Report Studying the various Macroeconomic factors of Indian economy.

1. Macroeconomics 2 – Group Assignment
Study of
Macroeconomic Performance
INDIA
The study focuses on four key factors namely Demographic Trends and
structure, GDP and its composition, Human Development with respect
to education, health and gender equality and Infrastructure.
Group 10 – Section A
Ankush Chhabra
Archana Kadam
Arun Pappaala
Rishi Dixit
Sagar Bhavishi
Vishal Mittal

2. The population explosion in India is the most visible trend. The population which stood at 350 million at
independence, has crossed the one billion mark in 2001. The major factors which influence population are fertility,
infant mortality and longevity. The increasing technology has skewed all these factors towards higher population.
Broadly, the population growth rate is 2.25% per annum in northern India and 1.25% in southern India. Further,
some advanced stated in India have reached the replacement-level fertility, which is two births per woman, and
implies zero growth rate.
The sex ratio is currently assumed to be 107 males per 100 females in India. The northern ratio being 108 &
southern ratio being 106. However due to increasing government intervention and awareness, the sex ratio doesn’t
seem to drop further, and shall be maintained at the current levels in future.
Age structure is an important measure, since it gives an idea of the working population, and the pensioners. India
will see a rise in the working population. Over 800million workers will be added to the system over the next 15years.
So as shown above there will be a significant rise in the working population over the next 15 years. The population
pyramid of India in 2000 is as follows:
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3. As per the estimates the pyramid would change to include lesser child and old-age population, and tilt towards
lower dependency ratio. Over the next four years, the working population would increase and the increasing
economic activity of the country would absorb more of these new entrants into the workforce. In four years, the
population is expected to reach 1.25billion according to “Institute of Economic Growth” estimate.
Implications of the above Trends
Since these people will be in their prime age (15-65year) they will have higher savings, and higher productivity. This
will result in increase GDP of the country. The increased working age population should be coupled with favorable,
economic and political conditions for growth. Otherwise this would result in increased unemployment rates, and
social unrest.
The increasing population will put much stress on the urbanization. There will be increasing demand felt on the
education, housing, and infrastructure needs of the society. By 2025, 40% of the Indian population is expected to be
urban. This would put more pressure on the already strained urban amenities. If India could harness this
demographic advantage, the cities would become very prosperous.
The increased participation of women in workforce would bring about a sea change in the gender-perception of
India society.
The aged population will prefer investing in bonds, while earning population will save more, and have funds to
invest in shares and other assets. Hence the shares and asset prices will go up in India in future, while the bond
yields would fall. The prime-age population (15-64yrs) is expected to increase from the present to 60% to 68% in
2025.
The demographic structure also has profound implications on the defence. Since countries with lower prime age
population cannot afford to maintain huge troops, by sacrificing their contribution to the economic activity, the
countries tend to rely more on nuclear and advanced technological warfare, which results in increased defence
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4. spending. Countries like India will have to counter that threat by significantly increasing their defence technology
spending too.
The major concern is that a big chunk of the added population would be from the poorly governed and least
developed states of Bihar, Uttar Pradesh, Rajasthan and Orissa. With the hope that large scale migration happens,
and the workforce is absorbed in the more prosperous southern states, the future looks bright.
Urbanization leading to development of India
Economic growth and development are synonymous to urbanization a country. This relationship is valid empirically,
both across space and time. Analytically it is not difficult to observe why economic growth and development is both
a cause as well as consequence of urbanization. Human civilization is transforming predominantly into urban
civilization. Urban cities offer better academic opportunities. Human Rights have also declared the right of education
for everyone. Education plays an important role in economic and social development of the country. With the
increase in urbanization, educational status is improving. The reverse is also true. Setting up prime educational
institutes like IIT, IIM, IIIT, IISc in rural and economic backwards area led to an overall development of the
surrounding area. IIT Kharagpur and IIM Shillong are practical example of the same.
The quality and scale of the fundamental habitation unit determines the victory of an economy. Especially, with
reference to India, the major chuck of the population lives in rural areas and earns out a meagre existence
monetary return from agricultural related activities. For India to develop, it is necessary that India’s 700 million rural
inhabitants (2008) either have prospect to live in urban areas and work in non-agricultural sectors or respective rural
areas are transformed into urban areas.
Mega-regions
There is a definite positive association between habitation size and population’s productivity. Since historical times,
larger cities have always produced disproportionately more of the advances, innovations, and the production of
every kind of goods and services. Ancient cities are recalled for remarkable development of human knowledge and
development. We remind the names of ancient cities because things of importance happened in them, mostly of the
type that advanced human knowledge and capacity.
As we are growing, size of our average major cities is also growing alongside. Today, India has what can be known
as “mega-cities” or “mega-regions.” They resemble the same relation to the average city of today as in the past a
large city bore to a small town or a village. The mega cities are collection of tens of millions of people whose annual
production is measured in trillions of dollars. These include: Greater Tokyo (a $2.5 trillion economy of 55 million
people), Boston-Washington corridor ($2.2 trillion, 54 million people), and mega regions around Atlanta, London,
Frankfurt, Rome, Amsterdam, Chicago etc.
