I. INTRODUCTION TO REPORTThis report will firstly, provide an overview of India’s current Gross Domestic Product (GDP) over the past including the reasons for it. Secondly, the types of unemployment present in India and how it is being resolved. Next, we will also talk about the reasons for the presence of inflation in India. Lastly at the end of this report, we will be our opinions on a proposed solution on how to further improve India’s economy. II. GROSS DOMESTIC PRODUCT (GDP)The graph shows the trend of real GDP growth rate compared to the previous year.
The lowest GDP growth rate, which was 5.46%, was in 2012 while the highest GDP growth rate, which was 8.01%, was in 2015. The real GDP growth rate increased rapidly from 5.
46% in 2012 to 8.01% in 2015. This was due to the increase in state investment in India. Even though India is experiencing a decline in the rate of GDP growth from 2015 to 2017 (8.01% to 6.72%) because of the private investment and export sectors, the state investment has been increased to pull up the GDP growth. However, It is also extremely crucial for the private investment to step up and make improvements before the increase in the state investment would not help any further.The declining GDP growth means that there is a drop in production capacity and businesses are experiencing losses.
There are several reasons for slowdown in India’s economy. The first reason was the sudden announcement of demonetisation. As a result, there was a lack of new bills, causing many businesses which were reliant on cash, to undergo major losses or fail financially. Secondly, there was a huge decrease in private investment, causing the investment in aggregate expenditure to decrease and eventually causing the GDP to decrease. Thirdly, the business crisis led to a weakened job creation as businesses had to retrench people. This meant that the overall income of people decreased and the GDP decreased.
Lastly, before the introduction of Goods and Services Tax (GST), which is of a lower value than business taxes, there was a decrease in manufacturing and stocks were removed. This was because companies did not want to sell goods, which would result in paying a higher tax, before the introduction of GST. This was especially so when the taxes will be lowered after the introduction of GST. Therefore, GDP is expected to increase after the introduction of GST. According to statistics, the GDP growth rate is expected to increase in value from 6.72% in 2017 to 8.1% in 2021.
This is because, the government has implemented many policies that will boost India’s economy. Policies such as the introduction of GST will boost GDP because businesses will produce more when taxes are lowered. Another policy is the development of the mining sector. To develop the mining sector, the GSI will buy machines that can locate minerals at a deeper depth to increase output. Moreover, government is encouraging more firms and producers to generate the minerals and metals. Mahanadi Coal Field, an example of a mining company, had set-up downstream industries in Angul, India, Angul’s GDP per capita increased from INR 39000 to INR 101 000. This highlights that the mining industry has potential to increase India’s GDP growth rate to 8.1%.
Hence, it is important for the mining sector to grow 10% to 12% per year so that the GDP contribution of the mining sector can increase in 20 years’ time. Due to the continuous advancement in technology and more countries are proceeding into smart-living, India’s government is striving to urbanise the country as well as develop the manufacturing sector during the next 12-15 years. As a result, the demand of metals and minerals, such as copper, aluminium and iron, is expected to grow 4-5 times. As stated in the article, India might have an edge over countries in terms of exports over the next 12-15 years. We infer that this would mean that the exports will increase and hence the real GDP will increase because the exports are higher than the imports by a larger margin.
By using the aggregate expenditure approach, a boost in exports would result in an increase in net exports (X-M), an increase in aggregate expenditure and an overall increase in GDP eventually.III. INFLATIONFrom our analysis of India’s economy in the article, we concluded that cost-push inflation is present. The cause of cost-push inflation is mainly due to the growing demand for infrastructure development.Going more in depth, the development of natural resources is necessary for sustaining economies as it gives birth to industrial development and ancillary industries.
We need to mine minerals that are needed to build infrastructures such as buildings, factories, roads and bridges. This in turn will help to generate employment opportunities and lower the unemployment rate. Ultimately, improving the standard of living in the country. From the article sourced, it states that over the next 12 to15 years, demands of minerals in India will skyrocket by 4-5 times due to rapid urbanization and growth in the manufacturing sector. Unfortunately, India’s domestic supply of raw materials are insufficient and unable to keep up with this rapid increase in demand.This is seen from another article, which states that India is importing heavily on minerals as means to meet up with the increasing demand for urbanization and for their industries.
From 2016 to 2017, India calculated that the ratio of minerals produced to the minerals imported in India was 1:10. This suggests that India’s national supply of ores are insufficient to support the rapid urbanization of India. As such, India is forced to import as means to make up for the lack of raw materials.
The reason behind India’s lack of natural resources is not because of the depleting supply but because India is unable to fully utilize all the resources available in the country. Even though India have vast reserves of mineral resources, the exploration expenditure is unable to go beyond 100 metres deep and out of 5.71 lakh square km, identified as OGP area, only around 10 per cent has been explored. Therefore, the lack of exploration of deep seated deposits has resulted in huge imports of god, diamond, copper, nickel, platinum, potash, on so on. Coming back to inflation, with the increasing demand for infrastructure upgrade, more raw resources such as iron, bronze and copper are needed to conduct these projects.
