India's Economic Challenges and the Path to Progress

India's lagging economy and workforce challenges hinder its path to becoming an economic superpower despite impressive growth.

### Challenges and Opportunities for India's Economic Growth
* 📊 Despite becoming the fifth-largest economy globally, India's **per capita income lags behind**, and it's **far from overtaking China**.
* 👩 India's poor education system and low investment in human capital are **major obstacles to economic growth**.
* 🏭 Manufacturing for the world market has historically not been India's strength, with **various infrastructure and regulatory challenges**.
* 💰 The government needs to increase foreign direct investment (FDI) to spur economic growth, aiming for **6% of GDP**.
* 🏦 India's fiscal deficit has been growing, impacting government finances and potentially leading to **higher inflation and borrowing costs**.
* 🌐 The current account deficit widened to the **highest in nearly a decade**, reflecting **slowing global demand on exports**.
* 👨 India's female labor-force participation rate is significantly lower than in neighboring countries, representing **untapped potential**.
* 🎓 Reforming the education system and investing in human capital are crucial for India to achieve **long-term economic growth and competitiveness**.

India is now the fifth-largest economy, overtaking
the United Kingdom. When we talk about the Indian economy, we
become extremely optimistic, quoting India as the next economic superpower. But when we compare the per capita income
of the top five emerging economies, India is a long way from becoming an economic superpower. However, India has shown impressive growth,
but it lags behind its rival China. The history of Asia can be read by comparing
the Indian and Chinese economies. According to World Bank figures in chained dollars, In 1980, India’s gross domestic product was 64% of China’s. By 2001 when China joined the World Trade
Organization, India’s economy was only 28% as large as China’s. And, despite several years of rapid growth
in the 21st century, by 2021, India’s economy had fallen even further behind and equaled
only 17% of the Chinese economy.

That’s because China's GDP growth has always been higher than India's in the past. If India’s economy had kept pace with China over the past 40 years, India would currently have a GDP of $10 trillion instead of $3.47 trillion. But this is not the case. However, India would surpass China in one thing: population. But according to some projections, its workforce will not exceed China’s until mid-century, even though Indians are much younger. India has more than 50% of its population below the age of 25, and more than 65% below the age of 35. It is the country's strength as well as its weakness. According to the Centre for Monitoring Indian Economy, a private research firm that publishes more recent data than official numbers, the jobless rate has been hovering around 7% or 8%, up from around 5% over the last five years. And According to the CMIE, the labor force participation rate — which includes persons

who are employed or seeking employment — has
fallen below 40% from 46% six years ago. This chart shows India’s youth unemployment
rate is 40%, much higher than the overall rate of 7.7%. If you include household adult women, the
rate would be significantly higher. A rise in female employment rates to the male
level would provide India with an extra 235 million workers. This is more than the EU has of either gender
and more than enough to fill all the factories in the rest of Asia. Think about the repercussions. If India rebalanced its workforce in this
manner, the IMF believes that the world’s largest democracy would be 27% richer. It is not unusual in developing economies
for a family’s social standing to be enhanced by having its women remain at home. But India stands out, as its female labor-force
participation rate is well below those of countries at comparable income levels. For example, in neighboring Bangladesh, whose
customs are not so different from India’s,

a boom in garment manufacturing has increased
the number of working women by 50% since 2005. In Vietnam, three-quarters of women work. But the mega-factories that boosted female
employment there are largely absent in India. The problem is the lack of employment opportunities. The so-called ‘India’s World-Beating Growth’
isn’t creating jobs. A big part of the problem is India’s poor
education system and job training, which means local degrees and certificates are often considered
worthless by employers. This data shows only 20% of the population
in the age group of 25 to 34 is in high-skill professions such as medicine, advanced research,
with more vocational programs leading to the labor market. India’s youth failed to get skills and education
because of its government. The Indian government only spends an average
of 2% of its GDP on primary to post-secondary education, which is very low compared to Brazil
and South Africa.