Around 1.2 billion people stay in 40 mega regions of the world, and are responsible for two-thirds of the world’s
output of goods and services and more than 85 percent of all global innovation. This clearly indicate that the rest of
humanity – nearly 5 billion people, or four times as many people as mega regions residents– staying in the 191
countries produce only a sixth of the innovations and only a third of the global output.
This point is worth stressing. An individual living in a mega-region compared to one not living in a mega-region is
eight times as productive in terms of goods and services, and about 24 times as productive in terms of innovations.
Cities are countries’ growth engine
Cities are growth engine because they “create” wealth. This is literally true as most financial activities occur in urban
locations. That is why rich economies are mostly urban while those economies which are largely rural are
comparatively poor. The transformation of a poor economy to a rich one rests on the transition of majority of the
population from being rural to urban. Manufacturing requires cities because the high population densities of cities
reduce the cost of production. Another way of affirming that is to say “transaction costs” are lower in cities because
infrastructure has “scale economies” – the larger the amount of infrastructure, the lower the cost per unit of
infrastructure. Therefore, high aggregate demand for infrastructure in urban areas allows significantly large supplies
at lower average costs. Lower costs result into more efficient services and demonstrate the advantage that cities
have over rural areas in conducting business.
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5. Educational Advantages
There are numerous well-known causative factors that lead to economic growth. These include but not limited to
educated and healthy population, a free and fair market-driven economy, reliable and adequate infrastructure, and
the availability of public goods such as law and order, efficient governance, political freedom. These factors of
economic growth are mostly available in and are usually associated with urbanization.
Cities offer educated people the opportunity to use their skills because cities not only have the supporting
infrastructure but also other skilled people. Both of them are necessary for skilled people to fully utilize their
specialized skills. Provided a large enough population at a specific location, the demand for education will be
sufficient for its efficient supply. A lot of people are needed to provide the educational services. These people in turn
require supporting services which are provided by even more people in that location.
To offer the required needs of the people, infrastructure—power, roads, telecommunications, houses, water, parks,
sanitation, etc—is needed. To supply all the infrastructural services, one needs yet more expert and effective work
force. Following this line of reasoning one can soon reach the conclusion that it requires a city. It demands a city
because a city is at the heart of a developed modern, complex, highly skilled and highly specialized economy. Any
rich and developed economy is primarily a collection of cities.
Rural Development
It is important to keep in mind that the central government’s concern of economic growth and development is the
development of citizens. For far too long, Indian policy has concentrated on the development of rural people with
development of villages. This has predictably led to waste of time and resources. Rural development is costly
because India has myriad (over 600,000) villages and if the limited resources available for development are spread
out over them, then per village the available amount will not be sufficient to affect major changes.
There is another way of using the same resources which is the development of cities. Thus, paradoxically, the reply
to rural development – or more accurately the development of rural people – actually embeds in the development of
urban areas.
Urbanizing India’s Population
The rural population of India requires urbanizing. The existing cities are bursting at the seams and cannot possibly
accommodate any more people. Practically, most of the Indian towns and cities are unplanned and inefficiently use
land and other resources. These are arguably insufficient for the current residents, leave alone adding hundreds of
millions more people to them. The existing cities require massive makeover but doing that is an expensive affair.
There is a need to have new cities and metros to accommodate the hundreds of millions of rural people. Imagine
constructing absolutely new cities from scratch for 600 million people. Imagine 600 new large cities accommodating
one million people each. Imagine constructing houses, schools, shopping centres, parks, factories, roads, public
utilities, hospitals, libraries. That’s not all; imagine achieving it by using the best urban planning known to humanity.
It is the greatest opportunity which India has – of building from scratch – which is not an option with any developed
economy such as the US. American cities are notoriously inefficient in terms of resource use and sustainability.
Their legacy urban centres will burden the transformation to living in more sustainable cities. But India does not
have that legacy burden. Most Indians living in villages would welcome the opportunity of living in well-designed
efficient cities. They are already doing it which is evidenced by the fact that tens of millions of rural people migrate
to cities – often choosing to live in urban slums. They are voting with their feet declaring that life in an urban slum is
desirable than life in a village.
The economic development of India demands economic growth. Cities form engines of growth because of existence
of a bi-directional link between urbanization and growth. Therefore the rural India has to be urbanized for India’s
development and growth. Every economy has followed that path which starts with agriculture being the main source
of income for the major population and terminates with agricultural employment being a very small fraction of the
total labour force. India requires suspending little plans and start thinking big.
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6. Immigration Trend
Immigration refers to the coming of new people into a habitat or population on the account of push and pulls factors.
People leave their places of birth and residence due to several reasons. These reasons can be divided into two
broad categories:
A) Push factor: It results in people to leave their place of residence or origin;
a. People leave their original place due to poverty, high population pressure on the land, lack of basic infrastructural
facilities like health care, education etc.
b. Natural disasters such as, drought, flood, cyclonic storms, tsunami, earthquake, wars and local conflicts also give
extra push to migrate.
(ii) Pull factors: Factors which are responsible for attract the people from different places.
a. These include better job opportunities, relatively higher wages and availability of regular work.
b. Better health facilities and improved opportunities for education, and sources of entertainment, etc.
