has made military technology deals with the Russian Federation, U.S., Israel and the EU.[109] Current major roles - The Indian Armed Forces plays a crucial role in anti-terrorist activities and maintaining law and order in the disputed Kashmir region. It has also participated in several United Nations peace-keeping missions, currently being the

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2nd largest contributor to the UN peace keeping force [110].

Cultural factors Edit
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History - India has a long history of cultural intercourse with many regions of the world. Its cultural influence has spread through the philosophy of religions like Jainism, Sikhism, Hinduism and Buddhism (particularly in East and SE Asia). Many foreign religions - Christianity, Islam, Judaism, Zoroastrianism, Bahá'í Faith - have found home and followers in India. India has no history of imperialism. Indian culture has always spread naturally or through widespread emigration to foreign lands. Bollywood - India's film industry, often known as "Bollywood", produces more feature films than any other (though not all of great quality) [111]. In a year, it sold 3.6 billion tickets, more than any other film industry in the world ( In comparison, Hollywood sold 2.6 billion tickets in a year) [112]. Democracy - [113] [114] Unity in Diversity of world view - The scale of multi-ethnic, multi-lingual, multi-religious people trying to cohabitate here is unparalleled in the world.

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The subcontinent's long and diverse history has given it a unique eclectic culture, claimed to be one of its great intangible assets. It is also often associated with spirituality. India's diversity forces it to either evolve strong foundations of tolerance and survive, or face break-up. The Indian public is now also accepting western influences in their society & media - and what is emerging is a confluence of its past local culture with the new western culture ("Social Glocalisation"). For some futuristic social thinkers, the miscegenation of diverse ancient culture with modernity, spirituality with science/technology, eastern with western world-view is potentially making India a social laboratory for the evolution of futuristic global-unity consciousness [115] [116][117]. If, and only if, everything evolves right, then South Asia could emerge as a soft super-power, by being the biggest melting pot of human ethnicities, languages, cultures, religions, ideologies & world view.

Page 1 (Next Page: Scenario: Emergence of India 2) Edit
(Note: References have been moved to Page 2 of this article.)

Few countries can boast the immense diversity of India: among its 1 billion people, there are 18 main languages, 844 dialects and six main religions. Rich in the traditions and learning of myriad ancient cultures, the sub-continent has long been a place of pilgrimage for travellers. Since India¶s independence, ancient traditions have increasingly converged with modern influences, and India has become progressively more internationally integrated. Since the late 1940s the effects of government controls led observers to coin the term ³the Hindu rate of growth´ to describe the country¶s sluggish economic progress. However, the reforms of the mid 1980s and early 1990s sharpened the pace of change and, as globalization has advanced, prompted by rapid technological developments, India has become more significant in international markets. Now many analysts are predicting India¶s emergence as a global player, set to follow the blazing economic success of another giant, China. It is not difficult to see the rationale behind such optimism. Key trends that could drive and sustain these new dynamics include:

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Favourable demographics;

A large pool of low cost, skilled labour;

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Entrepreneurial, indigenous companies;

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Continuing economic reforms and global integration;

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A stable political regime and democracy;

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A record of high, sustained growth rates. However, there are also major challenges that India must address if it is to achieve and maintain this kind of growth and development, including:

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India and the world:How will India

take her place at the world table² and how will the world accommodate the emergence of India as a global player? How will the global environment change and how might India respond?

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Geopolitical stability:What

direction will the war on terror take? What will be the nature of India¶s relationship with her neighbouring countries? How will India ensure her energy security?

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Employment and demographics:

How can India take advantage of her young and growing population and transform it into a demographic bonus? Will the rising aspirations of the young be met?

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Education:How can India maintain

and develop her educational excellence while making sure that increasing numbers of young

people across India are equipped with employable skills?

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Infrastructure: How will India

develop adequate social and economic infrastructure that meet the needs of both her people and developing industry?

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Leadership:Can India develop the

leadership necessary at all levels? Will coalition politics continue to constrain necessary reforms? Can national interests and self-interests be aligned?

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Administrative and political reform:

Can India strengthen her ability to implement and execute the necessary reforms and change? Will India break the back of deeply entrenched corruption and bureaucracy?

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Rural development: Is it possible

for India to develop the rural sector where the majority of her people reside? How will rural development contribute to the strength and robustness of India¶s economy? Can India manage the disparity between urban-rural communities, and between states? The Key Questions for the Scenarios

From amidst the many challenges confronting India, the project¶s participants identified two core questions, the answers to which will shape the path of India in the next two decades:

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Can India engage the whole nation in its quest for sustained security and prosperity?

