General Statistics

GDP: $3.304 trillion
GDP Real Growth Rate: 7.4%
GDP per Capita: $2,900
Population living under poverty line: 25%
Life Expectancy: 69.89 years
Adult Literacy: 61%
Birth Rate: 21.76/1,000
Death Rate: 6.23/1,000
Population growth rate: 1.548%
Age Structure
0-14 years: 31.1%
15-64 years: 63.6%
65 years and over: 5.3%
Infant Mortality Rate
30.15 deaths/1,000 live births
Data derived from: CIA World Fact Book

Today India is a growing country that has rapidly changed due to industrialization. India has the fourth largest GDP. This is higher than countries such as Saudi Arabia, Germany and the United Kingdom. However, as far as GDP per capita it is ranked 167th in the world. This is due to the rapid growth in India’s population. The population is now at 1,166,079,217people. This is only ranked second to China. With this massive population, the distribution of wealth is spread very thin causing such a large number to live under the poverty line. With GDP per capita so low, you can see why literacy is only 61% which means that people can’t afford to be educated. There also may be a correlation between GDP per capita and life expectancy. Right now the life expectancy is at 69.89 years.

Even thought the majority of the population is at the working only about 523.5 million people in the labor force which is only 45% of the population; compared to the US’s 51.4%.Indians also run a high risk for disease that could contribute to a high infant mortality rate and death rate such as hepatitis A and B and typhoid fever. Another thing that can contribute to a small number of literate adults is that the average for years in school is 10 years, compared to the US at 16 years. (CIA World Fact Book)

Productivity

Natural Resources- Coal, iron ore, natural gas, diamonds, petroleum, limestone and arable land
Human Capital- Average School Life- 10 years
Technological Knowledge- Irrigation, nuclear energy and renewable energy
Data Derived from: CIA World Fact Book, NPCIL
Physical Capital- Textiles, chemicals, food processing, steel, transportation equipment
In 2008 India’s public debt was at 75.9 billion dollars. This means that the Indian government was spending more money than they were taking in from taxes and other sources of revenue. Human capital is very important because it leads to future growth of the country. India spends about 3.2% of its GDP on education. The average school life is 10 years compared to the US which is on average 16 years which means that India country won’t grow faster in the future. Only 61% of the Indian population can read. Compared to more developed countries like the United States India isn’t keeping up because in the United States 99% of the people can read. It seems that the Indian government is focusing on physical capital rather than human capital. An example of this would be a joint research project between India and Australia. They invested 20 million dollars for research for dry land farming in India. (India-server) The industrial growth rate is 4.8% which shows great promise for a great explosion in India’s GDP. One factor that is leading to growth in India is the fact that 48% of India is arable land which means they can support large populations. India's technological knowledge extends from irrigation to nuclear power plants. They have used nuclear power plants for the production of electricity. They started this program in 1987 to pursue economic growth with atomic energy. (NPCIL) India also almost produces enough natural gas to support itself. A total of 38% of India’s GDP comes from investment which is substantial. (CIA World Fact Book)

"Australia To Provide $70 Million For Indian Research Projects." Indiaserver. N.p., 12 Nov. 2009. Web. 9 Dec. 2009. http://www.india-server.com/news/%20.

"India." CIA World Fact Book. Central Intelligence Agency, 11 Nov. 2009. Web. 22 Nov. 2009. .

Nuclear Power Corporation of India Limited. N.p., 10 Dec. 2009. Web. 10 Dec. 2009. http://npcil.nic.in/.

Investment

India’s government seems to be investing. They seem to be investing money on physical capital. Their main concern is trying to industrialize all of India. They have increased the amount of land that is irrigated. They have also been investing into technological knowledge when it comes to industrial products. Their investment only goes as far as 2.5% of their GDP. The large investment into capital means the India will sustain major growth in the short-run but will have a hard time sustaining that growth in the long-run.(CIA World Fact Book)
"India." CIA World Fact Book. Central Intelligence Agency, 11 Nov. 2009. Web. 22 Nov. 2009. https://www.cia.gov/library/publications/the-world-factbook/ geos/in.html.

Workman, Daniel. "India Invests In Lower Tariffs." Editorial. Suite101. N.p., 28 Jan. 2007. Web. 30 Nov. 2009. .