Migration is associated with economic, social, demographic and environmental consequences
Economic consequences - Positive consequences
Positive consequences include the remittances sent by migrants to their home country which help in growth of
economy of the region. It is mainly used by the family for purchasing food, purchasing agricultural inputs, repayment
of debts, marriages, medical treatment, children’s education, construction of houses, etc. Many economically
weaker villages of Bihar, Uttar Pradesh, depend on this money for their bread and butter. Similarly, remittances
from the international Indian migrants form one of the major sources of foreign exchange in India. In 2002, India
accounted US$ 11 billion as remittances from these people. States of Punjab, Tamil Nadu and Kerala receive huge
sum from their international migrants. Migration of people from Uttar Pradesh, Bihar, to the rural areas of Punjab,
Haryana, can be accounted for the success of green revolution in Punjab and Haryana.
World Remittances
Top 5 remittance Top 5 remittance
Top 5 remittance recipients as % of Top 5 remittance senders as % of GDP
recipients (2007) GDP (2006) senders (2006) (2006)
India Tajikistan United States Luxembourg
($27 billion) (36.2) ($42.2 billion) (18.2)
China Moldova Saudi Arabia Lebanon
($25.7 billion) (36.2) ($15.6 billion) (18.2)
Mexico Tonga Switzerland Tajikistan
($25.0 billion) (32.3) ($13.8 billion) (14.0)
Philippines Kyrgyz Republic Germany Bahrain
($17.0 billion) (27.4) ($12.3 billion) (11.9)
France Honduras Russian Federation Maldives
($12.5 billion) (25.6) ($11.4 billion) (9.1)
Source: World Bank, Migration and Remittances Fact book 2008.
Economic consequences - Positive consequences
Negative consequences comprise overcrowding due to unregulated migration to the metropolitan cities of India. It
also leads to the development of slums in industrially developed states such as Maharashtra, Delhi and Gujarat etc.
The under-development states and countries get even worse due to ex movement of migration of skilled people.
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7. Demographic consequences - Positive consequences
These migrations result in the redistribution of the population within a country which lead to balanced distribution of
people as per the available resources. Rural-urban migration is one of the important factors which contribute to the
urban population growth.
Demographic consequences - Negative consequences
Imbalances in sex composition arise due to selective male or female migration. Rural areas face shortage of skilled
people because most of skilled and semiskilled people prefer to migrate to urban areas.
Social consequences - Positive consequences
In the process of migration, these migrants act as agents of social change. The revolutionary ideas of new
technologies, girl’s education, family planning, etc. get easily spread from urban to rural areas through them.
Migration also favours intermixing of people from diverse cultures which in turn, results in the evolution of composite
culture. Change in the mind set of people makes them to start thinking broadly.
Social consequences - Negative consequences
Immigration creates social vacuum and sense of dejection among individuals which in turn causes anonymity. This
prolong feeling of dejection may encourage people to fall in the trap of antisocial activities like crime and drug
abuse. Immigration has an adverse effect on women. In rural areas, male migration leaving their wives behind puts
extra physical as well mental pressure on the women which in turn increases their vulnerability.
Environmental consequences
The rural to urban migration leads to overcrowding of people which put pressure on existing social and physical
infrastructure there. This ultimately results in unplanned growth of urban settlement and creation of slums shanty
colonies. In addition to it, over-exploitation of natural resources make cities to face acute problem of air pollution,
depletion of ground water, and disposal of sewage and management of solid wastes.
Recent Trends in Immigration to India
Post attaining independence, the main objective of the Indian Government was to work towards the economic
growth of the country, but in a protected and restrictive environment. From 1950 till 1991 the Indian economy was a
‘closed economy’ which meant that business activities were under heavy regulation and controlled by government
by issuing licenses. The term “License Raj” was coined to describe this period. Since then with the Indian
Government’s initiatives, the count of foreign nationals visiting India for business and pleasure has grown
exponentially.
In the interim, a large count of foreign nationals came to India for pleasure; to visit our Taj Mahal and other heritage
sites and places of tourism value. Several Hippies visited Goa in India between 1960s and 1980s and lived in
communes for long periods contributing to the cultural advancement of this picturesque seaside town. During the
era of License Raj, the international travel to India for business purposes was insignificant. In fact, India
encountered a tremendous “Brain Drain,” the phenomenon as portrayed by Dadabhai Navroji., the great Indian
entrepreneur. The best and the brightest minds of India including state educated doctors and engineers left the
country to explore greener pastures. During this era, immigration came into the spotlight and the Indian Government
realised a need to create definite regulations with respect to Indian nationals living abroad (Non Resident Indians -
NRIs).
It was in 1991 under the then Finance Minister, Dr. Manmohan Singh (the present Prime Minister of India) that the
Government of India realized the need to adopt a policy of Liberalization, Privatization, Globalization (LPG). The
Liberalization significantly reduced regulatory hurdles and minimized license requirements. Privatization of
government entities reduced the role of the state and the public sector in business. Furthermore, globalization of
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8. trade made it easier for trans-national or Multi National Companies (MNC) to operate in India attracting
entrepreneurs from all over the world. The flow of expatriates to India from the rest of the world is increasing
exponentially every year, resulting in what is often termed, “Reverse Brain Drain.” These individuals including
returning Indians who have lived for extended periods abroad, Persons of Indian Origin who are citizens of a foreign
country and other foreign nationals. Except for the returning Indians, the others are here for temporary, albeit after
extended stays here they rarely consider acquiring citizenship.