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How will India¶s relationship with the world impact the Indian Agenda? The project¶s participants used these questions to build three different possible futures for ³India and the

World´ over the next 20 years. Different paths for India through to 2025 are represented in figure 1. Can India continue with ³business as usual´ ² a path of rapid economic development that benefits only a minority of the population?Bolly Worldis a story of how initial economic success becomes unsustainable, and domestic social and demographic pressures soon trigger an economic reversal. But need this happen? Could India achieve sustainable economic and social success? Pahale India("India First") describes how a widely shared vision for India¶s future aligns national aspirations and creates common goals. Everyone puts India first, determined that the entire nation will benefit from India¶s development.

2005-2015: The lavish promises of international business encourage the Indian government to make changes that hasten immediate economic growth. Low operation costs and cheap labour attract the investments of the international

community²but these are concentrated in IT and upperend knowledge intensive sectors. Anxious to hold the attention of global business, the Indian government follows its lead as it makes its own investments. Rural areas remain undeveloped and underfunded and growing numbers of poor and unemployed are migrating into the cities, whose infrastructure cannot support them. India¶s leaders discuss ³the problem of poverty´ but fail to make necessary reforms. 2015±2025: Inadequate structural reforms mean much of the Indian economy faces constraints and the growth momentum is unsustainable. Unreliable infrastructure, skill shortages and growing disparities between regions and income groups hamper equitable growth. In many poorer states, unemployed and disaffected youth join extreme religious groups, take to petty crime, or are drawn to "sons of soil" type movements. These tendencies preoccupy policy-makers and governments at all levels, making it difficult for them to focus on measures to promote economic growth and equity. A global economic downturn induces OECD countries to focus on efficiency and competition in domestic industries. This causes greater unemployment in these economies, prompting multinationals to withdraw and reduce international investment in India. Preoccupied with behaving like a global power, India has neglected regional relationships and now cannot rely on them to bolster economic performance. Economic growth is insufficient to alleviate chronic poverty or raise living standards. India's initial successes in the first years of the new century now seem like a dream 2005-2015: The many diverse individuals and groups

fighting for India¶s future align their energies and visions behind a single goal: putting India first. Crucially, this includes a new generation of leaders who push forward a series of legislative and administrative reforms. Six key areas needing urgent, large-scale investment are identified. They become the cornerstone of a massive, countrywide campaign for change, known as ³PAHALE: the Six Pillars of India¶s Future´: ‡Poverty alleviation ± basic needs for all ‡Agriculture and rural development ‡Healthcare ‡Access to education ‡Leapfrogging infrastructure constraints ‡Effective governance Burgeoning globalization provides a huge boost to the Indian economy²the government balances the desire for immediate profit with more long-term development goals. Meanwhile, it manages its ambitions to become a global power with sensitive handling of regional dynamics, carefully fostering constructive relationships with individual countries. 2015-2025:The international environment gradually grows less benign and the global economy slows. However, because India has made adequate preparations²internally in terms of reform and equitable distribution and externally in its international relationships²it sustains a robust level of development. Over the 20 years of the scenario, India¶s leadership and society build the capacity to implement reforms and sustain inclusive development across the country, taking advantage of its growing population. By 2025, India has been lifted by a virtuous cycle of higher, sustained economic growth,

balanced development and global integration, and is transformed into a significant, respected and responsible global power. 2005-2015: Despite endless committees and interminable conferences about India¶s future, the Indian government fails to take action to instigate reforms. Within India, this means a lack of infrastructure²inadequate roads; limited communications, healthcare and education systems; no attention to water management²and growing disparities between rich and poor. Rural areas remain undeveloped and the numbers of poor and unemployed increase. The international environment is becoming increasingly difficult: economic demands and domestic pressures mean that the US is withdrawing from international engagements. And the rest of the world seems to be following its example, adopting increasingly protectionist policies. Gradually the global economy slows. In this context, India is not a tempting prospect for foreign investors who begin to pull out, or choose other cheaper, less dangerous destinations. 2015-2025:In the face of these escalating problems, the Indian government still cannot achieve consensus. The only area they can agree on is the importance of raising military spending as turmoil in surrounding countries increases. The Indian people stop looking to the government for solutions and concentrate on finding their own means of survival. Corruption increases, as do conflicts²over resources, and religious and ethnic differences. But some, like the Hyderabad GM Crop Collective, find more peaceful and constructive ways to self-organize: pooling knowledge and resources, reaching out to find similar groups in other parts of the world. By 2025, it is

movements such as these that provide a glimmer of hope in what seems otherwise to be a bleak future for India.

