The 21 century faces global challenges in the structure of the world economy. Yesterday’s leaders failed to manage appeals of the globalization, however, other developing actors found new opportunities for the economic growth. The main trend of the present changeable world is rapid and steady shifting towards emerging economies. In fact, they do not possess the same economic potential in comparison with the developed countries, but nevertheless, they demonstrate the impressive pace of development and try to compete for the leadership in particular areas of business.
India can be a candidate for the position of a new global-growth driver as it demonstrates imposing potential in Asian markets as well as in the world economy as a whole. The current paper will observe the key figures of Indian economic development and reveal the main factors that distinguish India from the developed world and do not allow to rank India among advanced economies of the USA, Canada, United Kingdom, Germany, France, Italy, Japan (G7) and others.
The first indicator that should be examined is the Gross domestic product as the main criteria of the economic growth.
Figure 1. GDP (current, PPP), 2000-2014, millions USD
Source: The World Bank Statistics, Gross domestic product
India has the third GDP in the world after China and the USA. Estimated by purchasing power parity, India’s GDP amounted $7,4 billion USA in 2014 that was five fold higher the comparative level of Canada and twice as more as Germany or Japan had.
Source: The World Bank Statistics, Gross Domestic Product annual growth
During the last decade India has been demonstrating an impressive growth and has even overcome the developed countries by this measure (see fig. 2). Even within the financial crisis in 2007-2009 when all the world fell into a deep and painful recession, India’s economy felt more or less confident. The growth was down only to 4%, while the rest of the world experienced negative dynamics about 5-6 percent and recovered quite long. For example, Germany suffered 5,5% fall in 2009. India came back to the pre-crisis positions already in the year of 2009, while the developed countries had had the stagnation until 2010, and even today some countries still suffer from the recession consequences. The USA had high rate of unemployment, inflation, low consumer prices until the end of 2012, and it still has a large federal debt. India’s economic growth has remained unstable since 2009, even though, an impressive pace is seen in 2014 at an annual level of 7,2 %.
In spite of significant pace of development and sustainable performing during the financial crisis in 2007, India still remains a poor country, according to the World Bank’s estimation. India is considered to be a middle-income economy with an average income per person of 5640 dollars. To compare, the World bank recognizes the country as a developed and high-income economy with the average income per capita of $12,736 or more.
One of the important indicators of the economic growth is a federal government debt. It usually characterizes an economy's health and performs as a key factor in the sustainability of government finance.
Source: OECD data, IMF database
Regarding the data on government debt in India and the developed world, we can assume, that India is less likely to have a risk of deep indebtedness in comparison to Italy, the Unites States and other countries, those debts have increased 100% of GDP. At present, the economic society discusses a lot the possibility of a new crisis due to the high rate of debt that countries cannot maintain. Especially emerging economies stay fragile in spite of the growth in the economy. However, economists suppose, that emerging economies now are more prepared to face any crisis, demonstrating current-account surplus, huge foreign-exchange reserves and decent public finances. In India, for example, reserves exceeded $ 300 billion in 2014, five-folds more than the comparable figure in 1990 (The World Bank). Besides, the World Bank provided a promising forecast of Indian development in 2016 and assessed the 64% to GDP debt as “comparatively modest”. It expects that India will soon benefit a lot and deal with the government debt due to low prices for oil, that India has to import to cover energy consumption. India is also less affected by the possible slowdown in China than other developed countries, having a large share of international trade with China in their economy structure (The Economist, 2015).
Source: The World Bank statistics, Export of goods, Import of goods, Inflation, Foreign direct investment inflows, Foreign direct investment outflows; World Economic Forum, Global Competitiveness Index
Trade and investment are two main parts of a country’s balance of payments that indicate whether the country perform as a provider of goods and services for the global market or it is dependent on international import as well as what sources the country uses for maintaining its international trade, performing as the recipient of international capital of investing by its own. As it can be seen from the table 2, India participates in international trade at the same level as other developed countries, both in export and import of goods and services. Regarding foreign direct investment, India acts more like a recipient and overcomes European countries in this measure. According to the EY’s report on the Indian investment, more than thirty percent of the investors estimate India today as the most attractive financial market, while sixty percent of them placed the country among the top three investment destinations (India’s attractiveness Survey, 2016, p. 41). However, the World economic forum ranked India the 55 place in the annual Global competitiveness index, though it is 16 stages above the five-years ago level. According to the WEF, corruption still remains the biggest obstacle for business along with poor infrastructure (specifically, electricity), high rate of inflation (though it decreased from a double-digit level) and a government budget deficit, that remains at 7 % of GDP.
Manufacturing, services, sales and marketing are the main business activities foreign investors are planning to focus on. The major drivers of India’s competitiveness are information technology sector and high-technology export.
Source: OECD Science, Technology and Industry Outlook 2014.
Being one of the most demanded providers of technologies and inventions, India’s expenditures in research and development do not reach even 1%, while the compared indicator in developed economies exceeds 2% (see table 3). However, if to compare real expenditure, India performs at the same level as Canada and the UK. Despite excellent clusters and the heading for innovation, India is not able to provide technological benefits of its entire population. Uptake of ICTs in India is among the lowest in the world. Smartphones are not affordable by the majority of the population and appear to be the privilege of the rich. Only 15% of the population uses the Internet. The business has not adopted the technology yet that slows down all the business process management industry and create obstacles for investors, who, actually, plan to invest money in manufacturing and technologies (Global IT report, 2015, p. 23). India has only 74 mobile subscriptions while some developed countries exceed 100, that means that people use more than one mobile phone per person. Germany has 120, Italy has 154. Only 18% op population use the Internet. In Japan – 90%, in Germany – 86%. (Human Development Report, 2015, p. 262-264). India is aimed to become a world manufacturing leader and a global economic driver, but still has not understood its own inventions within the country.