In addition, many Indians have traditionally believed in the philosophy of “Atithi Devo Bhava,” (meaning “Our Guest
is Our God.”) In keeping with this, the Indian Government recently launched its “Incredible India” campaign, to
commemorate India’s 60 years of independence, in collaboration with the Ministry of Tourism’s “Atithi Devo Bhava,”
campaign. This initiative aims to establish positive image of the country internationally and to attract more business
and visitors to India.
The explosion of globalization, the Internet, technology and the expanding liberalization of the Indian economy have
all contributed to enhance travel to India. Information Technology (IT) and IT enabled services (ITES) have
contributed to prolific growth of business, attracted venture capitalists and businessmen to India. India is considered
as one of the leading countries in which the outsourcing industry that offers ITES is booming. IT and ITES growth
has triggered, a domino effect which has resulted in the development of several ancillary industries. Several of
these industries are recruiting foreign nationals, for example, the Indian hospitality industry has seen premium
hotels recruiting foreign nationals as senior managers for the past few years. However, recently a five star hotel was
popular to hire waitresses from abroad, which was unheard of in the past. One of the contributory factors for the
hiring of foreign nationals is the shortage of qualified people in the country. Also, the industry has to strive to meet
expectations and offer internationally accepted levels of quality and services.
India is the largest in the world in terms of the count of movies produced in a country. In keeping with this, Indian
cinema hires a large number of foreign nationals as dancers and to fill small support roles. Most of these dancers
have tourist visas. The rich Indian culture and heritage have always attracted tourists. The famous monuments
attract their fair share of tourists. A lot of foreigners come to Goa every year and stays there for extended periods.
Our premier educational institutes are gaining popularity and students are increasing in number. IIT, IIM, IISc,
Aligarh Muslim University, Jamia Milia, Delhi University etc attracts a large chuck of foreign students.
Present Foreign Direct Investment (FDI) policy has a direct and pivotal effect on Immigration. FDI has seen
significant improvement through our Foreign Investment Promotion Board (FIPB) and the automatic route, which
requires post remittance reporting to the RBI (The Reserve Bank of India). The Indian Government has liberalized
the economy so that FDI in several sectors can be increased. At present, investment in the real estate sector is
allowed through direct investment. Indirect investments in real estate can also be done through mutual funds.
Starting from March 2005, a foreign national or entity is allowed to invest in real estate under the automatic route,
provided the investment adheres to the certain guidelines. Indian Government has introduced new schemes which
ease the travel and stay of eligible individuals. Certain foreign nationals are permitted to have extended stay in India
in connection with the investment in India. In the technology industry, the demand for visas for highly skilled, expert,
qualified professionals and entrepreneurs is on the demand. For instance, Indian consular posts in the United
States have outsourced visa processing work to Travisa Outsourcing Inc., seemingly in an effort to effectively
process the larger volumes of applications.
New immigrants in the country with long term business plans tend to stay in well urbanized areas. Choices varies
from the established financial hub, Mumbai to newly developing metros like Ludhiana, Gurgaon and Chandigarh in
the North, Surat, Nagpur, Ahmedabad in the West, the states of West Bengal and Orissa in the East and
Visakhapatnam, Hyderabad and Kochi in the South. Choices are motivated by the prosperity of the city, business
environment, governance, infrastructure and quality of life. These trends fuelled further inward investment into the
country, propelling economic growth further, a growing affluent population, will attract more migration.
Recent trends indicate that the profile of those personnel coming to India, especially since late 2004 comprises
young professionals, out of which some seek to gain experience here, others come to reconnect with their Indian
roots. Some have passion to set up business ventures on behalf of small and medium size enterprises. Present
immigration laws in India do not have any numeric restrictions on the inflow of people with visas. Furthermore, No
restrictions exists on the duration of residence with a spouse who is deputed on a long term employment visa. In
addition to that the Indian immigration laws require to be changed to address the status of unlawful residents in the
country. In addition, if the immigration system in India is abused or misused the Indian Government should
introduce more strict criteria and processes so that less is left to the discretion of visa officers. We should hope that
India laws will fulfil the existing loop holes of the system.
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9. The gross domestic product (GDP) also known as gross domestic income (GDI) is a measure of the national
income and output for a given economy. It is also commonly referred to as the total value of all final goods and
services produced within an economy in a given year. It is commonly used as a yardstick for measuring the
functioning of the economy.
It is extremely important to calculate the Gross Domestic Product of any nation as the results would help the nation
to forecast its economic progress, understand the buying power of the population, determine the demand & supply
variables, know the per capita income & most importantly position the economy in the global arena.