The economy of India is the eleventh largest economy in the world by nominal GDP[1] and the fourth largest by purchasing power parity (PPP).[9] Following strong economic reforms from the socialist inspired economy of a post-independence Indian nation, the country began to develop a fast-paced economic growth, as free market principles were initiated in 1990 for international competition and foreign investment.[10] India is an emerging economic power with a very large pool of human and natural resources, and a growing large pool of skilled professionals. According to the book 'Contours of the World Economy, 1-2030AD' by Angus Maddison, India was the largest economy from the year 1 AD until the colonial period whereupon it was taken over by other countries such as China and the U.K. Economists predict that by 2020,India will be among the leading economies of the world.[11] India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth.[12][13][14][15] Since 1991, continuing economic liberalisation has moved the country toward a market-based economy.[13][14] A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India's economic growth rate. In recent years, Indian cities have continued to liberalize business regulations.[6] By 2008, India had established itself as the world's second-fastest growing major economy.[16][17][18] However, as a result of the financial crisis of 2007±2010, coupled with a poor monsoon, India's gross domestic product (GDP) growth rate significantly slowed to 6.7% in 2008-09, but subsequently recovered to 7.2% in 2009-10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[19] India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sector contribute 28% and 14.6% respectively.[20] Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[21] The labour force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[22] Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and pharmaceuticals.[22] India's per capita income (nominal) is 40,745 (US$ 924.91),[23] ranked 139th in the world,[24] while its per capita (PPP) of US$2,940 is ranked 128th.[25][26] Previously a closed economy, India's trade has grown fast.[13] India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985.[13]

Contents
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1 History o 1.1 Pre-colonial o 1.2 Colonial o 1.3 Independence to 1991 o 1.4 Since 1991 2 Sectors o 2.1 Industry and services o 2.2 Agriculture o 2.3 Banking and finance o 2.4 Energy and power 3 External trade and investment o 3.1 Global trade relations o 3.2 Balance of payments o 3.3 Foreign direct investment in India 4 Currency 5 Income and consumption 6 Employment 7 Economic trends o 7.1 Issues  7.1.1 Agriculture  7.1.2 Corruption  7.1.3 Government  7.1.4 Education  7.1.5 Infrastructure  7.1.6 Labour laws  7.1.7 Economic disparities 8 See also 9 Notes 10 References 11 External links

[edit] History
Main articles: Economic history of India and Timeline of the economy of India

The spice trade between India and Europe was one of the main drivers of the world economy[27] and the main catalyst for the Age of Discovery.[28]

India's economic history can be broadly divided into three eras, beginning with the pre-colonial period lasting up to the 18th century. The advent of British colonisation started the colonial period in the early 19th century, which ended with independence in 1947. The third period stretches from independence in 1947 until now.
[edit] Pre-colonial

The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the world's first urban sanitation systems and the existence of a form of municipal government.[29] The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages,[30] whose economies were largely isolated and self-sustaining, with agriculture the predominant occupation. This satisfied the food requirements of the village and provided raw materials for hand-based industries, such as textiles, food processing and crafts. Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while its craftsmen received a part of the crops at harvest time for their services.[31] Religion, especially Hinduism, and the caste and the joint family systems, played an influential role in shaping economic activities.[32] The caste system functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and, in some cases, allowing manufacturers to achieve narrow specialization. For instance, in certain regions, producing each variety of cloth was the specialty of a particular sub-caste.

Estimates of the per capita income of India (1857 1900) as per 1948 49 prices.[33]

Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper, cinnamon, opium and indigo were exported to Europe, the Middle East and South East Asia in return for gold and silver.[34] Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. India had approximately 32.33% of the GDP of the whole world at that time. One estimate puts the revenue of Akbar's Mughal Empire in 1600 at £17.5 million, in contrast with the total revenue of Great Britain in 1800, which totalled £16 million.[35] India, by the time of the arrival of the British, was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology. It existed alongside a competitively developed network of commerce, manufacturing and credit. After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by the Maratha Empire. The Maratha Empire's budget in 1740s, at its peak, was 100 million. After the loss at Panipat, the Maratha Empire disintegrated into confederate states of Gwalior, Baroda, Indore, Jhansi, Nagpur, Pune and Kolhapur. Gwalior state had a budget of 30 million. However, at this time, the British East India Company entered the Indian political theatre. Until 1857, when India was firmly under the British crown, the country remained in a state of political instability due to internecine wars and conflicts.[36]
[edit] Colonial

An aerial view of Calcutta Port taken in 1945. Calcutta, which was the economic hub of British India, saw increased industrial activity during World War II.