In terms of growth India is overperforming every rich country, and the differences between the developed and the developing world in the global market are less than they seem if to look at the economical performance indicators. Nevertheless, if we look at many other variables, such as health, education or social stability we can find deep gaps that do not allow to assess India as a developed country.
India was ranked 130 out of 189 countries in the Human Development Index far away from the developed world. France is at 22 place, USA and Canada took the 8th and the 9th relatively, Germany is the 6th and the UK was ranked 14. The average years of schooling in India do not exceed 5 years, while the developed countries spend 12-16 years of education. As a result, the population of 25 years old with at least secondary education in India is at a very poor level of 46%, when the compared indicator in developed counties amounts 80%. In Germany 96% of the population is educated, both female and male, and Canada has 100% of population with secondary education. (Human Development Report, 2015, p. 242-244).
Health area in India looks also depressing. India was estimated as the third country with the highest rate HIV/AIDS with more than 2 million people infected. A totally drug-resistant form of tuberculosis was developed and spread in India. In Germany, for example 76 thousand people live with HIV/AIDS, Canada has 85 thousand infected people, that cannot be compared to India.
The past Caste system in India left footprints for the present inequality that was deepened by agricultural laborers and their dependents. Though the Caste system does not exist any more the inequality continues to spread. When 90 Indians with a combined net worth of $295 billion build shopping malls in Mumbai or buy 27-storey houses and appear in the Forbes rating, more than a half of the population lives less $1,25 per day. The global world witnesses that India is thriving. If to be precise, the rich in India are thriving, and the poor are suffering from inflation, unemployment, lack of alimentation and spreading diseases. 19 Indians increased their wealth to more than $1 billion in 2014, meanwhile the third of population lives below poverty rate and their children suffer from malnutrition.
Poverty is also widespread in developed countries, but it does not exceed 16 % of the total population (Japan), Germany, United Kingdom and the USA have 15% of poor people. As for Canada, it does not even have an official poverty line, however, it is reported to have 9% of the lowest-income population (CIA).
The Indian economy was growing rapidly exceeding 8% growth that any developed country could never achieve. India has become a major exporter of information technology services, business outsourcing services, and software specialists. It provides an impression of a future driver of global growth, overperforming other leaders in GDP, resistance to crises, less government debt and investment attractiveness. Some analysts suppose India to replace China in the global market. Over the last five years, due to the effective government policy and foreign investment, local roads were improved, manufacturing started developing, massive infrastructure projects were implemented with no consideration for human development.
As a result, while the key growth indicator is fluctuating between seven and eight percent, heating wild expectations and forecasts from the global community, the alimentation can not be provided in the half of 1,4 billion population. The most rapidly developing economy has serious gaps in the form of widespread hunger, malnutrition, lack of basic needs like electricity, education, health facilities and fight against widespread diseases. Public infrastructure and public government a set aside along with social problems, corruption, discrimination and poor law performance.
In terms of economic performance India can compete developed countries, and, evidently, it does. But if to go deeper, there are many differences between them both in quality and in quantity. India is still ranked as a developing country not without reasons. To find a place among advanced post-industrial economies, India has no to overcome them, but to deal with a great amount of challenges from inside. The main difference between India and the developed world is a robust core in the form of strong, safe and sustainable society that can get a good education, well-paid job, adequate income and access for public goods. Thus, people feel safe and confident, they produce wealth for the country and the economy rises. If the system has weaknesses in the very heart it is not able to operate without errors. So here comes a question, how India is supposed to become a global driver with such a friable core and weaknesses?
Though a number of measures were introduced in the last five years and large improvements were achieved, there are still plenty of gaps to fill. If India is able to deal with its internal problems within the nearest future, it means it is also able to follow the pace of advanced world and, indeed, to take a place of a global growth locomotive.
References
Global Information Technologies report 2015. World economic forum. Retrieved from http://www3.weforum.org/docs/WEF_Global_IT_Report_2015.pdf
Human development report Statistics (2015). United Nations. Retrieved from http://hdr.undp.org/sites/default/files/hdr_2015_statistical_annex.pdf
India’s attractiveness survey 2015, ready, set, grow (2015). Earnest & Young. Retrieved from http://www.ey.com/Publication/vwLUAssets/ey-attractiveness-survey-india-2015/$FILE/ey-attractiveness-survey-india-2015.pdf
Is India still a developing country? (2014) The Guardian. Retrieved from http://www.theguardian.com/global-development/poverty-matters/2014/apr/07/is-india-still-a-developing-country
OECD Science, Technology and Industry Outlook (2014). OECD. Retrieved from <1787/sti_outlook-2014-en>
Pulled back in. The world is entering a third stage of a rolling debt crisis, this time centered on emerging markets (2016). The Economist. Retrieved from: <http://www.economist.com/news/briefing/21678215-world-entering-third-stage-rolling-debt-crisis-time-centred-emerging?zid=309&ah=80dcf288b8561b012f603b9fd9577f0e>
The World factbook (2016). Central Intelligence Agency. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/fields/2046.html
World Bank Data. Retrieved from http://databank.worldbank.org/data/databases.aspx
World Economic Outlook Database (2015). IMF. Retrieved from. http://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?pr.x=48&pr.y=7&sy=2013&ey=2020&scsm=1&ssd=1&sort=country&ds=.&br=1&c=534&s=GGXWDG_NGDP&grp=0&a=