International Trade

India’s major exports consist of petroleum products, textile goods, gems and jewelry, engineering goods, chemicals and leather manufactures. Their major imports consist of crude oil, machinery, gems, fertilizer and chemicals. India’s trade is somewhat restricted, but they are moving towards free trade. (India Lower Tariffs) India tariff rate for manufactures is 34.1%. For clothing the tariff rate is 40% and textiles are 39%. Developing countries are much lower. For manufactures the tariff average is 13.5% and 18.1% for textiles. (OECD) Traditionally India has been a closed market from the west and even the east. The World Bank has been working with the Indian government to develop a plan to start domestic reform and international negotiations. Right now India has concentrated on trading within Asia. They have made trade agreements to ease tariffs with Bangladesh, Bhutan, Sri Lanka, Maldives, China, and South Korea. Even though India’s trade is restricted they still are investing in capital inside the country which will lead to short-term growth which would boost their GDP even more. In the situation of trade between the US and India, India has the comparative advantage in producing textiles and the US has comparative advantage in crude oil which is a major import for India. Since India has moved towards a free trade market their GDP has increased steadily showing a large correlations between trade and well being of the country. (World Bank)
Workman, Daniel. "India Invests In Lower Tariffs." Editorial. Suite101. N.p., 28 Jan. 2007. Web. 30 Nov. 2009. .

"India: Foreign Trade Policy." Editorial. International Economics & Trade in South Asia. World Bank, n.d. Web. 30 Nov. 2009 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPINTECOTRA/0,,contentMDK:20592520~menuPK:579454~pagePK:34004173~piPK:34003707~theSitePK:579448,00.html.

"Simple Average Tariffs, Selected Countries." Organisation For Economic CO-Operation And Development. N.p., n.d. Web. 9 Dec. 2009. .

Indian Employment

· Unemployment Rate- 7.2%
· Labor Force Participation: 45.60%
Women- 47.7%
Men-53.3%
Data derived from: Exxun, UN and CIA World Fact Book

Agriculture is the biggest practice in India based on population. But almost 60% of the labor force is focused on agriculture. (CIA World Fact Book) These jobs are mostly unskilled only dealing with caring for crops and most farmers are only self sustaining farmers. But there is a growing trend in the new people entering the labor force. Doctors and software engineering has become common jobs wanted within the labor force. Do the growing industries in India such as health care. The labor force is primarily made up of males but there have been a growing number of females entering the workforce. (UN) India is currently experiencing frictional unemployment because they are just experiencing small fluctuations of the unemployment which means they are only shifting off the natural rate of unemployment by small amounts. In India there is a set minimum wage. The only problem with this system is that is very complex there are over 60 different sectors that have different minimum wages. These include agriculture, cinema industry, cement pipe making and almost any other job imaginable. These minimum wages are enforced by the Indian government. (Pay Check)

"Minimum Wages in Punjab." Paycheck.in. N.p., 12 Nov. 2009. Web. 2 Dec.2009. .

“Reserve Bank of India. Reserve Bank of India, n.d. Web. 2 Dec. 2009. .

"India." Exxun. N.p., 29 Nov. 2009. Web. 9 Dec. 2009. .

Lim, Lin Lean. "FEMALE LABOUR-FORCE PARTICIPATION." United Nations. United Nations, n.d. Web. 9 Dec. 2009. .

"India." CIA World Fact Book. Central Intelligence Agency, 11 Nov. 2009. Web. 22 Nov. 2009. .

Rupee Analysis

The Indian rupee hasn’t been a strong form of currency. The rupee is a solid medium of exchange and unit of account but in the store of value component that is issue for the rupee. Inflation has highly affected the rupee and so the Indian people have been skeptical if the rupee will continue to survive in India. The rupee is fiat money because it was established by the Indian government in 1947 after independence. India does have a central bank; it is the Reserve of India. Their main role is to issue currency, manage the foreign exchange, regulate the financial system and they are the monetary authority. There isn’t much difference between the Reserve of India and the Federal Reserve for the United States. India’s rupee has been experiencing a large percentage of inflation in the last ten years. The current inflation rate for the rupee is 8.3%. The pound (£) which is the currency of the United Kingdom experienced a inflation rate of only 1.5%.(National Statistics) This has made the reserve of India’s job hard because they have to inspire confidence in a currency that has been shaky lately. (RBI)

“Reserve Bank of India. Reserve Bank of India, n.d. Web. 2 Dec. 2009. http://www.rbi.org.in/home.aspx.