Company rule in India brought a major change in the taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines.[37] The economic policies of the British Raj effectively bankrupted India's large handicrafts industry and caused a massive drain of India's resources.[38][39] Indian nationalists employed the successful Swadeshi movement, as strategy to diminish British economic superiority by boycotting British products and the reviving the market for domesticmade products and production techniques. India had become a strong market for superior finished European goods. This was because of vast gains made by the Industrial revolution in Europe, the effects of which was deprived to Colonial India. An estimate by Cambridge University historian Angus Maddison reveals that "India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952".[40] It also created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardized weights and measures, capital markets. It also established a well developed system of railways and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system.[41] India's colonisation by the British coincided with major changes in the world economy²industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world,[42] with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.[43] The impact of the British rule on India's economy is a controversial topic. Leaders of the Indian independence movement, and left-nationalist economic historians have blamed colonial rule for the dismal state of India's economy in its aftermath and that financial strength required for Industrial development in Europe was derived from the wealth taken from Colonies in Asia and Africa. At the same time right-wing historians have countered that India's low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialization and economic integration.[44]
[edit] Independence to 1991

Compare India (orange) with South Korea (yellow). Both started from about the same income level in 1950. The graph shows GDP per capita of South Asian economies and South Korea as a percent of the American GDP per capita.

Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union.[43] Domestic policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention, a large public sector, business regulation, and central planning,[45] while trade and foreign investment policies were relatively liberal.[46] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[47] Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, formulated and oversaw economic policy during the initial years of the country's existence. They expected favorable outcomes from their strategy, involving the rapid development of heavy industry by both public and private sectors, and based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system.[48][49] The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidizing manual, low-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.[50] The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the East Asian Tigers.[51][52] Since 1965, the use of high-yielding varieties of seeds, increased fertilizers and improved irrigation facilities collectively contributed to the Green Revolution in India, which improved the condition of agriculture in India by increasing productivity of food as well as commercial crops, improving crop patterns and strengthening forward and backward linkages between agriculture and industry.[53] However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.[54]
[edit] Since 1991 Main articles: Economic liberalization in India and Economic development in India

In the late 70s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes and small scale industries are created in large numbers. However the subsequent government policy of fabian socialism hampered the benefits of the economy leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans.[55] India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms.[56]

An industrial zone near Mumbai, India.

In response, Prime Minister Narasimha Rao along with his finance minister Dr. Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.[57] Since then, the overall direction of liberalisation has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.[58] Since 1990 India has a free-market economy and emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security. While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's.[59] In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.[60][61] In 2009 India purchased 200 tons of gold for $6.7 billion from the IMF.[62]

[edit] Sectors
[edit] Industry and services See also: Information technology in India, Business process outsourcing in India, and Retailing in India

India has one of the world's fastest growing automobile industries[63][64] Shown here is the Tata Motors' Nano, the world's cheapest car.[65]

Industry accounts for 28% of the GDP and employ 14% of the total workforce.[21] However, about one-third of the industrial labour force is engaged in simple household manufacturing only.[66][verification needed] In absolute terms, India is 16th in the world in terms of nominal factory output.[67] Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.[68] Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.[69] Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing output.[70] Ludhiana produces 90% of woolens in India and is also known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear.[71] Dharavi slum in Mumbai has gained fame for leather products. Tata Motors' Nano attempts to be the world's cheapest car.[65] India is fifteenth in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991±2000 up from 4.5% in 1951±80. It has the largest share in the GDP, accounting for 55% in 2007 up from 15% in 1950.[21] Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialization, and an availability of a large pool of low cost, but highly skilled, educated and fluent Englishspeaking workers, on the supply side, matched on the demand side by an increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of India's IT industry to the country's GDP increased from 4.8 % in 2005-

06 to 7% in 2008.[72][73] In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.[74] In March 2009, annual revenues from outsourcing operations in India amounted to US$60 billion and this is expected to increase to US$225 billion by 2020.[75] Organized retail such supermarkets accounts for 24% of the market as of 2008.[76] Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods to states, from states, and even within states.[76] Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.[77] Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 2009-10, including iron ore, manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphorite and silica sand.[78]
[edit] Agriculture