However, as mentioned earlier on, India’s domestic supply of such scarce resources are limited and not fully utilized. Which is why India responded to this issue by importing resources from other countries. As a result,the increase in import bills have caused the cost of obtaining such raw materials to be extremely expensive. Therefore, to compensate for the rapid increase in cost of production, suppliers will be forced to raise the price of their final good charged in the market to consumers. This causes general price level to rise as well. Hence, resulting in cost-push inflation.
Moving away from mining, there are many other factors influencing the increase in inflation rate. In 2017, one of the major factor is the rise in prices of consumer goods. Consumer prices in India have increased from 3.58 percent in October 2017 to 4.
88 percent in November 2017. This is mainly due to the rising prices of vegetables and fuels. It has been recorded that prices of food and beverages have increased from 2.
26 percent to 4.41 percent, vegetables from 7.47 percent to 22.48 percent, and fruits from 5.05 percent to 6.
19 percent. Apart from that, prices of housing rose from 6.68 percent to 7.36 percent, fuel and light from 6.36 percent to 7.
92 percent, and clothing and footwear from 4.76 percent to 4.96 percent.
The reason behind the increased price of fuels and diesel is because of the relentless rise in global oil prices. Brent crude, the international benchmark recently increased their oil prices by 35 cents at $68.13 a barrel and US benchmark WTI also raised theirs by 47 cents to $62.20.
Feeling pressured, India responded by raising oil prices as well. Diesel now cost Rs 60.66 in Delhi and petrol price up to Rs 6.
4 a litre.With the increase in diesel price by Rs 6.4 per litre, it has forced farmers into a tight spot. This is because an increase in fuel prices means a reduced profits for those in the transport sector as the fuels used to run their motor engines are more costly. As such, they will demand a higher price from farmers for transporting their vegetables. Apart from that, the increased prices of diesel have directly impacted farmers as they use tractors, ploughing machines and water pumps that are diesel dependant. Thus, the increased price of farming and transporting vegetables have caused operational and production cost to shoot up. This has forced farmers to respond by raising the price of their vegetables sold to the end-consumer as means to make up for the increased cost of production.
As such, the increased price of the different types of goods have caused the general price level of goods to rise as well. Furthermore, India is introducing GST as means to improve the economy. With the increase in GST, the price charged for each good sold in the market to consumer will be higher.
As a result, general price level of goods and services in the India economy will increase as well.Overall, the growing demand for infrastructure development, increased price of the different type of goods, and the introduction of GST has led to an increased inflation rate of 4.88% in India.Therefore, one of India solution to exterminate the rising inflation is to develop the mining sector. GSI has expanded their exploration range beyond the depths of 300 metres across the country by purchasing more advanced technology such as hydrostatic drill, which will help increase India domestics supply of minerals and reduce their import for overseas minerals.
This will lead to lower cost of production meaning producers will have no reason to increase the price of their goods. Causing general price level to fall and inflation rate to drop as well. IV. UNEMPLOYMENTThe mining industry contributes significantly to the employment rate in India. It was reported that the mining industry can contribute create 6 million additional jobs by 2025, which would help to reduce unemployment significantly.
Unemployment can cause social, individual (personal) and other economic issues so it is very important for a country to work towards a low unemployment rate through the nation’s effort to create new jobs.The types of unemployment in this case are frictional unemployment and structural unemployment.Frictional unemployment is the normal search time required by youths with marketable skills when initially entering the workforce.Structural unemployment is the mismatch of skills between the skills that employees (workers) possess and the skills required for that job. When youths just start out in the corporate world, they may get jobs that does not match with their skill set since they have just started exploring what are the jobs that may be suitable for the skill set they can offer. Hence, they may leave the jobs more easily while exploring this aspect.
As of year 2016, the unemployment rate in rural India is 7.15% and as for urban, unemployment rate is higher than rural at 9.62%. These responses are collected from 315 cities and 3,000 villages across India. The main reason why unemployment rate is higher in the urban areas than the rural areas is because of the high competition faced by people in urban areas. In the urban areas, majority of the people are well educated with high qualifications.
This heightens the competition for job opportunities since everyone is just as good and skilled. With limited job positions, it is inevitable that current workers may get retrenched as they are replaced with a better worker, resulting in unemployment. To add on, there are also those whose qualifications are not as high as the rest. They may have a lot of difficulty finding a job as every company starts demanding for workers with higher qualifications due to this heightened competition.This competition is further increased as farmers and other self-employed move from the rural areas to the urban areas to seek for better employment opportunities so as to provide a better standard of living for their family if given a higher pay as compared to when they were farming or self employed. Though the qualifications of those in the rural areas may not be as high as those who are in the urban areas, they are able to offer other more practical skills such as sewing and weaving. These skills are still relevant to a certain extend so this competition still stands.CausesThere are 6 main causes of the high youth unemployment rate in India.