India is also among the countries with the
lowest public expenditure on health care, at only 1.3% of GDP. India is failing to provide two key components
of human development: education and health. As a result, labor productivity is declining. Labor productivity is most important factor
for improving the living standards of people in the economy. As an economy’s labor productivity grows,
it produces more goods and services for the same amount of relative work. This increase in output makes it possible
to consume more goods and services for an increasingly reasonable price. If we compare the GDP per hour worked of BRICS
countries, India has the lowest level of productivity. China’s productivity took off in 2000 because
When its technocrats decide to dam a river, build a road or move a village, the dam goes
up, the road goes down, and the village disappears. The displaced villagers may be compensated, but they are not allowed to stand in the way of progress.

China’s leaders make rational decisions that balance the needs of all citizens over the long term. This has led to rapid, sustained growth that
has lifted hundreds of millions of people out of poverty. But this is not the case with India. Infrastructure, such as roads and power, and
public services, such as education and drinking water, are woefully inadequate and limit growth. India's top computer scientists are entertained
around the world, yet most children in rural areas lack the basic education needed to find
more productive work. A popular argument is that other Asian economies
grew by 8–9% for long periods, so why not India? But this East Asian economy invested much
more in education and infrastructure than India does today. Regarding infrastructure, the Indian economy
has seen unstoppable growth in fixed capital formation, including land improvements, plant,
machinery, and equipment purchases, and the construction of roads, railways, and commercial
and industrial buildings. Still, since 2007, it has fallen from 36%
to 29%.

Several factors have led to the decrease
in fixed capital formation. These include policy uncertainty, financing problems, weakness
in private investment, and a slowdown in the banking sector. But the most important factor is the fall
in foreign direct investment (FDI). Since 2008, FDI has fallen from 3.6% to 1.4%
of GDP. The government needs to increase the amount
of FDI to as much as 6% of the gross domestic product to help spur the economy. It's important for the government to implement
policies and initiatives to attract foreign investors, such as making it easier to do
business, providing tax incentives, and streamlining the investment process. Mr. Narendra Modi could not double the size
of the economy to $5 trillion by 2025 while promoting self-reliance and keeping government
revenue under pressure. In the last 10 years, the government’s fiscal
deficit, which is the difference between the

government’s total expenditure and total
revenue (excluding borrowing) has grown. This has led to pressure on the government's
finances and raised concerns about the sustainability of its spending programs. The increasing fiscal deficit also impacts
the country's credit rating and borrowing costs. If the deficit continues to grow, it could
lead to higher inflation and interest rates, which could further slow economic growth. Moreover, it could also increase the government's
dependence on borrowing, potentially leading to a higher debt-to-GDP ratio. India's debt-to-GDP ratio is around 90%. This indicates that the country has a relatively
high level of government debt compared to its economic output. However, India's debt-to-GDP ratio is not
as high as that of some other countries. Credit rating agencies like Moody's, Standard
& Poor's, and Fitch Ratings gave India a stable rating, which is considered investment-grade
ratings. This indicates that the agencies believe that
India has a relatively low credit risk and

a stable outlook for its economy. Another crucial area to push forward is exports. According to this report, India’s current-account
balance widened to the highest in nearly a decade as the nation’s trade gap ballooned
and foreign investments fell. The current account, the broadest measure
of the country’s overseas trade and service flows, was in a deficit of $36 billion, or
4.4% of GDP. India’s current account deficit has been
a matter of concern in recent years. The country faces a persistent trade deficit
and increased payments for imports, leading to a widening gap between inflows and outflows. According to the Financial Stability Report,
the widened trade deficit reflected “the impact of slowing global demand on exports. Although global demand has slowed, Indian
consumer demand is rising. This consumer confidence index shows the level
of optimism or pessimism among households about the overall state of the economy and
their personal financial situation. It is typically calculated based on surveys
of a representative sample of households.