Farmers work inside a rice field in Andhra Pradesh. India is the second largest producer of rice in the world after China[79] and Andhra Pradesh is the second largest rice producing state in India with West Bengal being the largest.[80] Main articles: Agriculture in India, Forestry in India, Animal husbandry in India, and Fishing in India See also: Natural resources in India

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 2009-10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India.[81] Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the fiveyear plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world.[82]

India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including surface and groundwater, amounting to 1123 billion cubic metres.[83] 546,820 square kilometres (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated.[84] India's inland water resources comprising rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly 6 million people in the fisheries sector. In 2008, India had the world's third largest fishing industry.[85] India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.[86] It also has the world's second largest cattle population with 175 million heads in 2008.[87] It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.[87] India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.[88]
[edit] Banking and finance Main article: Finance in India See also: Banking in India and Insurance in India

The Indian money market is classified into the organised sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and the unorganised sector (comprising individual or family owned indigenous bankers or money lenders and non-banking financial companies (NBFCs)).[89] The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.[90]

Mumbai is the financial and commercial capital of India. Shown here is the World Trade Centre of Mumbai

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in

1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total deposits increased from 5,910 crore (US$ 1.34 billion) in 1970-71 to 3,830,922 crore (US$ 869.62 billion) in 2008-09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.[91][92] The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[93] Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.[21][94] More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold.[95] India's gross domestic saving in 2006-07 as a percentage of GDP stood at a high 32.7%.[96]
[edit] Energy and power Main article: Energy policy of India

ONGC platform at Mumbai High in the Arabian Sea. As of 2010, India is the world's fifth largest consumer of oil.[97]

India's oil reserves meet 25% of the country's domestic oil demand.[21][98] As of 2009, India's total proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion cubic metres.[99] Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan.[21][99] In 2009, India imported 2,560,000 barrels (407,000 m3) of oil per day, making it one of largest buyers of crude oil in the world.[100] The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in oil sector such as Reliance Industries Limited (RIL) which operates the world's largest oil refining complex.[101]

India has the world's fifth largest wind power industry, with an installed wind power capacity of 9,587 MW. Shown here is a wind farm in Muppandal, Tamil Nadu.

As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of which thermal power contributed 64.6%, hydroelectricity 24.7%, other sources of renewable energy 7.7%, and nuclear power 2.9%.[102] India meets most of its domestic energy demand through its 106 billion tonnes of coal reserves.[103] India is also believed to be rich in certain renewable sources of energy with significant future potential such as solar, wind and biofuels (jatropha, sugarcane). India's huge thorium reserves ² about 25% of world's reserves ² is expected to fuel the country's ambitious nuclear energy program in the long-run. India's dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years.[104] However, the Indo-US nuclear deal has paved the way for India to import uranium from other countries.[105]

[edit] External trade and investment
Further information: Globalisation in India [edit] Global trade relations

In March 2008, India's annual imports and exports stood at US$236 and US$155.5 billion respectively.[106] Shown here is the Chennai Port.

India's economy is mostly dependent on its large internal market with external trade accounting for just 20% of the country's GDP.[107] In 2008, India accounted for 1.45% of global merchandise trade and 2.8% of global commercial services export.[108] Until the liberalization of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity

participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around US$200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.[109] India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialization. Since liberalization, the value of India's international trade has increased sharply.[110] India's major trading partners are the European Union, China, the United States and the United Arab Emirates.[111] The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.[112] In 2006-07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver.[113] Its September 2010 exports were reported to have increased 23% year-onyear to US $18.02bn, while its imports were up 26.1% at $27.14bn. At US$13.06bn August's trade gap was the highest in 23 months but the economy is well on the road to cross $200 billion mark in exports for the financial year 2010-11. [114]

Indian exports in 2006

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other nontariff barriers into the WTO policies.[115]
[edit] Balance of payments

Cumulative Current Account Balance 1980-2008 based on the IMF data

Since independence, India's balance of payments on its current account has been negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis), India's exports have been consistently rising, covering 80.3% of its imports in 2002±03, up from 66.2% in 1990±91. India's growing oil import bill is seen as the main driver behind the large current account deficit.[116] In 2007-08, India imported 120.1 million tonnes of crude oil, more than 3/4th of the domestic demand, at a cost of $61.72 billion.[117] Although India is still a net importer, since 1996±97 its overall balance of payments (i.e., including the capital account balance) has been positive, largely on account of increased foreign direct investment and deposits from non-resident Indians; until this time, the overall balance was only occasionally positive on account of external assistance and commercial borrowings. As a result, India's foreign currency reserves stood at $285 billion in 2008. Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009.[118] The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports.[119] However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to 252.5 billion rupee.[118] India's reliance on external assistance and commercial borrowings has decreased since 1991±92, and since 2002±03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India's debt service ratio to 4.5% in 2007.[120] In India, External Commercial Borrowings (ECBs) are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates these borrowings (ECBs) through ECB policy guidelines.[121]
[edit] Foreign direct investment in India Share of top five investing countries in FDI inflows. (2000 2010)[122]