The Indian GDP is calculated using the expenditure method. Under this method the GDP of a nation is given as
under,
GDP = Consumption + Investment + Government Expenditure + Net Exports (i.e. exports - imports)
It is graphically represented as:
GDP = C + I + G + (X-M)
Where,
• C stands for consumption which comprises of personal expenses pertaining to food, medical expenses,
household, rent, etc
• I stands for investment which includes construction of new assets, expenditure on new houses, buying goods and
services etc. Investments in any sort of financial products is not included in the calculation as it falls under savings.
• G stands for the government spending on goods and services within the economy. This also includes investment
expenditure by the government, purchase of artillery for the military, salaries of government employees etc.
• X stands for gross exports which includes all goods and services that are exported and consumed outside the
nation
• M stands for gross imports which includes any goods or services imported for domestic consumption
India GDP Trends
The Indian economy has managed to post an average growth rate of more than 7% in the decade since 1997 thus
reducing poverty by about 10 percentage points.
During the post 1990 era, Indian economy witnessed a sudden growth of the annual average gross domestic
product. The gradual rise of Indian Information Technology, the service industry and the Indian BPO sector caused
the average Indian GDP to skyrocket to around 6%, during the period from 1988 to 2003.
The post 1990s, growth story of the India GDP was led by the following sectors of Indian industry -
• Information Technology
• Retail
• Infrastructure
• Consumer durables
• Telecommunications
• Pharmaceuticals and biotechnology
• Oil and natural gas
• Power
• Airlines
• Automobiles
From the year 2004 onwards, the average gross domestic product of India showed a stable growth. This period
marks the meteoritic rise of gross domestic product of India and this rise was mainly caused by the Indian service
and manufacturing industry. The Indian GDP registered an impressive average growth rate of 8.5% during this
period.
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10. The following graph shows India’s GDP trend for the past few years.
India' GDP Trend
s
12.00
Percentage Change
10.00
8.00
6.00 % Change in GDP
4.00
2.00
0.00
2004-05 2005-06 2006-07 2007-08
Date
Date % Change in GDP
2004-05 7.50
2005-06 9.40
2006-07 9.60
2007-08 9.00
* Source: RBI
The latest scenario of Indian gross domestic product factor is much higher than the world' annual average GDP of
s
5.5%. With such rate of economic growth, the Indian economy is poised to become the second largest economy
after China in the year 2050.
Composition of India’s GDP
The India GDP is composed of all the differential factors that contribute to the economy of India. The different
sectors contributing to the GDP in India include agriculture, industry, services and infrastructure etc.
The contribution of these sectors in the GDP differs with one sector contributing more than the other.
The Contribution of Agriculture Sector in India GDP:
The agriculture sector has contributed the most to India’s GDP post independence. However with the other sectors
picking up, the contribution of the agriculture sector has gone down in India GDP in the last few years. As per the
figures released for the year 2007-08, agriculture contributed 17.2% to the GDP of India in spite of accounting for
around 60% of the employment.
The Contribution of Industrial Sector in India GDP
The industry sector employs around 12% of the total workforce in India. This sector contributed 29.1% to India GDP
in 2007- 2008. The contribution of the industrial sector is increasing year on year in India’s GDP.
The Contribution of Service Sector in India GDP
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11. The services sector is currently the sector that contributes the most to the India’s GDP and it accounted for 53.7%
in 2008. After independence it was the agricultural sector that contributed the most to the India GDP but in recent
years it has been the services sector, which has contributed the most.
The Contribution of Infrastructure Sector in India GDP
The contribution of the sector to the India’s GDP has increased after the Indian government opened up the sector to
the private sector.
The share of different sectors of the economy in India' GDP (2007-08) was as follows: Services – 53.7 per cent,
s
Agriculture - 17.2 per cent and Industry - 29.1 per cent. The fact that the service sector accounted for more than half
the GDP is a milestone in India' economic history and takes India closer to the fundamentals of a developed
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economy. It is a known fact that at the time of independence agriculture was the major contributor to the GDP while
the contribution of services was relatively very less.
Pertinent Issues
• The recent economic growth of India has led to greater economic inequality across the nation.
• Even though India has been able to sustain a high economic growth rate, approximately 80% of the Indian
population lives on less than $2 a day (PPP) which is more than two times the same poverty rate in China.
• Despite the arrival of Green Revolution which was able to bring an end to famines in India, around 40% of
the children below the age of three are underweight and one third of all women & men suffer from severe
energy deficiency.
• International comparisons also reveal that the average yield of the farms in India is about 30% to 50% of the
highest average yield in the world.
• Another important factor in determining India' sustained economic growth and realizing India’s potential to
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be an economic superpower, depends on the manner in which the government is able to attract the FDI
across the various sectors in India.
Future predictions
Based on the increased and sustaining growth that India has witnessed over the past few years & the kind of FDI
that India has been able to attract, Goldman Sachs had forecasted that by around 2020, India’s GDP per capita in
US$ terms will quadruple and that the Indian economy will surpass the United States (in US$) by 2043.
