CAN INDIA ACHIEVE

10%GROWTH RATE IN
GDP?

PREPARED BY:
SHILPA A KUMAR=53

ASHISH SARNA=11

DIANA=16

PRIYA GUPTA=38
 DECLARATION

We Ashish Sarna, Shilpa A Kumar, Priya Gupta and Diana

students of JIMS KALKAJI have completed the Module on

‘Can India Achieve 10% Growth Rate In GDP’

for the Trimester II.

The information given in this Module is true to the best of

my knowledge.
 Jagannath International Management School,

Kalkaji, New Delhi

Certificate

This is to certify that

Mr. Ashish Sarna (Roll No. 11)

Ms. Diana (Roll No. 16)

Ms. Priya Gupta (Roll No. 38)

[Link] (Roll No.53)

The students of P.G.D.M. Trimester II “A” have worked on the Presentation under
my supervision and this is their own work.

It is a part of their academic curriculum and is not intended for any other purpose.

Date: 13th December 2010 Neelam Tandon

 CONTENTS

Economy of India

India GDP History

Role of Major Industries in India

GDP

Where does India stand?

Standard of living and GDP

Limitations of GDP

How Can India Achieve 10% GDP

Growth

India's Growth
Challenges(CONCLUDING)?
Economy of India
The economy of India is the eleventh largest economy in the world by nominal GDP and the
fourth largest by purchasing power parity (PPP). 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. 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 Madison, 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.

India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP)
while the industrial and agricultural sector contribute 28% and 17% respectively 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%. 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. Major industries include
telecommunications, textiles, chemicals, food processing, steel, transportation equipment,
cement, mining, petroleum, machinery, information technology enabled services and
pharmaceuticals.

India's per capita income (nominal) is $1,030, ranked 139th in the world while its per capita
(PPP) of US$2,940 is ranked128th Previously a closed economy, India's trade has grown fast .
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.
 India GDP History
The India GDP is a combination of all the differential factors, contributing to the welfare of
the India economy. India GDP gives us a combined report of the performance of the Indian
economy. 'Cost factor' or 'Actual price' method - these are the two methods to calculate
Indian Gross Domestic Product. The main factor that contributed to the growth of India
GDP post 1990s was the opening-up of the Indian economy.

The balance-of-payments crisis of 80s of the Indian economy led to the paradigm shift of
the Indian Economy. The markets were opened up, the Government leveraged the entry of
private investments. As a result of this, more investments flowed into the markets. More so
by the foreign direct investments (FDIs) and foreign institutional investors (FIIs), the India
GDP growth saw a phenomenal increase. Bulk of the Government undertakings were
divested into lots of private business houses.

Gauging the health of the India economy - India GDP is the best tool! Going by figures,
India GDP has already crossed the trillion-dollar mark, other peers in this sphere being
US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil .

After the liberalization era of the India economy, the growth story of the India GDP was
driven by the following sectors of Indian industry -

 Information Technology
 Information Technology Enabled Services
 Telecommunications
 Electronics and hardware
 Automobiles
 Pharmaceuticals and biotechnology
 Consumer durables
 Retail
 Textiles
 Infrastructure
 Construction
 Airlines
 Hospitality
 Power
 Oil and natural gas
 Fertilizers and chemical

The GDP of India, even after the opening up of the economy and other relaxed norms
couldn't survive the aftermath of the global financial crisis. The GDP of India over the past
two fiscals (2008-09 and 2009-10) experienced considerable slowdown.

This moderate growth of the India economy has given rise to moderate expectations with
respect of India GDP. Though various rating agencies, economists, business houses predict
a healthy growth in India GDP in the next two years, yet skepticism is still the order of the
day. Achieving a 9% GDP growth by 2012 is immensely impractical, looking at the rate at
which things are improving.

India GDP Statistics

India’s real GDP statistics –

Indicator 2005 2006 2007 2008 2009

Real GDP growth

9.21 9.82 9.37 7.35 5.36
(% growth)

Trend of Growth Rate of India's GDP

1960-1980: 3.5%
1980-1990: 5.4%
1990-2000: 4.4%
2000-2009: 6.4%

The trend of growth rate of India's economy demonstrates an upward trend.

During the period of 1960 – 1980 the economy saw a growth rate of 3.5% due
to the roles of major industries in India GDP. In the years from 1980 to 1990
the growth rate showed a marked improvement of 5.4%, while it was slightly
lower in the period from 1990 to 2000 which was at 4.4%. The phase 2000 to
2009 saw a huge improvement and the growth rate of GDP were marked at
6.4%.
 Role of Major Industries in India GDP

SECTORS
Industry and services
Industry accounts for 28% of the GDP and employ 14% of the total workforce. However, about
one-third of the industrial labour force is engaged in simple household manufacturing only] In
absolute terms, India is 16th in the world in terms of nominal factory output.