Rank

Country

Inflows (million USD)

Inflows (%)

1

Mauritius

50,164

42.00

2

Singapore

11,275

9.00

3

USA

8,914

7.00

4

UK

6,158

5.00

5

Netherlands

4,968

4.00

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI);[123] India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region.[123] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.[124] Durinf 2000-10, the country attracted $121 billion as FDI. The inordinately high investment from Mauritius is due to routing of international funds through the country given significant capital gains tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauriitus is a capital gains tax haven, effectively creating a zero-taxation FDI channel. India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business.[125] This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure. A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, creditinformation services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. FDI inflows into India reached a record $19.5 billion in fiscal year 2006-07 (April±March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24 billion[126] and for 2008-09, it is expected to be above $35 billion.[127] A critical factor in determining India's continued economic growth and realizing the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.[128]

[edit] Currency

The RBI headquarters in Mumbai Main articles: Indian rupee and Reserve Bank of India

The Indian rupee is the only legal tender in India. The exchange rate as on 23 March 2010 is 45.40 INR to the USD,[129] 61.45 to a EUR, and 68.19 to a GBP. The Indian rupee is accepted as legal tender in the neighboring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paise. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 25 paise coin (it earlier had 1, 2, 5, 10 and 20 paise coins which have been discontinued by the Reserve Bank of India).[130] The Rupee hit a record low during early 2009 on account of global recession. However, due to a strong domestic market, India managed to bounce back sooner than the western countries. Since September 2009 there has been a constant appreciation in Rupee versus most Tier 1 currencies. On 11 January 2010 Rupee went as high as 45.50 to a United states dollar and on 10 January 2010 as high as Rupee 73.93 to a British Pound. A rising rupee also prompted Government of India to buy 200 tonnes of Gold from IMF. The RBI, the country's central bank was established on 1 April 1935. It serves as the nation's monetary authority, regulator and supervisor of the financial system, manager of exchange control and as an issuer of currency. The RBI is governed by a central board, headed by a governor who is appointed by the Central government of India.

[edit] Income and consumption

Main article: Income in India See also: Poverty in India

Percentage of population living under the poverty line of $1 (PPP) a day, currently 356.35 rupees a month in rural areas (around $7.4 a month).

World map showing the Gini coefficient, a measure of income inequality.

India's gross national income per capita in 2008 was $1040.[131] Indian official estimates of the extent of poverty have been subject to debate, with concerns being raised about the methodology for the determination of the poverty line.[132] As of 2005, according to World Bank statistics, 75.6% of the population lives on less than $2 a day (PPP), while 41.6% of the population is living below the new international poverty line of $1.25 (PPP) per day.[133][134][135][136][137] However, data released in 2009 by the Government of India estimates the percentage of the population living below the poverty line to be 37%.[138] Housing is modest. According to Times of India, "a majority of Indians have per capita space equivalent to or less than a 10 feet x 10 feet room for their living, sleeping, cooking, washing and toilet needs." and "one in every three urban Indians lives in homes too cramped to exceed even the minimum requirements of a prison cell in the US."[139] The average is 103 sq ft (9.6 m2) per person in rural areas and 117 sq ft (10.9 m2) per person in urban areas.[139]

Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa.[140][141] However, India has not had famines since the Green Revolution in the early 1970s. A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 65% of Indians, or 750 million people, lived on less than 20 (US$ 0.45) per day,[142] with most working in "informal labour sector with no job or social security, living in abject poverty."[143] Since the early 1950s, successive governments have implemented various schemes, under planning, to alleviate poverty, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure.[144] In August 2005, the Indian parliament passed the Rural Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage, which promises 100 days of minimum wage employment to every rural household in all the India's 600 districts. The question of whether economic reforms have reduced poverty or not has fuelled debates without generating any clear cut answers and has also put political pressure on further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies.[145][146] Recent statistics in 2010 point out that the number of high income households has crossed lower income households.[147]