The following are some of the factors that need to be taken care of if India has to achieve its potential. These are
• control inflation
• liberalize financial markets
• increase trade with neighbors
• increase agricultural productivity
• raise educational achievement
• increase quality and quantity of universities
• introduce a credible fiscal policy
• improve infrastructure and
• improve governance
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12. Education
Education is a fundamental right in India, as per the country’s constitution. However, it has long been a neglected
aspect, when compared to other developing countries like China, Russia. As of the recent statistics released by the
census, only about 2/3 of the country’s population, (61%, as per UNDP estimates for 2008) is literate. Female
literacy is at around 55% and male literacy at around 76%. The school life expectancy is at around 10 years and
education expenditure, as a percentage of GDP stands at 3% approximately, which is quite low in comparison to
other nations.
India started off in right earnestness after its independence, making Education a common state subject, with the
responsibility being shared by both the Central as well as the State governments. The National Council for
Educational Research and Training (NCERT) was set up as the apex body to look after education. Later, the All
India Council for Technical Education was set up to regulate and propel technical education. Since then, India has
progressed slowly towards attaining the goal of universal education for all its citizens. Innumerable programs have
been launched for this purpose, like Kendriya and Navodaya Vidhyalayas, District Primary Education Program etc.
However, their implementation has far from been satisfactory, resulting in the current low penetration of education
and low literacy levels.
The last four years have been relatively better in terms of implementation of education programs. The planned and
non-planned expenditure on education has increased continuously to around Rs. 35,000 crores in 2008-09. The
Sarva Shiksha Abhiyaan, a flagship program undertaken by the central and state governments with a target of
universal primary education by 2010, has yielded good results. This has prompted a continuous increase in the
budgetary allocation for the program, to the tune of 571 percent increase in between 2003-04 to 2008-09.
Some of the pertinent issues and challenges for education in India currently are –
• Prevalent child labor which serves as a disicentive for education, with only half of the children continue
studying after the age of 14
• Economic and social disparity across the country
• Non availability and absence of teachers
Various initiatives are being taken by the government to counter these challenges and the future of education holds
more promises than the current status reflects. The government spending on education has been rising and is
projected to go up to 6% of GDP by the year 2010. Mid-day meal schemes have been launched to attract poor
children to the schools. Seats have been reserved for the backward sections of the society to remove social
disparities. Pay-scales have been revised to remove disparities and teacher-engagement programs have been
launched to involve teachers more and more into the schools.
The extra expenditure being done in the education sector should translate into better results in the near future. The
private sector has also matured with regulations in place and is contributing specially in the field of higher
education. All this bodes well for the Indian education sector in the future.
Health
The first National Health policy in India was drafted in 1983 and since then there has been a remarkable change in
the health sector in India. The last National Health Policy was drafted in 2002 in order to address all the deficiencies
in the existing policy and to make health services available to a larger portion of the population.
The Table I in Appendix A, represents the health status across different states in India and Table II in appendix A,
represents the health status among different socio-economic groups within the country.
There are still quite a few issues encompassing the health status in India, but one of the most basic one is water
and sanitation, only one in every three Indians have access to clean water and only 30% of the waste water is
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13. treated and the remainder is flows into the rivers without being treated which adds to existing problem of lack of
sanitation.
The aggregate expenditure on health as a % of GDP has been ranging from 4.9% to 5.5%. This is a relatively low
when compared to countries like USA, where it is 10.7% and UK, where it is approximately 9%.
HIV/AIDS has been one of the most fatal and dangerous diseases prevalent in India. There are approximately 2.4
Million people suffering from this disease currently and 58% of this is in rural areas where there is no or very little
awareness of the disease, 40% of the people affected are women. 87% of which is transmitted through unprotected
sex.
These statistics have managed to catch international attention, and United Nations Development Program is
working very closely with the ministry of health in India and the National AIDS control Organization (NACO) to
address the problem of HIV/AIDS. Over the next 5 years, AIDS awareness across the country will be a priority.
The efforts are already underway and approximately, 15.4 million people in India were given information, services
and training to deal with the HIV/AIDS. UNDP has also been actively conducting research on the social dimensions
of the disease, and has also been conducting a large-scale socio-economic study on the impact of HIV in order to
draw national and international attention.
There are currently 13 National Health programs to address various health and diseases related issues like
HIV/AIDS, cancer, leprosy, tuberculosis, mental health program, iodine deficiency program, etc. These programs
have been fairly successful in reducing the degree of seriousness and extent of damage and with the assistance
from other international health organizations it will be able to effectively address the health related issues in the
country.
Gender Equality
India is the second most populous country in the world, with its population touching 1.2 Billion. The sex ratio of male
to female is approximately 1.06. India has empirically been a male dominated society and women have lagged
behind the men in almost of respects of Indian society. There have not been equal opportunities for women in
sports, politics, business, or any other field.
India has also failed towards implementing pro-women policies and there have been various laws passed by the
Indian government for protection of women which have not been applied.
It is quite fair to say that the number of women who suffer from discrimination is highest in India. Violence against
women is one of the major concerns in India; with 10% to 20% of the husbands committing violent acts in some
form or another on their respective wives. Even till today, there is a restriction on freedom of dressing on
approximately 50% of the women in the country, where Muslim women are required to wear a purdah to cover their
face, etc.
In terms inheritance of wealth and the ownership of assets such as property, including land is usually restricted to
only men. In politics, only 8.3% of the total seats in the parliament are occupied by women. However, this trend is
fast changing and more and more women not only from urban but also from rural India have been foraying into
politics especially after the government has increased the reservations for women in the parliament. However,
women still have a long way to go before they can command equal respect as a male politician.