Firstly, the extremely high growth rate of population is one of the causes. India’s population has exceeded 1.2 billion. Despite this quick growing population, the amount of job opportunities available are not growing proportionately. The existing amount of jobs are already insufficient for the large adult population currently in or trying to re-enter the workforce, let alone the new generation of youths stepping into the workforce.Secondly, there are inadequate growth of economic opportunities. As mentioned above, the population has been growing very quickly but the economic opportunities in trade, industry, commerce, and agriculture have not increased proportionately, resulting in the lack of employment opportunities as the amount of youths stepping into the workforce grows bigger, with no significant growth in job creations.Thirdly, it is caused by the defective education system in India.
India’s education system focuses a lot on textbook learning and its education has little relevance to the socio-economic needs in India. Higher education also became crucial for jobs in public offices and in merchant offices. This resulted in an increasing general tendency towards higher education, increasing competition in the society, which worsens the unemployment situation in India with such heightened competition. This brings me to the point of lack of technical qualification. Many youths may be equipped with textbook knowledge but lack technical skills that employers are looking for these days. Certain job openings require one to be equipped with actual hands on skills rather than textbook knowledge, which is why many youths can’t get employed.Next, advancement in technology also contributes to the high unemployment.
Unplanned automation and advancement in technology to complete certain work has replaced many jobs as human labour is no longer very much needed. This is also known as structural unemployment, whereby advanced technology phased out the need for human labour.Lastly, industrial unrest also worsens the unemployment situation.
Some industries have been retrenching their workers and employees have been excluded by their employer from their place of work until certain terms are agreed to (lockout). This is generally caused by strikes by employees. It is also caused by the rise in import bills which causes the cost of production to escalate as well. Ultimately, it contributes to the high unemployment in youths in India.Thus, as a whole, the situation is deteriorating and gradually going out of control.SolutionsFirstly, the education system has to be more practical. Instead of focussing on an education which is textbook based, the educational system should also offer vocational education.
Students should be provided with technical training where they will be equipped with practical skills which would improve their employability.India should also look into reviving small and cottage industries. A cottage industry is a business or manufacturing activity carried on in people’s homes. This helps to reduce rural unemployment and can also serve as a means of livelihood to many in India.Another solution is to control the population in India from growing too much.
As mentioned, one of the reasons for high unemployment is because of the growing population that is going out of control while the job opportunities remain low. Hence, the most feasible solution is to keep the population growth in control to prevent even higher unemployment.Lastly, the government should be helping in creation of jobs and not hindering it. The leasing process and procedures in India is very complicated and takes a long time for it to go through successfully, which will make entrepreneurs think twice before entering an industry.
Hence, the India government should cut down the leasing process and in that way, encourage more to enter the industry, instead of hindering them from entering new industries.The India Government should also encourage employees of existing firms to hire the unemployed through rise of incentives such as tax exemptions for the firms. As mentioned, the government’s role in reducing unemployment rate is very important.
India has 2 government policies, both aimed at helping to reduce unemployment rate and improve the lives of their citizens. There is a scheme/policy called Pradhan Mantri Kaushal Vikas Yojana. It is a skill development scheme to help youths pick up industry-relevant skills so as for them to get a secured job for their skill sets. All trainings provided under this scheme are fully paid by the government. Next policy is an extremely effective policy which resulted in a reduction of unemployment and also improved standards of living.
Mahatma Gandhi National Rural Employment Guarantee Act (MNERGA) is a policy where a job card will be issued to adults who are unemployed in a rural family. If one applies for a job using this unemployment card, he has to be selected for the job. If not, he will be entitled to receive unemployment allowance. This also means that everyone is given a chance at employment and are provided with necessary financial help even if they do not get the job. V. CONCLUSIONThe fact that India is currently facing a slowdown in the economy is due to several reasons that we have stated above.
However, the government is aware of these facts and is working towards the improvement of the economic situation. Several policies such as the introduction of GST, development of the mining sector, MNERGA, Pradhan Mantri Kaushal Vikas Yojana programme and more, have been implemented to do so.With India currently prioritising and putting actions into plans to expand the mining sector together with the urbanization of the society, India can expect themselves to be an exporter of raw resources to the foreign countries, fully utilizing all the resources available in the country and reducing the importation of raw materials.
Together with slowdown in the price increase of final goods (example, machineries) and decrease in inflation, more jobs will be created resulting in a drop in unemployment. As such, it is possible to foresee that the GDP of India will be back on the rise with a higher standard of living for the citizens.However, in order for India to be truly on the higher end of the economy, that is to say to avoid getting stuck in the middle-income trap, they need to be craft out and ascertain a route that moves towards the modernization of the society.