The Future for the Indian Economy
As part of the emerging markets, India has performed admirably in the last few decades. India has grown on average at 5.83 per cent since 1951-2014. To achieve this, India has undertaken various economic policies to bring them from British colonial rule to a potential superpower in the near future. What then are India’s prospects in the upcoming year of 2015? What policies must be undertaken to see India continue on its upward path?
The traditional development path for emerging markets has been export-led growth. However, with global growth being stagnant, this cannot be the pathway for India. India must diverge into alternative economic policies. The developed countries are now less likely to import with many Eurozone economies in unsustainable private and public debt levels. India therefore must concentrate more on its domestic markets. However, caution must be undertaken; India cannot over-stimulate its economy through a credit boom. Historically, India has had notoriously high rates of inflation and the potential for a credit bust will place India in a similar situation to the US and Europe in 2008-09.
India must promote stability in their economy when attempting to increase domestic demand. To do this, government expenditure must focus on infrastructure, which will improve domestic markets. India’s size and diversity requires railways, roads and airports to be built. Roads need to be built into the smaller, untouched villages. When this occurs, economic activity will follow. Physical connectivity is needed to integrate all of India’s states into one empowered economy. This building of a transportation process already began with British railways during colonial times, but can still yet be expanded on smaller, more intricate levels. Along with transport infrastructure, it goes without saying that housing and offices must also be added by the government to supply this extra potential of economic activity. While an increase in infrastructure is required, so are improvements in human capital. Healthcare and education are crucial. Healthcare is required to increase participation in the economy and education so that the skills featuring in the labour market are considered of value. India wants to be in a situation where firms are willing to invest in their workers and retain them in the long run.
It is important to note however, though the focus of India should be on its domestic market, exports should not be ignored totally. Part of exploring deeper into the domestic framework is to find areas in which India can gain comparative advantage in relation to other economies, as Narendra Modi, the Prime Minister, recently stated. Despite the external situation being bleak particularly in the Eurozone, India can look to export to other emerging markets. But the global economy as a whole is unlikely to allow the conditions for another China model. India would have to compete with the developed economies now using capital-intensive manufacturing with less labour creating cheaper goods. Export-led growth will not be as easy for India as it was for the preceding Asian economies. India should not use cheap labour inputs with an undervalued exchange rate like China did. India is developing at a different period in economic history and needs to be open to other ideas.
Rather than using cheap inputs in the production process, India needs to create an environment that values its labour force with higher wages. The economy can flourish in these circumstances through the abundant group of entrepreneurs India possesses. The entrepreneurs of India need to decide what innovation to create to drive the economy forwards rather than the state deciding to specialise in certain sectors. This strategy under Nehru during early independence is one that did not work. India’s restructuring of the labour market and infrastructure will allow them to be open and encourage foreign producers to invest more in India, which will undoubtedly create more jobs domestically. If India focuses on the domestic economy, improvement can continue internally and externally.
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