One of the most significant programs’ for promoting gender equality was launched by the United Nations called as
the “Promotion for Human Development and Gender Equality”. This program will be executed by the Ministry of
Human development, India in collaboration with the United Nations. The government of India is also actively
working towards this issue and for the purpose of promoting gender equality it has laid down 2 basic provisions in
the Tenth five-year plan:
• Enhance participation of women in several important issues of the country and involve them in decision-
making process.
• Strengthen the legal and regulatory framework for promoting gender equality.
• There is a clear awareness of the importance of the gender equality among the people and the government
of India and this will enhance the process of incorporating and increasing the level of participation of the
fairer sex into all the aspects of Indian society in the foreseeable future.
13

14. The infrastructure support in a nation plays an important role in its economic growth. India being a fast growing
economy warrants for a better infrastructure. Infrastructure development is also important as foreign investors eye
this sector for directing their investments. In addition to promoting growth, developed infrastructure has direct
linkage with environment, poverty, health, equality and general quality of life. Planned improvement in infrastructure
therefore becomes necessary for development of mankind.
Trends in performance in last four years
Growth in different infrastructure sectors
In the last decade, India’s infrastructure has been propelled specially in the transport sector with funds flowing from
government and private investments. According to the India Infrastructure report 2006, there have been plans for
development of airports and mass transit systems but other areas like road, drainage, drinking water and primary
health have been neglected.
The highways sector received much required boost when the government announced National Highway
Development Programme and its first two phases-Golden Quadrilateral and North South-East West Corridor.
Initially funded by National Highways Authority of India, for the subsequent phases, the government has involved
the private sector by promulgating the BOT model.
India’s mobile-phone services market is fast growing and is now the third-largest wireless market by users in the
world, behind China and the US. The wireless service subscribes have increased tremendously. The telecom
majors such as Bharati Airtel, BSNL etc. have run trials of 3G applications and services that would provide high-
speed internet applications, gaming, video, and wireless streaming. Simultaneous transfer of both voice and non-
voice data will be allowed using 3G services.
Increase in Spending on Infrastructure
Infrastructure industry claimed an important space in the Union Budget since 2004. The increase in the allocated
spending from FY02-07 to FY07-12 is seen from the chart below,
14

15. The investment is estimated to increase by approximately $300 billion from the previous plan, with electricity sector
being the major investment area.
Pertinent Issues
India is currently flying high with a growth rate of 9% but this economic boom is built on shaky foundations. The key
infrastructure resources such as highways, modern bridges, world class airports, reliable power and clean water are
short in supply. Economic losses owing to congestion and poor transport facilities amount to billions of dollars.
All infrastructure sectors face a common problem – lack of resource availability and financing. Private investors do
not step in as there are no or very less returns from investments in infrastructure projects. Moreover, the available
funds are used in starting new projects rather than maintenance and upgrade of existing infrastructure. The growth
in GDP has facilitated increased investment by private players. As the returns of these private players are at stake,
the project operation, efficiency and on time completion is ensured.
Another important issue is the question about what, where and how much to invest, how to finance new projects
and how to main existing projects. To solve all these issues proper planning and implementation is required.
Areas of concern is various sectors
• Growing traffic congestion is a major problem in urban area. The demand for transportation is increasing
due to increase in population and changes in travel patterns. The crawling traffic leads to increase in fuel
consumption and emissions. There is an urgent need of comprehensive urban transportation policy to
achieve mobility and air quality mandates.
• The lack of basic infrastructure continues to be a major constraint to progress in numerous villages in India.
Despite of a number of economic reforms undertaken for improvement of rural infrastructure, their dismal
state has hardly improved. The private investors shy away from investments in rural infrastructure projects
because of the low returns and the uncertainties/delays involved in revenue realization. Lack of funding for
rural development had impaired development of critical sectors as sanitation, drinking water, housing, land
reforms and roads.
• For the power generation sector, the expansion has been credible. At least in most urban areas the
availability electricity is adequate. Although recently there have been many instances of forced power cut
for scheduled periods through many cities to cover for lack in supply. Rural electrification has still not been
up to the mark. A major concern in this sector has been neglect of maintenance of machinery, transformers
and supply line. Also, illegal connections, faulty meters and non payment of bills cause considerable losses
for electricity board. There have been no serious efforts to alleviate environmental concerns associated with
using up substantial amount of ground and surface water by usage of non-conventional methods of energy
generation.
• The educational infrastructure has expanded tremendously with increase in number of schools and
colleges. However, this increase as been lopsided as there is growth in higher education but there is
scarcity of resources for elementary education. There is lack of trained teachers and the teaching methods
are rigid.
• The growth in health infrastructure also focuses on urban development. The government health facilities are
highly subsidized but are poorly maintained and lack the basic medicines and operating facilities.
Future Performance
Government has planned a huge capital investment in infrastructure sector to boost the development of this sector.
