What’s Happening in the World: India

By Rita Estella

India is so diverse a country that when visiting this densely populated nation of 1.38B people, one is left amazed with its religion, language, caste system and socio-economic structure. The population of India continues to grow on an average of 1% per year since 2020. Given this growth, India is poised to continuously increase its population and without proper economic planning, poverty will be a constant issue for people living in this area of 1.3M square miles. The economy, while growing steadily, remains poor, corrupt and inequitable. The share of wealth of the top 1% of the population has risen to 51%. India is largely rural with 69% of its population still dependent on agriculture. Poverty is largely felt in these areas where growth in the agricultural sector remains dire. Agricultural output only grew by .8% since 2009. The share to GDP is only at 17% but more than half of the population relies on agriculture.

Laying in between the Indian Ocean and the China Sea, its location posts a continuing threat to its sovereignty as a nation. Tensions between the Hindu majority and the Muslim minority ended in splitting the country to what is now known as Pakistan. The Indian-Pakistan border is one of the most contested sites in the world and has been a place of numerous conflicts between the two countries. There are also border disputes with China. The Sino-Indian dispute is an ongoing territorial dispute over a number of territories between China and India.

Internally, India, like most developing countries, faces challenges on how to address poverty, inequality, corruption, and access to education and health, among others. India’s two economic pillars largely depend on the (1) farmers who produce the goods for the population, and (2) taxpayers who support government revenues.

With regards to poverty, India instituted programs to alleviate the plight of the poor. The “Save the Daughter Program” provided women access to education. Though the literacy rate increased from 18% in 1951 to 75% in 2018, India is still home to 40% of the world’s illiterate population. Many young people leave the rural areas to live in the cities. The young and the educated seek a better quality of life in the urban areas.

Corruption remains unabated in the country. Government employees and officials still accept bribes to get transactions done. Corruption will remain a factor in the socio-economic landscape of the country until such time that poverty and inequality are addressed.

The health sector in the country is largely accessible only to the urban population. The concentration of health facilities are still in the major cities were the population could afford to pay for healthcare. Majority of the population has either no access or very limited access to better health management in India.

To address these socio-economic issues on poverty, literacy, labor force, employment, a huge number of underground economies (informal), status of women, gender inequality, health and environmental protection, the Modi administration launched several flagship projects:

1. Clean India- a project to address health issues and environmental issues. Public toilets were constructed nationwide to eliminate open defecation and improve solid waste management.
2. Make in India- to attract FDIs into the country. India opened its economy to foreign investors to manufacture their products in India and sell these back to developed countries.
3. Save the Daughter- the program was designed to prevent gender bias and sex selectivity, ensure survival of the girl child, and ensure their education.
4. Sagar Mala Project- an initiative by the government to enhance the performance of the logistics sector. The aim is to reduce the logistical cost of exports and domestic trade by enhancing and modernizing ports and developing coastal communities.
5. Bharatmala Project- this is the modernization and construction of national highways that target efficiency of freight and passenger movement across the country. These projects are estimated to create an additional 22M jobs.

On the economic front, India’s inflation rate is modest. The country was able to control the prices of its goods and commodities. From a balance account deficit of $8.1B in Q4FY21, India posted a surplus of $6.5B (.9% of GDP) for Q1FY2022. India has exported more services compared to importation of goods and services from April to June. The question now is if India can sustain this surplus as high global commodity prices add to import cost.

The Modi administration is poised to continue redirecting funding to build and modernize infrastructures (highways and railroads) to aid both exports and local importation of goods and open more employment opportunities for the population. Greater focus will be given to opening the country to FDIs by reducing regulations in: limiting major ownership of foreign investors; deregulating the price of oil, especially diesel, which is a high cost component in the manufacturing industry; reforming labor laws that will regularize policies on hiring and firing of employees; continuing several import exemptions, higher taxes for luxury goods and lower taxes for some precious metals used in the manufacturing sector; and public spending on education and health. Indeed, the Modi administration has instituted a lot of policies to aid India towards growth and prosperity.

Despite growing rapidly for the past five years until the slowdown in 2020, India remains to be a poor country, with a per capita GDP of $2,169. The number of people living in poverty had dropped from more than 600 million to about 350 million. The urban middle class had grown rapidly, demonstrating the upward mobility associated with increased access to education. However, all these economic indicators are only felt by a few. The wealth gap and inequality in India remains to be huge. Only 1% of the population shares 51% of the country’s wealth.

Given all these scenarios, do you think Modi will be able to steer back the country to a growth path of 9% annually? Is Modi’s focus on a market-driven economy sustainable? Are the structural programs and monetary policies enough to propel growth in 2022? And lastly, would you invest in India given the circumstances?

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About the author:

Rita is the Vice President of John Clements Consultants’ outsourcing services, Staffbuilders Asia. She also manages Speednet, Inc., a fully owned John Clements subsidiary that offers messengerial/courier and mailroom services. Aside from these, she is also in charge of the Mystery Shopping Program under Shop N Chek Philippines. Rita holds a Bachelor’s Degree in Psychology from the University of Santo Tomas.