[edit] Employment
See also: Indian labour law

Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009-10.[81] While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 8% is in the organised sector, two-thirds of which are in the public sector. The NSSO survey estimated that in 1999±2000, 106 million, nearly 10% of the population were unemployed and the overall unemployment rate was 7.3%, with rural areas doing marginally better (7.2%) than urban areas (7.7%). India's labour force is growing by 2.5% annually, but employment only at 2.3% a year.[148] Official unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs and remain unpaid for the rest of the time.[148] Only 10% of the workforce is in regular employment.[148] India's labor regulations are heavy even by developing country standards and analysts have urged the government to abolish them.[13][149] Unemployment in India is characterized by chronic or disguised unemployment. Government schemes that target eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decreased role of the public sector after liberalization has further underlined the need for focusing on better education and has also put political pressure on further reforms.[144][150]

Child labour in India is a complex problem that is basically rooted in poverty. The Indian government is implementing the world's largest child labour elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organizations are also involved. Special investigation cells have been set up in states to enforce existing laws banning employment of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of child labour was $10 million in 1995-96 and $16 million in 1996-97. The allocation for 2007 is $21 million.[151] In 2006, remittances from Indian migrants overseas made up $27 billion or about 3% of India's GDP.[152]

[edit] Economic trends

India's 300 million strong middle-class population is growing at an annual rate of 5%.[153] Shown here is a residential area in Mumbai.

In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India¶s GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2043.[15] In spite of the high growth rate, the report stated that India would continue to remain a low-income country for decades to come but could be a "motor for the world economy" if it fulfills its growth potential.[15] Goldman Sachs has outlined several things that it needs to do in order to achieve its potential by 2050, including improving governance, education, infrastructure and environmental quality, controlling inflation, introducing a credible fiscal policy, liberalising financial markets, increase trade with its neighbours and raising agricultural productivity.[154]
[edit] Issues

[edit] Agriculture

An Indian farmer Main article: Agriculture in India

Slow agricultural growth is a concern for policymakers as some two-thirds of India¶s people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation. ± World Bank: "India Country Overview 2008"[155] India's population is growing faster than its ability to produce rice and wheat.[156] The low productivity in India is a result of several factors. According to the World Bank, India's large agricultural subsidies are hampering productivity-enhancing investment. While overregulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure and services are inadequate.[157] Further, the average size of land holdings is very small (less than one hectare) and is subject to fragmentation, due to land ceiling acts and in some cases, family disputes. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labour. Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs, illiteracy, slow progress in implementing land reforms, inadequate or inefficient finance and marketing services for farm produce and impracticality in the case of small land holdings. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating.[157] Irrigation facilities are inadequate, as revealed by the fact that only 39% of the total cultivable land was irrigated as of 2010,[84] resulting in farmers still being dependent on rainfall, specifically the monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth.[158] Farm credit is regulated by NABARD, which is the statutory apex agent for rural development in the subcontinent. India has many farm insurance companies that insure fruit, rice and rubber farmers in the event of natural disasters or catastrophic crop failure, under the supervision of the Ministry of

Agriculture. One notable company that provides all of these insurance policies is Agriculture Insurance Company of India and it alone insures almost 20 million farmers. [edit] Corruption

Overview of the index of perception of corruption, 2010 Main article: Corruption in India

Corruption has been one of the pervasive problems affecting India. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled private enterprise and was blamed by Chakravarthi Rajagopalachari for the corruption and inefficiencies. Yet, a 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.[159] The Right to Information Act (2005) and equivalent acts in the Indian states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances.[159] The 2010 report by Transparency International ranks India at 87th place and states that significant setbacks were made by India in reducing corruption.[160][161] [edit] Government
Main article: Government of India See also: Taxation in India and Corruption in India

The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-agriculture establishments with 10 or more employees.[144]

The current government has concluded that most spending fails to reach its intended recipients.[162] Lant Pritchett calls India's public sector "one of the world's top ten biggest problems ² of the order of AIDS and climate change".[162] The Economist's 2008 article about the Indian civil service stated that the Indian central government employs around 3 million people, including "vast armies of paper-shuffling peons".[162] At local level, administration can be worse. It is not unheard of that a majority of a state's assembly seats can be held by convicted criminals.[163] One study found that 25% of public sector teachers and 40% of public sector medical workers could not be found at the workplace. India's absence rates are one of the worst in the world.[164][165][166][167] [edit] Education
Main article: Education in India

India has made huge progress in terms of increasing primary education attendance rate and expanding literacy to approximately two thirds of the population.[168] The right to education at elementary level has been made one of the fundamental rights under the Eighty-Sixth Amendment of 2002.[169] However, the literacy rate of 65% is still lower than the worldwide average and the country suffers from a high dropout rate.[170] [edit] Infrastructure
See also: Transport in India, Indian Road Network, Ports in India, Electricity sector in India, States of India by installed power capacity, Water supply and sanitation in India, and Communications in India

Shown here is the Mumbai Pune expressway in Maharashtra.

