India Economic and Financial Policy

India Economic and Financial Policy


Economic conditions. – The reform process initiated from above in the early 1990s – with the privatization of public enterprises, the abandonment of protectionism and the opening to international markets – has pushed the Indian economy to transform itself with speed among the highest in the world, with an average annual GDP growth of 7.5% in the period 2003-13 and a peak of 10.2% in 2010. India’s GDP in 2014 ($ 2047.8 billion) makes up Country the third wealth of the world; GDP per capita at purchasing power parity (PPA) it is $ 5,777 (2014). The fruits of the liberal reform have not only led to foreign investment in the country, but also the rapid development of Indian export entrepreneurship: India is the second most important investor in the United Kingdom. In the period 2012-13 there was a cooling of this growth with an increase in inflation (reaching almost 10%), in the absence of reforms that could cope with the corruption of the bureaucracy and the political class, with the consequent abrupt slowdown in investments by foreign capital. The results of the 2014 elections, with the victory of the nationalist Bharatiya janata party (BJP), represented a stimulus for a marginal recovery in growth, projected towards the standards of previous years.

According to Topschoolsintheusa, the contradictions and the complexity of the country are also expressed in a composition of the economic structure that still ensures a preponderance of agriculture by number of employees (49% of the population in 2013, a measure of low productivity) and a significant incidence of the sector in wealth of the country (17.4% of GDP). This is an area that encompasses a wide spectrum of typologies: from poor and traditional activities intended for self-consumption, to a market system with good modernization, although the low degree of mechanization makes a significant part of the activities still dependent on monsoon rains. In 2014 India was among the top three producers of some of the main crops: cereals (second exporter after the United States), wheat, rice, potatoes, peanuts, sugar,

The mining sector also has its own importance in the country’s economy, but since 2010 it has recorded a progressive decrease, with the exception of diamonds, whose planetary-scale processing is almost entirely concentrated in Surat, while Mumbai is the world’s leading stock exchange. sector. Coal deposits continue to be of great importance, despite the growing investment in nuclear energy: 21 reactors are active and another six under construction. The industrial sector generates 25.7% of the wealth and employs almost a quarter of the workforce with a preponderance for heavy industry: steel, chemical, mechanical and electromechanical. These figures show how, despite the good inflows of international capital in recent years and the announcement of several long-term industrial policies, India has not yet managed to give itself a globally competitive industrial structure. The service sector, while employing only 26.8% of workers, represents the major source of economic growth, with 56.8% of GDP (2013). Financial and real estate services alone are worth 20% of the national product. The use of English as a vehicular language was found to be an important factor in the development of information technology (IT), making this country one of the main exporters of software and technological services, especially financial ones. There are thousands of technical training centers, among which there are seven Indian institutes of technology that have graduated thousands of engineers a year, thanks to which not only the development of the Indian economy has been supported, but has produced a great demand for Indian researchers in the sector in the main Western countries: over 25,000 engineers work in the United States. Widespread instruction in English has also meant the development of outsourcing systems for large transnational corporations for a whole range of customer services.

The demographic factor undoubtedly represents an important aspect for the backbone of the Indian economy, both in terms of active population, which in 2014 was the second in the world with almost half a million people (74% male), and in terms of of internal demand driven by consumption and investments by an ‘aspiring middle class’ in continuous growth. These aspects are also readable through the entertainment industry, with the growing success, even abroad, of cinematography (see below: Cinema), the largest in the world for films produced and box office receipts. Each of the most popular languages ​​has its own production: the best known is Bollywood (Hindi / Urdu, based in Bombay), but also Tollywood (for the Telugu production of Hyderabad) and Kollywood (for Tamil cinematography, based in Chennay, see below: Cinema).

Economic and financial policy. – Starting from the second half of 2005, the Central Bank has pursued a prudent monetary policy, while the government has continued its strategy of gradual consolidation of public accounts, at the same time ensuring incentives for inclusive growth. The economic policy priorities that characterized this period include price control and financial stability, with the strengthening of the rules that regulate the functioning of financial markets, in order to create a context that favors the protection of savings, increased investment and prudent risk management.

In the second half of 2008 India, detecting its exposure to global economic cycles, suffered a slowdown in economic growth due to the contraction of trade flows and the deterioration of world financial conditions. The government has therefore implemented some interventions to support economic activity, with the reduction of excise duties and the tax on indivisible services, the increase in public spending in the sectors of education, health and rural infrastructure, and the provision of export subsidies. In the same period, the Central Bank intervened in the foreign exchange markets by reducing its reserves in foreign currency to guarantee the necessary conditions of international competitiveness to the productive system. Furthermore, to prevent the risks associated with the credit crunch, the Indian authorities have temporarily adopted an expansionary monetary policy and injected liquidity into the banking system, while other interventions have been made to promote the offer of credit to the economy by public and private institutions. In the second half of 2010, the Central Bank renewed its interventions to reduce inflationary pressures, fueled by the increase in international prices and by the dynamics of domestic demand for food products. The consolidation of the structure of the banking system, the development of a robust financial market and the financial inclusion of small and medium-sized enterprises and the general public were among the priorities of the monetary policy authority. On the foreign exchange market, the action of the central bank was gradually reduced, creating the conditions for the currency to flexibly adjust to market dynamics, with the exception of sporadic interventions to limit excess volatility. During 2013, the government promoted the opening of the domestic market to foreign direct investment (FDI) and financial flows. As regards fiscal policy, the Indian authorities have decreed a gradual contraction of subsidies and public spending, in view of the consolidation of medium-term public accounts, which sets the target for the impact of the deficit on GDP for 2016 at 3%.

In addition, the government has promoted the rationalization of unplanned spending, decreed the distribution to the state of higher dividends by public companies with excess liquidity and initiated the reform of the direct taxation system.

India Economic and Financial Policy