The new benchmark for growth is 8-9% anything below that is now considered a weak performance. Another striking aspect has been the rise in the savings and investment rates. Economists say in the period 1971-2002, the investment was between 15% and 25%, but between 2002 -2010 it ranged between 25% and 37%. The savings rate now stands at around 35%.
Rapid economic growth as a consequence of reforms has led to the emergence of the “the great Indian middle class”, which all multinational companies cite as reason for their focus on the Indian market. While the size of this middle class varies from 50 million to 350 million according to various estimates it definitely has spurred consumption. Demand for automobiles, healthcare, television and other consumer goods had zoomed and almost every major global brand is present in the country now.
The reforms in the financial services sector, although slow compared to others sectors, has led to a proliferation in demand for banking and insurance. Banking reforms have led to low non performing assets. Similarly opening up of the insurances sector to foreign participation in 2000 has led to more competition and efficiency in the space.
On the other hand reforms in the capital markets and setting up of the stock market regulator has acted as massive global attention. Foreign Institutional investors have poured $28 billion in the Indian stock market so far this year. In 2009 they had invested $17 billion.
Rapid economic growth has also led to a significant reduction in poverty, although a large segment of the 1.2 billion population still remains in abject poverty.
Robust economic expansion has also meant that there has been a structural shift in the economy. From a largely agriculture dominated economy India now relies heavily on the services sector for growth. This crucial sector now accounts for more than 50% of the country’s GDP. The service sector includes trade, hotels, transportation. Insurance, financing, business services, real estate among others accounted for 15% of GDP in 1950 and about 44% in 1991.
However the two decades of economic reforms have also been bumpy with political position holding up progress and skeptics questioning the need for any further opening up of the economy.
India’s reforms have been piecemeal and incremental giving a casual observer the impression that nothing has been happening. If one takes the totality of reforms over the last decade, however, the change is unmistakable.
Sustained strong economic growth, robust domestic demand and a huge market has translated into global economic clout for the $ 1.3 trillion economy. India now is a leading voice in almost all leading global economic bodies, ranging from the International Monetary Fund to the World Trade Organization.
India has grown in stature on the global stage. Two decades ago nobody looked at India. Now no foreign investor can afford to ignore India because of the growth and market potential.
But despite rapid strides that the economy has made analysts say that the next 20 years would need more deep reforms in governance, administration, social sectors and infrastructure to help wipe out poverty and push India in to the developed nations’ league.
Some of the social sector indicators though still remain grim. Many cite the data that shows there are more mobile phones than toilets in India. The planning Commission says school dropout rates remain high with 43% of the children dropping out before completing school. The quality of education too, is a reason for worry. The planning commission quotes a survey that in 2009 as many as 38% of children in Standard V could not read text meant for Standard II and 37% could not do simple division.
According to the Planning commission urbanization is expected to accelerate and the urban population’s share may reach 50% in the next 25 years adding up to 400 million people to the existing urban population of 360 million is bound to add pressure to the already stretched services such as sanitation, water supply, waste disposal and urban transport.
Excerpts from The Times of India