The Indian Economy: Progress, Obstacles, Challenges
Lodewijk J. Berlage
Loyola Institute of Business Administration
December 15, 2011
It is well known that at the end of the last and during the present century the Indian economy performed much stronger than during the first decades after independence. In common discourse this improved performance is usually linked to the change in policy framework which was introduced in 1991 and thereafter continued by successive governments. As a result far reaching regulation of domestic private sector activities and protection against inflows of foreign goods, services and capital were gradually replaced by a more liberal policy framework. But the growth acceleration started even earlier. Whereas between 1960 and 1980 the average annual growth rate of per capita GDP was approximately one per cent, it rose to more than three per cent over the years 1980-2000 and to six per cent during the first decade of the present century. A specific feature of the Indian growth process was that the highest growth rates were realized in the services sector, especially by modern services. GDP growth was supported by increases in physical and in human capital formation, but the main contribution probably came from increasing total factor productivity. Flows of goods, services and financial capital to and from the rest of the world have increased, both in terms of world flows and of GDP. However the benefits of growth have been unequally distributed, geographically as well as over households. Growth has raised the income divergence between states. At the level of households the income distribution has become more uneven and growth has been associated with a weak increase in regular employment. India has ample opportunities for continued economic growth, but it also faces multiple obstacles. If growth is to be sustained these obstacles should be removed, some of them quite soon, others more gradually. We discuss problems of governance and of infrastructure, including roads, electricity supply and urbanization. We also observe a need to improve a number of components of human development for a large fraction of the population.
Number of Pages in PDF File: 57
Keywords: India, economic growth, income distribution, obstacles to growth
JEL Classification: O14, O15, O18, O19, O21, O23working papers series
Date posted: February 11, 2012
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