India has built numerous new airports in recent years. Shown here is new Terminal 1D at Indira Gandhi International Airport in Delhi

In the past, development of infrastructure was completely in the hands of the public sector and was plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale investment.[171] India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment[144][172][173] which has helped in a sustained growth rate of close to 9% for the past six quarters.[174] Some 600 million Indians have no means of electricity at all.[175] While 80% of Indian villages have at least an electricity line, just 44% of rural households have access to electricity.[176] Some half of the electricity is stolen, compared with 3% in China. The stolen electricity amounts to 1.5% of GDP.[176][177] Almost all of the electricity in India is produced by the public sector. Power outages are common.[175] Many buy their own power generators to ensure electricity supply. As of 2005 the electricity production was at 661.6 billion kWh with oil production standing at 785,000 bbl/d (124,800 m3/d). In 2007, electricity demand exceeded supply by 15%.[175] Multi Commodity Exchange has tried to get a permit to offer electricity future markets.[178]

India has the world's third largest road network in the world.[179] Container traffic is growing at 15% a year.[180] Internet use is rare; there were only 7.57 million broadband lines in India in November 2009, however it is still growing at slower rate and is expected to boom after the launch of 3G and wimax services.[181] Water supply is a major problem even in urban India, with most cities getting water for few hours during the day and in some cases, after several days.[182] A World Bank report says it is an institutional problem in water agencies, or "how the agency is embedded in the relationships between politics and the citizens who are the consumers."[183] [edit] Labour laws
Main article: Indian labour laws

India¶s labor regulations ² among the most restrictive and complex in the world ² have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India¶s unemployed millions and those trapped in poor quality jobs. Given the country¶s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade. ± World Bank: India Country Overview 2008.[155] India's restrictive labor regulations hamper the large-scale creation of formal industrial jobs.[13][170][184] India ranked 133th on the Ease of Doing Business Index 2010, behind countries such as China (89th), Pakistan (85th), and Nigeria (125th). The Constitution provides protection of child labor, slavery, equality of opportunities and forced labor etc. in form of fundamental rights, but the implementation of provisions cited is a matter of concern.[185] [edit] Economic disparities
Main articles: Economic disparities in India and Poverty in India

Lagging states need to bring more jobs to their people by creating an attractive investment destination. Reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance are important. ± World Bank: India Country Overview 2008[155]

Slums next to high-rise commercial buildings in Kaloor, Kochi. Hundreds of people, mostly comprising migrant labourers who come to the city seeking job prospects, reside in such shabby areas.[186]

One of the critical problems facing India's economy is the sharp and growing regional variations among India's different states and territories in terms of per capita income, poverty, availability of infrastructure and socio-economic development.[187] Six low-income states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh - are home to more than one third of India's population.[188] Between 1999 and 2008, the annualized growth rates for Maharashtra (9%),[189] Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%).[190] However, In 2009-10, Bihar witnessed a growth of about 12.6%, and ended up becoming the 'fastest growing state' , followed by Gujarat with a growth of 11.3%. Poverty rates in rural Orissa (43%) and rural Bihar (40%) are some of the worst in the world.[183] On the other hand, rural Haryana (5.7%) and rural Punjab (2.4%) compare well with middleincome countries.[183] The five-year plans have attempted to reduce regional disparities by encouraging industrial development in the interior regions, but industries still tend to concentrate around urban areas and port cities[191] After liberalization, the more advanced states are better placed to benefit from them, with infrastructure like well developed ports, urbanisation and an educated and skilled workforce which attract manufacturing and service sectors. The union and state governments of backward regions are trying to reduce the disparities by offering tax holidays, cheap land, etc., and focusing more on sectors like tourism, which although being geographically and historically determined, can become a source of growth and is faster to develop than other sectors.[192][193]

[edit] See also
India portal

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Below Poverty Line (India)

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Bilateral investment treaty Indian Construction Industry Indian states ranking by families owning house List of companies of India List of the largest trading partners of India Media of India Net international investment position Economic reforms in India

[edit] Notes
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