A country with a 3.3 million square Kilometers area and by 2002 India reached 1.1 billion people with a growing rate of 1.5%, diversity in languages, multi party democracy system, different religious groups, India is facing rapidly growth economy but significant reforms need to be passed still.
The financial situation in India by 1992 wasn’t the most attractive but had been growing 6% annually by 2002, turning India into one of the principal growing economies in the world. By adopting the Washington Consensus, India had remove almost all import and exports restrictions, and so the financial controls made by the International Monetary Fund. As a consequence of a slow progress for privatization and all restrictions made for foreign ownership, FDI became slow to enter in India.
The biggest obstacle in India to face the reality of growth remains in economics and social performances.
II. Analysis (Case Overview)
Although GDP growth rate per year was low, information technologies and back office operations were well known and represent 2% of the Indian’s GDP, the expectations aim that it would be continually growing and contributing with the gross domestic product and a desirable 8% growth rate per year and so did exports since the collapse of the Soviet Union. IT led many Indians entrepreneurs develop in the field decreasing unemployment rates. Fiscal deficit turned into the sought of the right taxation policy. Moreover, conflicts with Pakistan, bureaucracy, privatization policy and corruption in the political environment contribute on having India one step back. Finally, education and infrastructure were to be improved.
All of the above led the 10th five year plan seek up for fiscal stability, political and religious as well.
Why did India experience relatively slow economic growth from independence until 1991?
Huge population, 1 billion by 2002 with a growing rate of 1.5%, more than the country could support at the time, domestic issues with a fragmented society and religious problems. The political issue with Pakistan represents more expenditure contributing with the deficit. The implementation of Soviet Union model as a developing strategy based on regulations in the private and public sector, including price controls high tariff, huge bureaucracy which made a unattractive economy for foreign investment in relation to other economies. In order to move forward with the economy growth, India had chosen to perform a market competition economy removing almost all its restrictions lowering tariff.
Why did Rao adopt the post-crisis, “Washington Consensus” strategy? How is it working?
A combination of the Soviet Union collapse and high oil prices and some other situations such as the crisis in the balance of payments, Prime Minister Rao turned back to the International Monetary Fund for assistance. The IMF would grant loans as long as India uses Washington Consensus policies into its economy. This policies need to be used to minimize the impact of the government decisions; otherwise the economy would completely collapse.
These market reforms helped India on reducing its fiscal deficit and having a higher GDP estimated in 2002-2003 5.9% and in 2003-2004 to 5.6%.
How big deal are Hindu-Muslim frictions? Demographic fragmentation? Deficits?
Religious and political tensions in the regions have a very bad impact in foreign investors decision-making because they perceive this as a threat to their investment. Some of the cases are: the quasi war erupted between India and Pakistan in 1999 over the disputed state of Kashmir. Religious tension between Hindu and Muslims in 1992 on Ayodhya temple dispute cost an estimated of 2000 people lives. In 2002, riots made the Supreme Court banned all religious activities on the site.
Is India an attractive site for foreign direct investment?
On this days India has become a more stable economy and is growing rapidly...
References: Astrella, K. (Feb. 24, 2012). India on the Move [PowerPoint Slides]. Retrieved from
Kumbhar, R. (Mar 24, 2012). India on the Move [PowerPoint Slides]. Retrieved from
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