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. 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.

Textile manufacturing is the second largest source for employment after agriculture and accounts
for 26% of manufacturing output. Ludhian 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. Dharavi slum in Mumbai has gained fame
for leather products. Tata Motors' Nano attempts to be the world's cheapest car.

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.

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 English-
speaking 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 [Link] 2009, seven Indian firms were listed among the top 15 technology
outsourcing companies in the world. 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.

Organized retail such supermarkets accounts for 24% of the market as of 2008. 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.

Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo
medical tourism.

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.

Agriculture
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. Yields per unit area of all
crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year
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.

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.546,820 square kilometres
(211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated. 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.

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric
and black pepper. It also has the world's second largest cattle population with 175 million heads
in 2008. 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. India is also the second largest producer and
the largest consumer of silk in the world, producing 77,000 million tons in 2005.

Banking and finance

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)). 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.

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.

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% [Link] 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.

More than half of personal savings are invested in physical assets such as land, houses, cattle,
and gold. India's gross domestic saving in 2006-07 as a percentage of GDP stood at a high
32.7%.

Energy and power

India's oil reserves meet 25% of the country's domestic oil demand. As of 2009, India's total
proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion
cubic metres. 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.
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 [Link] 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.

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%. India meets most of its domestic energy demand through
its 106 billion tonnes of coal reserves. 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 — about 25% of world's reserves — 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. However, the
Indo-US nuclear deal has paved the way for India to import uranium from other countries.

EXTERNAL TRADE AND

INVESTMENT
Global trade relations
India's economy is mostly dependent on its large internal market with external trade accounting
for just 20% of the country's GDP. In 2008, India accounted for 1.45% of global merchandise
trade and 2.8% of global commercial services export. 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. 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. India's major
trading partners are the European Union, China, the United States and the United Arab Emirates.
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. 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. Its September 2010 exports were reported to have increased 23% year-on-year 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.

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 non-
tariff barriers into the WTO policies.
Balance of payments
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. 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.

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. 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. 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.

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. 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.

Foreign direct investment in India

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for
foreign direct investments (FDI); 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 [Link] 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.

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 Mauritius 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. 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.

The contributions of various sectors in the Indian GDP for 1990-1991 are as
follows:

Agriculture: - 32%
Industry: - 27%
Service Sector: - 41%

The contributions of various sectors in the Indian GDP for 2005-2006 are as
follows:

Agriculture: - 20%
Industry: - 26%
Service Sector: - 54%

The contributions of various sectors in the Indian GDP for 2007-2008 are as
follows:

Agriculture: - 17%
Industry: - 29%
Service Sector: - 54%
 Where does India stand?
India is positioned as one of the major economies worldwide in
terms of the purchasing power parity (PPP) of the gross domestic
product (GDP) by chief financial units of the world such as the
International Monetary Fund, the CIA and the World Bank.

In terms of agricultural output India is the second largest.

Industries related to the agriculture have also played an important
role in the up gradation of the nation’s economy by opening up
employment avenues in the forestry, fishing and logging sectors.

For the elevation in the production volume in Indian agriculture

various five year plans should also be given due credit.
Improvements in irrigation methods as well as usage of modern
technologies have also added value to the agriculture processes.

In terms of factory output India ranks 14th in quantity produced by

industrial sector. Gas, mining, electricity and quarrying industries
also play major developmental roles and contribute in a major way
to the GDP.

The components that decide the GDP growth in India can be

divided under three broad categories like:

 Agriculture
 Industry
 Services
 Standard of living and GDP

GDP per capita is not a measurement of the standard of living in an

economy. However, it is often used as such an indicator, on the
rationale that all citizens would benefit from their country's
increased economic production. Similarly, GDP per capita is not a
measure of personal income. GDP may increase while real incomes
for the majority decline. For example, in the US from 1990 to 2006
the earnings (adjusted for inflation) of individual workers, in
private industry and services, increased by less than 0.5% per year
while GDP (adjusted for inflation) increased about 3.6% per year.[21]

The major advantage of GDP per capita as an indicator of standard

of living is that it is measured frequently, widely, and consistently. It
is measured frequently in that most countries provide information
on GDP on a quarterly basis, allowing trends to be seen quickly. It is
measured widely in that some measure of GDP is available for
almost every country in the world, allowing inter-country
comparisons. It is measured consistently in that the technical
definition of GDP is relatively consistent among countries.

