Abstract
Indian economy has seen a steady growth over the last thirty years. This can be credited to the stable performance of its manufacturing and IT sector.
This paper will delve on the major transformation that Indian economy has experienced over the years.
From Sleeping Giant to Economic Tiger
A country known for its poverty, overpopulation, and dismal healthcare system, India has grown to become an economic tiger in recent years. This can be attributed to the influx of manufacturing firms and information technology companies who decided to expand their business to this part of the world. With a per capita income equivalent to tenths of member nations of the Organization of Economic Cooperation and Development (OECD), it is now a normal scenario for tourists to see towering skyscrapers in cities such as Hyderabad and Bangalore. From $50 million in 1990 to 1991, projections have it that profits will be at $50 billion come 2008 (Nagala, 2006).
The driving force behind this economic turnaround is the American firms who decided to outsource their jobs from the US to India. The Americans realized the advantages of moving their business to India largely because labor costs are much lower (Nagala, 2006).
The awakening of the giant was actually initiated in 1991 when then Finance Minister now Prime Minister Manmohan Singh initiated economic and budget policies which triggered the roots of economic growth in India. Here are the facts and figures that highlight the steady increase of Indian economy (Arun, 2008).
From 1950 – 51, Gross Domestic Product jumped from US$ 20 billion to US$912 billion in 2006 to 2007. It is projected to hit the trillion dollar mark in 2008. India’s purchasing power parity (PPP) was US$ 4 trillion comprising 6.3% of the world’s gross domestic product.
Aside from that, yearly economic growth in India jumped from 3.5 percent in the initial thirty years of Indian independence, to 5.7 percent in the 1990s. In 2003 to 2004, annual growth rate was 8.6% and in 2006-2007, GDP growth was at 9.4% per annum.
In terms of employment rate, India’s annual growth rate is 2.9 percent annually. From 1999 to 2005, 12 million additional employees were added to India’s labor force. It ranks second to China in terms of economic growth.
Moreover, people earning an income below the Indian poverty level have dropped from 51 percent in 1977 to 1978 to 22% in 2004-05. However, the figure still translates to 250 million.
The enrollment ratio in primary school is now at 95 percent. 73 percent of the children going to school are reaching fifth grade. Because of its enrollment rate, the total rate of the Asia Pacific region has jumped to 94 percent.
India’s employment program has assured poor workers employment for 100 days annually with a daily wage of Rs 80 or $2.
According to Y V Reddy, who is the Governor of Reserve Bank of India, the 2008 GDP growth of India will bee at 8.5 percent while inflation is below 5 percent. Among the major drivers of economic growth in India are the influx of international funds, huge foreign exchange reserves, the growth in the IT and real estate sector, and a booming capital market (Economy Watch, nd).
The Indian government has likewise instituted various structural reforms. The steady performance of the service sector netted a growth of 11.18% in 2006 and the industry sector at 10.63% in the same year (Economy Watch, nd).
The Contribution of the Manufacturing Sector
The steady growth of the manufacturing industry in India had a boomerang effect in the industry sector, according to the Index of Industrial Production (IIP). In January of 2008, the industry sector registered a 13.3 percent growth which is much higher than the 3.8 percent rate in October 2006(Uday, 2008).
By 2014-2015, projections for the manufacturing sector are at $520 billion as opposed to the $272 billion recorded in September 2007. This was based on a research conducted by the Confederation of Indian Industry and Boston Consulting Group (Uday, 2008).
The core of the manufacturing industry consists of engineering and construction, industrial manufacturing, chemicals and plastics, automotive, and materials and commodities. Currently, Indian firms are on the process of internalizing. They are presently globalizing their brands such as the Mahindra & Mahindra, which is now among the five leading manufacturers of tractors in the world (Uday, 2008).
Moreover, mergers and acquisitions have shaped up the industry as well. From 200 deals worth $1.7 billion in the year 2000, M & A deals has more than doubled during the first half of 2007 with 540 deals amounting to $50.9 billion (Uday, 2008).
The Share of the IT Industry
When the information technology sector in the United States started growing, American IT firms considered manufacturing offshore. Although hardware production was integrated into the manufacturing sector in 1980, the high technology jobs during the 1990s required sophisticated skills to write programs and manage computer systems. Only a handful of countries had manpower that has the technical knowledge and English proficiency to accept the jobs offered by the American companies. Vietnam, Russia, and China were potential venues for outsourcing as well but India was topping the outsourcing revolution, as it comprise 70% of the overall spending (Nagala, 2006).
The IT revolution in India began in 1984 when Prime Minister Rajiv Gandhi initiated policies that would liberalize the IT industry. According to the National Association of Software and Service Companies (NASSCOM), the total earnings of the industry in 1980 was US$ 4 million. In 1995, the figure ballooned to $480.9 million. From 1997 to 2002, the growth rate of the industry was 229%. At the conclusion of 2001, the industry has already earned $4.2 billion and was projected to increase to $8.5 billion by the end of 2002(Nagala, 2006).
Over the last thirty years, the growth of the IT industry in India has grown by leaps and bounds. This is due largely to fresh ventures and investments from foreign capitalists as well the easing of government policies (Nagala, 2006).
Conclusion
Government initiatives in India are mainly responsible for the major turnaround of Indian economy. Despite being one of the poorest nations, India is now one of the fastest growing economic powers in the world.
References
- Arun(2008). Witnessing the Indian Growth Story. India Business Buzz. Retrieved July 9 2008 from http://trak.in/tags/business/2008/01/04/india-economic-growth-story-facts-figures/
- Indian Economy Overview(nd). Economy Watch. Retrieved July 9 2008 from http://www.economywatch.com/indianeconomy/indian-economy-overview.html
- Nagala, S(2006). India’s Story of Success. Stanford Journal of International
- Relations. Retrieved July 9 2008 from http://www.stanford.edu/group/sjir/6.1.05_nagala.html
- Uday, L.P(2008). Manufacturing Drives India’s Economic Growth. Automation World. Retrieved July 9 2008 from http://www.automationworld.com/webonly-3807
