National Income Trend in India

Topics: Gross domestic product, Economics, Economic growth Pages: 5 (1518 words) Published: November 4, 2013

India is home to 1.24 billion people, which is about 17.5 per cent of the global population. The Indian economy is the 12th largest in USD exchange rate terms. India is the second fastest growing economy in the world. However, it accounts for only 2.98 per cent of world GDP in US dollar terms and 5.0 per cent in purchasing power parity (ppp) terms. Hence, there exists a huge potential for catch up. The global welfare too is linked to progress in India as reflected in the keen global interest in India. But, India seems to inspire and disappoint at the same time. This is reflected in various comments on the Indian economy. The below graph represents the National Income Trend of India for the period of 1950 – 2011.

The GDP growth curve is showing a steep slope from 1950s to 1980s with a very little increase of about 1.4 %. The main reasons that hindered the growth are Levels of infrastructure :
Infrastructure contributes significantly to economic development both by increasing productivity and by providing amenities that enhance the quality of life. The impact of infrastructure on economic growth is well documented internationally. In the Indian context, elasticities of output with respect to various stocks of infrastructure indicate that the transport and communication sectors play a dominant role in explaining the variations in GDP and its sub-sectors. The index of industrial production is also found to track closely the movements in the composite index of infrastructure industries during the 1980s and the 1990s. Without necessary infrastructure it can be difficult for firms to be competitive in the international markets. This lack of infrastructure is often a factor holding back some developing economies.

Development of Technology :
Development in technology is a key factor in enabling improved productivity and higher economic growth. Technology of an economy is influencing the lives of its people through an active direct and indirect contribution to the various socio-economic parameters such as employment, standard of living and diversity among others. With a sufficient investment in R&D, industries with better technologies identify and create new economic opportunities like new products, new production methods, and new productmarket combinations and to introduce their innovative ideas into the market. Thus, with least concentration in research & development, technology fails to grow, which makes it becomes difficult to attain proper growth.

Global Currency Trends - A country's debt is denominated in foreign currencies. Like many other money Indian rupee have also tied its knot with some of the big economy of the world as well as the names of UK, US, Japan and Canada. The depreciation or approval in the currency any of these, especially in the US dollar, influences the valuation of the Indian currency in one way or the other

Capital Inflows :
A developing country needs capital inflows from foreign investors, either to pursue economic growth or as a result of trading activities, and that to access international capital markets it has to denominate its debts in the currencies of the principal creditor countries and financial centres (i.e., U.S. Dollar, Yen, Euro, Sterling, and Swiss Franc). Thus, economy can grow if the capital inflow is constant or continuously rising. But with very less global interaction, capital inflows are mainly bounded within the countries’ territories, leading to stagnate the growth of that economy.

Imbalance in interest rates :
Missing markets usually arise because of information failure. Because of asymmetric information lenders in credit markets may not be aware of the full creditworthiness of borrowers. This pushes up interest rates for all borrowers, even those with a good credit prospect. Low risk individuals and firms are deterred from borrowing, thus only high risk individuals and firms choosing to borrow. Thus, the credit...
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