The eleventh five year plan (2010) estimates an allocation of $562 billion towards development of this sector, with
fund inflows from public sectors (70%) and public private partnerships (30%). The spending is planned across
various sectors including power, roads, railways, telecom and irrigation. The percentage distribution is a shown in
the pie below,
15

16. Other
17% Power Power
31%
Irrigation Road
11% Railway
Telecom
Irrigation
Telecom
Road Other
13% Railway
15%
13%
The contribution by private/public entities towards infrastructure expenditure is depicted in the chart below,
Improvements planned across various infrastructure sectors over the next five years
Shipping
The increase in India’s international trade has resulted in the increase in the traffic handled by Indian ports.
According to a study conducted by the department of shipping the port traffic is expected to grow at CAGR of 11.6%
over the coming five years. To enable the ports to handle the traffic, government has planned a expenditure of
$20.6 billion for port development ($13 billion for major ports and $7 billion for minor ports) during the eleventh plan
period. Of this total outlay, 75% will come from private investment while remaining will be funded from public
investment.
16

17. Civil Aviation
The Indian civil aviation industry has also witnessed growth of 20% and is expected to grow at the same pace in the
next five to six years. The eleventh five year plan commissions a huge investment in airport infrastructure
considering the key role played by this industry towards economic growth. A total investment of $9.7 billion dollars
has been planned, 60% out of which is expected to come from private participation.
Roads
The government aims to improve and widen the reach of country’s national highways. The National Highways
Development Project is one the largest highway project undertaken by the country for road development. The
spending towards road sector are estimated to be $87.2 billion over the next five years.
Power
Currently, there is a huge mismatch between the demand and supply in the power sector. Energy is important for
sustainable growth of the economy in the long term. The eleventh five year plan has earmarked the highest level of
spending on power.
Railways
Indian railways with 63,332 kms of network, 1.5 million employees, 440 Billion Tonne Kilometres (BTKms) and 615
billion passenger kms (BPKms) of traffic is one of the largest rail networks in the world. However, it still does not
have sufficient capacity to meet the growth in the economy. Indian Railways has submitted a $72.1 billion
investment roadmap for the 11th five year plan period for the development of world class railway infrastructure in
India.
Water Resources
The Planning Commission has recommended government expenditure of $60 billion on water resources including
irrigation, flood control, and on the restoration of water bodies and $32 billion on urban water supplies and
wastewater management during the 2007 to 2012 period. The outlay under the Accelerated Irrigation Benefit
Programme for 2007 was $1.6 billion, an increase of 58 per cent over financial year of 2006 with target of 600,000
hectares for irrigation in this scheme.
The government is attempting to find ways to add force to the infrastructure sector, and the economy as a whole.
Newer trends in road projects such as six-eight laning of highways, large-scale and more complex projects in power
sector, metro rails, monorails and high capacity bus systems mark the eagerness of our country to take its
infrastructure to another level. The country’s economy has spread its wing and India can truly take off with an
improved infrastructure.
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18. Appendix
The following table gives comprehensive information of the contribution of various sectors to India’s GDP over the
past few years:
Source : RBI
Table I : Differentials in Health Status Among States
Sector Popula IMR/ <5Mort- Weight MMR/ Leprosy Malaria +ve
tion ality For Age- cases (in
BPL Per Lakh per thousands)
(%) 1000 per 1000 % of
(NFHS Children 10000
Live II) Under 3 popula-
Births years tion
(<-2SD)
India 26.1 70 94.9 47 408 3.7 2200
Rural 27.09 75 103.7 49.6 - - -
Urban 23.62 44 63.1 38.4 - - -
Better Performing
States
Kerala 12.72 14 18.8 27 87 0.9 5.1
Maharashtra 25.02 48 58.1 50 135 3.1 138
TN 21.12 52 63.3 37 79 4.1 56
Low Performing
States
Orissa 47.15 97 104.4 54 498 7.05 483
Bihar 42.60 63 105.1 54 707 11.83 132
Rajasthan 15.28 81 114.9 51 607 0.8 53
UP 31.15 84 122.5 52 707 4.3 99
MP 37.43 90 137.6 55 498 3.83 528
Source : mohfw.nic.in
18

19. Table-II : Differentials in Health status Among Socio-Economic Groups
Indicator Infant Under 5 % Children
Mortality/1000 Mortality/1000 Underweight
India 70 94.9 47
Scheduled Castes 83 119.3 53.5
Scheduled Tribes 84.2 126.6 55.9
Other Disadvantaged 76 103.1 47.3
Others 61.8 82.6 41.1
Source : mohfw.nic.in
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20. References
• https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
• http://www.managementparadise.com/forums/archive/index.php/t-2302.html
• http://www.rbi.org.in/home.aspx
• http://www.wikipedia.com-GDP
• http://www.iegindia.org/dispap/dis27.pdf
• http://www.weforum.org/pdf/india/RisksIndia.pdf - risk
• http://www.livemint.com/2008/12/03000337/India-and-the-magic-of-demogra.html - bonds & shares
• http://en.wikipedia.org/wiki/Demographics_of_India
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Burdwan Online at http://mpra.ub.uni-muenchen.de/12813
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• Introduction-http://www.chillibreeze.com/articles/Infrastructure-Development-and-Economic-Growth.asp
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• Eleventh and Twelfth Five year plans
• https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
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