India's Economic Challenges & Opportunities

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Published: Friday, 18 March, 2016 11:00 AM

India’s Economic Challenges & Opportunities

MBA aspirants must be updated with General Awareness on current affairs. General Awareness topics with analytically drawn conclusions will benefit you in XATIIFTNMATSNAP ,CMATMAT, and later in Post exams screening Tests like  WATGD & PI , Essay writing

Read General Awareness Topic:  India’s Economic Challenges & Opportunities

The Indian economic history can be divided into three phases – Pre Independence Period (Before 1947), Pre Reform Period (1947-1991) and the Post Reform Period (1991 to present).

In each phase, the basic challenges like poverty, unemployment, inflation, inequality of income, infrastructure bottlenecks, energy crisis, unbridled population growth, low GDP growth, environment degradation, lack of transparency, poor social indicators, etc had remain more or less same.

 It doesn’t mean that no progress has been made during the past 70 years. In the pre-reform era, three consecutive years of drought would have created a major food crisis in India but with the development of irrigation facilities, we have been able to minimise the effect of monsoon failure on agriculture and overall prices. In the pre-independence period, the growth rate of 2% was considered to be a big achievement. In pre-reform phase, the bar was raised to 5%; now even a 7.5% of growth rate is seen as a moderate one.

Among all the aforesaid challenges, there is no element of doubt that few of them like poverty, inequalities had to be wiped off from India and environment degradation had to be contained but this is also true that many issues which currently pose a formidable challenge before the economy can be transformed into an opportunity.

India's Economic Opportunities

For that matter, the massive population in India can be a boon as well as bane for the economy. If dependency ratio remained high along with unskilled workforce, the huge population will remain a burden. In the future, most of the jobs that would be generated require skilled work force.

When many developed societies in Europe and Japan are ageing and their working population is diminishing, they are looking towards developed countries for the skilled workforce; India can provide an answer to their woes. The only condition is that it needs to impart skills in its workforce and benefit from the potential of demographic dividend. The huge population in India also presents one more opportunity. If India is able to empower the masses economically and socially, India need not care for the global slowdown or upswing when the billion dollar market is at its home.

Another challenge is inflation which is indeed an opportunity in a veil. In order to convert this challenge into an opportunity, the veil of inequality needs to be removed. Inflation rise is actually a sustained rise in general price level. If it is not based on speculation, the price rise is due to the increase in cost of production.

Labour is the most significant factor of production. Rise in cost of factors of production means rise in wages which is in fact increase in income of substantial working population. Then why is inflation demonized in India? It is because of the prevalent income inequalities. Inflation increased the income of only few sections of the population rises leaving a significant number of people feeling the pinch of price rise with stagnant income. With relatively equal distribution of income, a moderate rate of inflation will become a boon for economy. In fact in any scenario, inflation is always preferred over deflation i.e. price rise is always preferred over price fall.

Income inequalities in India exist due to the lopsided occupational structure of the country where more than 55% of the population engaged in primary sector which have a share of merely 15% in the GDP. It means that by merely increasing the income of primary sector, income of more than half of the workforce can be increased.

Thus the lopsided occupational structure in fact offers an opportunity to improve the lives of majority of workforce ultimately bridging the gap of income inequalities in India.

The Economic Survey 2015-16 predicted the growth rate of 7-7.5% in the financial year 2016-17 which is below the potential of 8-10% of growth rate. Without a substantial increase in the investment rate, the growth rate cannot reach its potential.

Major part of investment had to come from private sector but the private investment is hampered by challenges of twin balance sheet problems – the non-performing assets (NPAs) of public sector banks and some corporate houses.

Rising NPAs of banks crowd out the private sector from credit market. To bail out the banks, reforms and recapitalization is required. If banks are strengthened and allowed to work without political intervention, they can be of immense help in reaching the growth potential.

The Chakravyuh challenge, as mentioned by the Economic Survey 2015-16, is referred to the peculiar situation of Indian economy where it is ease for a business to enter the market but virtually impossible to exit.

The Indian economy has made great strides in removing barriers to entry for firms, talent, and technology but less progress has been made in relation to exit because of which, proportional of inefficient and non-productive firms consistently increased in Indian private sector.

Strengthening of private sector needs both ease of entry as well exit and for that matter, passing of Bankruptcy Law can shatter the last gate of Chakravyuh. If exit is made easier, it will open another set of opportunities in the economy which will help in full-fledged economic recovery.

Indian economy is a maze of challenges and opportunities where the answer to a challenge opens a set of opportunities which again gives rise to another challenge. For instance, removing the infrastructural challenges generates externalities for other businesses and improves the employment generation. But it also gives rise to environment challenges. Environmental challenges are again the opportunity for the fast growing green industry. Challenge and opportunities are the two sided of the same coin and it matter how we use that coin.

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