The major disadvantage is that it is not a measure of standard of

living. GDP is intended to be a measure of total national economic
activity— a separate concept.

The argument for using GDP as a standard-of-living proxy is not

that it is a good indicator of the absolute level of standard of living,
but that living standards tend to move with per-capita GDP, so that
changes in living standards are readily detected through changes in
GDP.
 Limitations of GDP to judge the health of an economy
GDP is widely used by economists to gauge the health of an economy, as its variations are
relatively quickly identified. However, its value as an indicator for the standard of living is
considered to be limited. Not only that, but if the aim of economic activity is to produce
ecologically sustainable increases in the overall human standard of living, GDP is a perverse
measurement; it treats loss of ecosystem services as a benefit instead of a cost. Other criticisms
of how the GDP is used include:

 Wealth distribution–GDP does not take disparity in incomes between the rich and
poor into account.
 Non-market transactions–GDP excludes activities that are not provided through the
market, such as household production and volunteer or unpaid services. As a result, GDP
is understated. Unpaid work conducted on Free and Open Source Software (such as
Linux) contribute nothing to GDP, but it was estimated that it would have cost more than
a billion US dollars for a commercial company to develop. Also, if Free and Open Source
Software became identical to its proprietary software counterparts, and the nation
producing the propriety software stops buying proprietary software and switches to Free
and Open Source Software, then the GDP of this nation would reduce, however there
would be no reduction in economic production or standard of living. The work of New
Zealand economist Marilyn Waring has highlighted that if a concerted attempt to factor
in unpaid work were made, then it would in part undo the injustices of unpaid (and in
some cases, slave) labour, and also provide the political transparency and accountability
necessary for democracy. Shedding some doubt on this claim, however, is the theory that
won economist Douglass North the Nobel Prize in 1993. North argued that the creation
and strengthening of the patent system, by encouraging private invention and enterprise,
became the fundamental catalyst behind the Industrial Revolution in England.
 Underground economy–Official GDP estimates may not take into account the
underground economy, in which transactions contributing to production, such as illegal
trade and tax-avoiding activities, are unreported, causing GDP to be underestimated.
 Non-monetary economy–GDP omits economies where no money comes into play at
all, resulting in inaccurate or abnormally low GDP figures. For example, in countries
with major business transactions occurring informally, portions of local economy are not
easily registered. Bartering may be more prominent than the use of money, even
extending to services (I helped you build your house ten years ago, so now you help me).
 GDP also ignores subsistence production.
 Quality improvements and inclusion of new products–By not adjusting for
quality improvements and new products, GDP understates true economic growth. For
instance, although computers today are less expensive and more powerful than computers
from the past, GDP treats them as the same products by only accounting for the monetary
value. The introduction of new products is also difficult to measure accurately and is not
reflected in GDP despite the fact that it may increase the standard of living. For example,
even the richest person from 1900 could not purchase standard products, such as
antibiotics and cell phones that an average consumer can buy today, since such modern
conveniences did not exist back then.
 What is being produced–GDP counts work that produces no net change or that
results from repairing harm. For example, rebuilding after a natural disaster or war may
produce a considerable amount of economic activity and thus boost GDP. The economic
value of health care is another classic example—it may raise GDP if many people are
sick and they are receiving expensive treatment, but it is not a desirable situation.
Alternative economic estimates, such as the standard of living or discretionary income
per capita try to measure the human utility of economic activity. See uneconomic growth.
 Externalities–GDP ignores externalities or economic bads such as damage to the
environment. By counting goods which increase utility but not deducting bads or
accounting for the negative effects of higher production, such as more pollution, GDP is
overstating economic welfare. The Genuine Progress Indicator is thus proposed by
ecological economists and green economists as a substitute for GDP, supposing a
consensus on relevant data to measure "progress". In countries highly dependent on
resource extraction or with high ecological footprints the disparities between GDP and
GPI can be very large, indicating ecological overshoot. Some environmental costs, such
as cleaning up oil spills are included in GDP.
 Sustainability of growth–GDP is not a tool of economic projections, which would
make it subjective, it is just a measurement of economic activity. That is why it does not
measure what is considered the sustainability of growth. A country may achieve a
temporarily high GDP by over-exploiting natural resources or by misallocating
investment. For example, the large deposits of phosphates gave the people of Nauru one
of the highest per capita incomes on earth, but since 1989 their standard of living has
declined sharply as the supply has run out. Oil-rich states can sustain high GDPs without
industrializing, but this high level would no longer be sustainable if the oil runs out.
Economies experiencing an economic bubble, such as a housing bubble or stock bubble,
or a low private-saving rate tend to appear to grow faster owing to higher consumption,
mortgaging their futures for present growth. Economic growth at the expense of
environmental degradation can end up costing dearly to clean up.
 One main problem in estimating GDP growth over time is that the purchasing power of
money varies in different proportion for different goods, so when the GDP figure is
deflated over time, GDP growth can vary greatly depending on the basket of goods used
and the relative proportions used to deflate the GDP figure. For example, in the past 80
years the GDP per capita of the United States if measured by purchasing power of
potatoes, did not grow significantly. But if it is measured by the purchasing power of
eggs, it grew several times. For this reason, economists comparing multiple countries
usually use a varied basket of goods.
 Cross-border comparisons of GDP can be inaccurate as they do not take into account
local differences in the quality of goods, even when adjusted for purchasing power parity.
This type of adjustment to an exchange rate is controversial because of the difficulties of
finding comparable baskets of goods to compare purchasing power across countries. For
instance, people in country A may consume the same number of locally produced apples
as in country B, but apples in country A are of a more tasty variety. This difference in
material well being will not show up in GDP statistics. This is especially true for goods
that are not traded globally, such as housing.
 Transfer pricing on cross-border trades between associated companies may distort import
and export measures.
As a measure of actual sale prices, GDP does not capture the economic surplus between the price
paid and subjective value received, and can therefore underestimate aggregate utility.