in which they are asked about their views
on current and future economic conditions, employment prospects, and their spending and
saving patterns. The index is used as an indicator of consumer
spending, which is an important driver of economic growth. Consumption may rise further as inflation
falls and Indians’ purchasing power rises. But capital spending and manufacturing are
what really matter—they boost current growth and the economy’s potential. Manufacturing for the world market has not
been India’s strong suit. Rickety infrastructure, expensive and unreliable
electric power, complicated labor and land laws, and a frustrating bureaucracy prevented India from joining previous waves of Asian industrialization. Japan, South Korea, Taiwan, Singapore, Vietnam,
and of course, China all outperformed India in the race to industrialize. Today, however, a confluence of international
and domestic factors is giving India a chance to catch up. Internationally, manufacturers are looking
to reduce their dependency on China. Domestically, the populist government of Prime
Minister Narendra Modi wants broader prosperity.

than the cyber economy on its own can provide. Years of investment in highways, railroads,
and ports combined with regulatory reforms have reduced, if not eliminated, the obstacles
that long kept foreign investors at bay. Investing in human capital can also help address
several other challenges facing India, such as the need for a more skilled and productive
workforce, and the challenge of creating decent jobs for the growing population. Education and training are critical to the
long-term growth and competitiveness of the Indian economy. A well-educated and skilled workforce is essential
for attracting investment, promoting innovation, and increasing productivity. To achieve these goals, the government must
allocate more educational resources and prioritize them in its budget and policymaking. Overall, reforming the education system and
increasing investment in human capital is crucial for India to become a leading global
economy and ensure a better future for its citizens.

The Problem With Indian Economy | Indian Economy | Econ

Econ

India has become the fifth-largest economy, surpassing the United Kingdom, but its per capita income lags behind other emerging economies.

The country's GDP is significantly smaller than China's, with a growth rate that has not kept pace over the past 40 years.

India's high youth population presents both strength and weakness, with a high unemployment rate, particularly among the youth and women.

Increasing female employment to the male level could make India 27% richer, according to the IMF.

However, India's female labor-force participation rate is much lower than that of comparable income level countries, such as Bangladesh.

The Impact of Garment Manufacturing on Female Employment

The garment manufacturing boom has significantly increased the number of working women, especially in Vietnam.

However, this growth is not seen in India due to a lack of employment opportunities and a poor education system.

India's low investment in education and healthcare is contributing to the failure in human development and declining labor productivity.

Compared to other BRICS countries, India has the lowest labor productivity, which is crucial for improving living standards.

China's significant increase in productivity since 2000 has been linked to its approach to development, which involves minimal resistance.

A Comparison of China and India's Economic Growth

China's rational decision-making has led to rapid, sustained growth and lifted millions out of poverty, while India struggles with inadequate infrastructure and public services.

India's lack of investment in education and infrastructure sets it apart from other rapidly growing Asian economies.

The decrease in India's fixed capital formation, driven by factors like policy uncertainty and a fall in foreign direct investment, highlights the need for the government to attract more FDI through policy initiatives.

India's Growing Fiscal Deficit and Economic Challenges

The government's total expenditure and revenue have been increasing, putting pressure on its finances and raising sustainability concerns.

The growing fiscal deficit is impacting the country's credit rating, borrowing costs, and could lead to higher inflation and interest rates, slowing economic growth.

India also faces challenges with a high debt-to-GDP ratio and a widened current account deficit, driven by a persistent trade imbalance and reduced foreign investments.

The Consumer Confidence Index is used to gauge spending patterns and economic growth in India.

While consumer spending may increase with rising purchasing power, the focus on capital spending and manufacturing is crucial for current and potential economic growth.

India has historically lagged behind other Asian countries in manufacturing for the world market, but now has the opportunity to catch up due to international demand shifts and domestic reform efforts.

Investing in infrastructure, regulatory reforms, and human capital is essential for addressing challenges and driving long-term economic competitiveness and growth.

The government needs to prioritize educational resources and reforms to build a skilled workforce and promote innovation for India's future global economic leadership.