INDIAN ECONOMY: AN OVERVIEW

Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century.  For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants - India and China.

India is slated to become the third largest economy with a share of 14.3 per cent of global economy by 2018 and graduate to become the "third pole" and growth driver by 2035.India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.

A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %.  Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record.

The Government has set up several committees with a view to pursue economic reforms that enable higher economic growth and generate more employment, while making the Indian economy more globally competitive. The Government has also taken several steps to revitalize the public sector and increase public investment. Two important institutional innovations have been the creation of the National Committee on Infrastructure, chaired by the Prime Minister, and the Investment Commission, chaired by Shri Ratan Tata. 

The economy is expected to grow at close to 7 per cent. To step up the rate of growth further, requires more investment in infrastructure and in agriculture and an improvement in government finances.

Economic reforms began in earnest only in July 1991.  The reforms of the last 10 years have gone a long way toward freeing up the domestic economy from state control.  Progress has also been made in many areas that were previously off limits to reforms.

The most important area of reforms is perhaps India’s power sector.  Virtually no sector of the economy — industry, agriculture, or services — can achieve successful transformation without adequate supply of power.  Infrastructure is another important area of reforms.  Roads, railways, and ports all need expansion as well as improvement in the quality of service.  Fertilizer and food subsidies pose yet another challenge.  As much as 0.7 percent of GDP goes into fertilizer subsidies.  Finally, the reform of bureaucracy is essential.  The problem of a bloated bureaucracy and the need for downsizing it is well recognized.  Moreover, the success of the reforms in delivering growth and poverty reduction must make the road to future reforms less bumpy.

The Government started to deregulate the areas of its operation and subsequently, the disinvestment in Public Sector Enterprises (PSEs) was announced.  The process of deregulation was aimed at enlarging competition and allowing new firms to enter the markets.  The market was thus opened up to domestic entrepreneurs / industrialists and norms for entry of foreign capital were liberalized.