"Inflation." Office of National Statistics. N.p., 17 Nov. 2009. Web. 9 Dec. 2009. http://www.statistics.gov.uk/cci/nugget.asp?ID=19.

"India." CIA World Fact Book. Central Intelligence Agency, 11 Nov. 2009. Web. 22 Nov. 2009. .

Policy Recommendation

The Reserve Bank of India has been very active in the last year. They have been passing out surveys to banks and business trying to get an idea of what they want. This year the RBI is trying to increase the credit flow to agriculture and small/medium enterprises. This will increase growth in smaller business. Lately the Reserve Bank has invested mass amounts of money into physical capital. The reason for these policies was because India experiencing a major decline of exports, this was the worse since 1972. This policy has severely increased the number of exports in the last couple months. The RBI has taken a survey and the industrial sector seems to have an optimistic view for the economy. During a speech on October 27, 2009 Mr. Raghuraj acknowledges the global climate of this year and stated that they have made changes to prevent this from happening to India. Three policies they implemented first to strengthen the regulation of the banking system. To do this the RBI would put more employees on this task. Next to make sure the supervision of the economy is more effective and adds something of value. Last to improve skills in risk management.(RBI)

India has just experienced a loss of productivity in the last month or two this was due to poor credit flow and weak physical capital. My first goal for the future would be to increase investment in physical capital. The government would investment some of this money, but primarily it would come from factory owners. The Indian government would give tax breaks for the factory owners that increase productivity by a set amount. These goods would include an increase the production of consumer goods such as clothing. This would help in increase exports because they may gain comparative advantage in a good. This would increase GDP because one of GDP’s components is net exports. This policy should take around 4 to 5 years to take effect and have major changes in exports.

Inflation has also been a large issue for India in the past ten years. In September alone the inflation rate was at 11.7%. (CIA World Fact Book) This makes the rupee seem very shaky. My goal would be to decrease inflation by taking money out of the economy. The government would have to start selling bonds at somewhat of an attractive interest rate to increase demand for these bonds. They would make these bonds last for 5-10 years so this would decrease the money supply for a long period of time hopefully slowing down inflation and create optimism in the rupee which would prevent drastic measures to be taken like switching to commodity money. This would happen if the country felt that the rupee wasn’t stable enough and so they would change to something more stable like the gold standard.

One thing that makes a country flourish is the strengthening of human capital. Most under developed countries don’t require children to go to school. If India implements a program which makes school mandatory until the end of high school the literacy rate would increase and with a better education your society becomes more productive. An example of this their literacy rate hit 87.5% and they have been prospering ever since.(Global Security) This plan would affect the next generation of workers. This would take around 20-25 years to take effect on the general population but this is worth it because more people would be to continue their education so they can survive in the new economy. This would eventually increase productivity and make India a very strong country. This could lead to higher GDP per capita because families would have less incentive to have more kids.

The flow of capital through the financial system is very important for an economy to survive. The RBI acknowledged that capital flow has been a problem when it comes to small/medium firms. My solution to this would be to decrease mandatory reserve rates for banks so they can offer loans at lower interest rates. This would encourage savings in the general population and would increase capital flow. Since there would be more money in the financial system banks can loan out so this increases the flow of capital through the economy.. With the lower interest rates business would be more inclined to invest into physical capital which would increase productivity. This policy would take 5-7 years to help capital flow. FDI recognized this as a path out of poverty and in areas such as Europe and Asia it took about 5-7 years.(My Web FSU)

AHLQUIST, John S. "Economic Policy, Institutions, and Capital." My Web. N.p., n.d. Web. 9 Dec. 2009. http://myweb.fsu.edu/jsahlquist/ isq_final.pdf.

"United Arab Emirates." Global Security. N.p., n.d. Web. 9 Dec. 2009. http://www.globalsecurity.org/military/world/gulf/uae-intro.htm.

Reserve Bank of India. Reserve Bank of India, n.d. Web. 2 Dec. 2009. http://www.rbi.org.in/home.aspx.

"India." CIA World Fact Book. Central Intelligence Agency, 11 Nov. 2009. Web. 22 Nov. 2009. .