India is a nation of over 1.1 billion people, which makes for a very unique economic structure. While the majority of India’s citizens earn their living through agricultural or manufacturing means, the economy is recognized as one of the biggest up and coming players in the technological market. It is a very diverse society where no one field of work takes precedence; and it is in this way that India has claimed the title of 12th largest economy in the world. Furthermore, a large number of young and educated youth have taken advantage of the digital age and learned English as well as become highly skilled with technology. It is in this way that India has become a very important back office for the global outsourcing of technical support and customer service operations. This essay aims to portray just how India became the 12th largest economy in the world, as well as to provide an accurate outlook on what may lie ahead in the future.
Currently a federal republic, India has shed its history of socialist policies in favor of a more proven successful approach. In the past, the government used to maintain strict control over the private sector and participation by its citizens. Also, foreign trade and foreign investment were highly regulated. More recent times have allowed the government to restrict many of these hindering economic policies, specifically by reducing government controls on foreign trade and investment. This has allowed for the slow privatization of formerly public-owned industries to occur, leading to more competition which drives prices down and quality up. Yet even though good things have been occurring in recent times for India, there is still much political debate regarding just how well these new policies are functioning.
One of the main problems faced by India is the same as that of the United States, Russia, and China: the large gap that exists in the allocation of wealth. To complicate matters, India is constantly battling a fast-growing population problem which has led to increased poverty since there simply are not enough jobs for over a billion people. In response to this problem, the United States has recently taken measures to provide jobs to many Indians; that being through the outsourcing of customer and technical support.
Many people either have complained in the past or currently complain about this outsourcing dilemma. The fact of the matter is that while we may be taking jobs away from hard-working Americans, we are just providing these jobs right back to a deserving citizen in India. If a corporation could hire one American at the cost of paying four Indians, does it not make more sense to provide a source of living to more people? Even looking at the problem from a strictly financial point of view, I do not see how these people have the nerve to call out Indians for “taking their jobs.” This problem is obviously also prevalent in that of factory jobs and the outsourcing of those jobs to Mexico. People just need to understand that this world that we live in supports the best and the brightest; those who can accomplish the maximum amount of output with the smallest amount of input. We do not live in a socialist or communist state; those outdated policies are slowly dying just like the Soviet Republic and Communist China have. There is no provider to ensure success for all and that everyone may live in a happy and comfortable manner. This needs to be accepted as fact and folks must move on past the fact that they lost their factory or technical support position to an outsider, and instead of complain they must figure out a skill or an advantage that they possess and utilize it to the best of their ability.
All opinions aside, India remains a number one destination for software engineering as well as for software and financial services. With a GDP of just over $2.96 trillion as of 2007, India is showing no apparent signs of suddenly dropping out of the world economy. Yet at the same time, this number can be put into very real human terms by viewing it in terms of a per-capita basis: $2,600. Yes, the average household in India together brings in a meager $2,600 yearly. Given these wages, one should not be surprised to see the streets of India flooded with vendors of all sorts of different wares at prices much lower than those found in the United States.
Another problem in India is that of a relatively high rate of inflation. Clocking in at 6.4 percent as of 2007, the rate is more than double than the rate found in the United States. In either case, the rate of inflation is quite a bit above the normal desired rate of about 1-1.5%. Price jumps in commodities such as food, edible oils, and metals could be accounted for the steady increase over the past five years in India’s rate of inflation. There has also been much worry not necessarily due to the above-average inflation rate, but more due to the fact that the government responds with a “knee-jerk reflex” in order to resolve the problem. When steel prices were high and climbing higher, the Indian government threatened the steel industry with placing steel on its “15 essential commodities” list, which would allow the Indian government to control the price as well as the supply of steel. In response, the steel industry reluctantly dropped its prices down to a more suitable level, in which case the government removed its threat. With such a rapid and aggressive response, one can only imagine the possibilities if things had gone awry. If the government continues to act in such an aggressive manner, India is sure to face more hardships in the future. Personally, I think that a long-term solution would be a much better option that simply satisfying short-term results. For example, farmers are able to potentially catch a glimpse of the prices they will be facing in the near future by paying close attention to the futures market. If India were to educate the steel industry as well as farmers on how to pay attention to their respective futures markets, it is likely that prices would flow at a much more even level and these spikes of inflation would not necessarily be so prevalent.
The legal tender of India is the rupee, which is a name I recognize as the monetary unit of the Nintendo game Zelda. The exchange rate is approximately 49 rupee to one U.S. dollar. One interesting fact I feel should be noted is that the highest denomination rupee note in circulation is 1,000, which equates to roughly a U.S. $20 bill. I suppose this is roughly similar to the United States, but there are still plenty of people who carry $50 and $100 bills with them. Also, $50 and $100 bills are not very difficult to acquire, as a quick trip to the bank (as well as being in possession of some money) can easily yield one or both of these bills. Given India’s lower economic status however, the government obviously feels that it is unnecessary to circulate a bill that is greater in value than 1% of India’s GDP per capita. I feel that this statement alone reflects a lack of confidence in the economy by the government, due to the fact that if the government and policymakers were confident they would most assuredly circulate a bill of greater value.
I feel that it should be noted that India did not always start out so great. In pre-Colonial times (circa 2800BC), statistics reveal that over 99% of India resided in villages and were mostly self-sustained through agriculture. During this period, India exported many textiles and agricultural products to Europe in exchange for silver and gold bullion. This led the British colonization of India, much of which is still prevalent to this day. Also, Hinduism and the family caste system greatly influenced the maturation of India’s economy. Moving into the Colonial era, India placed itself under a system that taxed property values instead of revenue and the result was mass impoverishment and poverty. On paper, this policy looked as if it would guarantee free trade and rights to all property owners. However, the results yielded a much different scenario. Near the end of Colonial times, India sported one of the lowest life expectancy rates, lowest literacy rates, and was among the poorest of even the developing countries. In 1991, India finally gained its independence from British colonial rule. Yet while they had become unrestricted from the British, at the same time the new Indian economic policies took many concepts and ideas from that of Colonial times.
The first prime minister went by the name of Jawaharlal Nehru, and although he is highly criticized he very likely was the beginning of a new era for India. The new economy focused on import substitution, industrialization, as well as a very large public sector. It was through this new way of executing economic policies that India became the 12th largest in the world. India also implemented a tax policy that is progressive between 10-30%. This is similar to the United States and was done at least in part in order to combat the rising disparity between the rich and the poor. When the Soviet Union collapsed, it hurt India because it was one of their major trading partners. Instead of buckling and collapsing itself however, India simply bit the bullet and trekked onward to the success it has found today. India is one of the greatest economies of the world today and things are only looking up in the future. With education and skilled workers on the rise, India is setting itself up to be among the top players in the world economy. By the year 2035, it is projected that India will possess the largest economy behind only the United States and China. It is my hope that India may continue this reign of success, and perhaps eventually lead the world in advancing technology and I.T. management.
The data for this paper was gathered from the CIA World Fact Book, Comparative Economic Systems by Schnitzer, GPOAccess.gov, the New York Times, economicindicators.gov, worldwide-tax.com, the Center for the Advanced Study of India at the University of Pennsylvania, and the Oxford University Press.