How Can India Achieve 10% GDP Growth?

What must be done? Focus on urban or rural markets, globalize or be inward looking,
build rockets or provide free power, run a national employment scheme or support
entrepreneurs, are some of the conflicting approaches that need to be resolved. Our policies
should reflect a combination of approaches to create wealth across all sections of society.
Some innovative ideas:
 
Special economic zones for education (SEZE): India sent about 76,000 students to
the US in 2002-03. If each parent remitted an average of Rs 15 lakh a year, India’s
contribution to the US economy was about $2.6 billion. Most students go abroad because
the demand for quality education exceeds supply. Further, seat availability is reduced by
reservations. Conversely, college managements complain they are not allowed to fix fees
that reflect actual costs and are subject to excessive government control.
 
These centres of excellence would be governed by the Central government and
administered by a regulator. There would be no restrictions on fees/ salary for the faculty
or tie-ups/equity investment by foreign universities. Admission would be on merit only.
 
These SEZE’s should be able to not only retain at least 40 per cent of the students in India
but attract foreign students, too. At 2002-03 levels, it implies a fall in remittances of about
$1 billion.
 
Empowering rural India: The Gujarat government has introduced a unique
scheme called Jyotir Gram Yojna. Due to inadequate power generation and excessive
consumption by the agricultural sector, load shedding was unavoidable. With an
investment of Rs 1,300-1,500 crore, the government decided to provide single/three-phase
electricity connections to domestic and cottage industry consumers in all villages with a
population more than 3,000. This way, line one is for agricultural and line two for domestic
use. Homes are assured power for about 20 hours a day and the farmer gets a minimum of
eight hours. So far, about 14,000 villages have been covered.
 
Near-uninterrupted power at home has given an impetus to diamond polishing and cottage
industries. At a cost of between Rs 6,000-10,000, villagers have started Ghanti — a
diamond-polishing unit. Average monthly income is between Rs 3,000- Rs 4,500. Earlier,
villagers went to cities for work but reverse migration has started now. Home industry
allows homemakers to work in their spare time, which results in empowerment of women.
Deurbanisation reduces the need for men to go to sex workers, which decreases the
possibility HIV/AIDS.
 
Health care cities: According to a McKinsey Quarterly article, “Employee benefits
now represent the third-largest expense after the cost of goods sold and non-manufacturing
payroll and health insurance is the fastest growing component. Total US health insurance
cost in 2003 was $389 billion”.
 
India could help reduce costs by setting up health care cities. These will have hospitals and
hotels. Facilities would be world-class but at a lower price. Hospitals could be funded by
private equity funds, hospitals and have back-to-back tie-ups with Western insurance
companies. Hospitals must be run on corporate lines and pay income tax at 20 per cent (no
exemptions).
 
Rural malls: Traditional thinkers are happy to see Indians work globally. However, if
India seeks to grow at 10 per cent, it must seek to capture a higher percent of value
addition within the country itself.
 
Rural India needs huge malls that are a one-stop shop for farmers needs? They must have
a:

• Technical cell that advises farmers on crop related issues;

• Bank that provides credit;

• Insurance company that insures produce;

• Mandy that buys produce at market-related prices;

• Food-processing unit;

• Hospital that provides basic medical facilities for human beings and cattle;

• Consumer store;

• Entertainment complex that organizes melas, bullock cart races and rewards outstanding
performance by farmers.

.The malls must be promoted by the private sector.

Indus economic free trade zone (IEFTZ): After 1947, the Sindhi community is hurt
because unlike others, they do not have a state to call their own. We also know that the
Sindhi community is successful globally. Is there a way by which India could satisfy their
need for a state and attract capital?

We could start the IEFTZ in Kutch. Why Kutch? Three reasons. One, Indus area and the
Kutch are geographically close to each other. Two, there is similarity between Sindhi and
Kutchi languages. Three, Kutch needs lots of investment, which NRI Sindhis can provide.
There was once a proposal to create a state of Sindh in Kutch.
 
Carving out a separate state of Gujarat is a non-starter. Instead, IEFTZ could have a
clearly demarcated area. Broad contours of the scheme are: All Indians could invest here
but preference would be given to the Sindhi community. They would be allowed special
facilities for preservation of Sindhi culture. The IEFTZ could be a joint venture between
the government and the Sindhi community. If the average Sindhi believes there is money to
be made coupled with making a contribution to preservation of Sindhi culture, I am sure
the IEFTZ idea would fly. India needs many more ideas to achieve its potential.
India's Growth Challenges(CONCLUDING)
Indeed, despite India's strong first-half showing, a high budget deficit and rising inflation
pose a considerable threat the country's economic growth.

While the central-government-budget deficit appears tolerable at 8% of GDP, provincial

governments also run budget deficits - in amounts equal to an additional 4%-5% of GDP.
That gives India a consolidated budget deficit of 12%-13% of GDP, meaning its fiscal
position is on par with that of Greece, Britain and Ireland.

However, India's saving grace may be the fact that its public debt level is relatively low at
around 60% of GDP. A large portion of that is domestically held, as well, primarily in the
banking system, which is largely state controlled.

Indian Prime Minister Manmohan Singh  says a medium term plan to halve the fiscal
deficit by 2013-14 is in the works and that growth isn't expected to suffer as a result.

"We are giving a strong push to investment in infrastructure, relying on private public
partnership as much as possible to reduce the burden on scarce public resources," said
Singh. "We expect to grow by 8.5% in 2010-11 and we hope to go back to 9% in 2011-12.
This is an ambitious goal and we recognize that we have much to do to achieve it."

India's infrastructure sector has doubled over the last five years, from 4% of GDP to 8%,
according to the country's Planning Commission. The government currently is offering
investment opportunities in the infrastructure sector that are worth more than $850 billion,
according to Mukherjee.

As a result, India's six core infrastructure industries - crude oil production, petroleum
refinery production, coal production, cement production, finished steel production, and
electricity generation  - grew by 5% in May after growing by 5.4% in April.

Long-term, India is looking to invest $1 trillion in infrastructure over the next seven years.

However, the plan for controlling inflation is less clear.

India's wholesale price index, the primary inflation gauge for the country, rose 10.2% in
May alone. Food prices in particular have seen a spike. They were up 0.7% in the week
ended June 12 from the previous seven days, and 16.9% from a year earlier.

The government also has deregulated gasoline prices and raised the cost of diesel and
cooking fuel, which could push June headline inflation above 11%.

The country's current-account deficit, which widened to a record $13 billion in the first
quarter, couldweaken the rupee further. The currency already is the worst performer in
Asia this quarter after the Korean won.

The Reserve Bank of India (RBI) started raising interest rates in March to combat the
decline, and some analysts had speculated that the central bank would announce another
increase before its next scheduled meeting on July 27. However, a liquidity crunch in the
country's banking sector has made that unlikely.

“INDIA CAN ACHIEVE UPTO 9% GDP GROWTH RATE,BUT

STILL IF THERE WILL BE MORE IMPROVEMENT IN
HEALTH OF
INDIA(INFRASTRUCTURE,EMPLOYMENT,CORRUPTION,EC
ONOMIC STABILITY ETC),THEN THERE WILL BE A
LITTLE CHANCE TO GET 10%GROWTH RATE.”
 BIBLIOGRAPHY

REFERENCE FROM:
1. GOOGLE SITE
2. ECONOMIC TIMES
3. BUSSINESS MAGAZINES