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Why Indian Economy is Set to Overtake the UK Economy


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India is the second largest country in terms of population, however for many years its economy has struggled to compete with other Asian and developing economies. The Indian economy has in the past been characterised by low growth, endemic poverty and focused primarily on the agricultural sector. However in recent years the Indian economy has started to grow at a particularly fast rate. Latest GDP statistics suggest the economy is likely to grow at between 6 and 7% for the next couple of years. What has contributed to this remarkable turnaround in economic performance?

Reasons for Improved Economic Performance in India

1. The first reason is that India has started from a low base. With a large population and extensive natural resources it has in many ways being a sleeping giant, it has much potential to catch up on. It is also worth noting that despite high growth rates average GDP per capita rates are still quite low. This is due to the rising population levels explaining a significant % of the growth rates.

2. Economic Reforms. The Indian economy has in the past been overburdened with reforms and regulations which have hampered entrepreneurs and the formation of new business. With the cutting red tape there has been an increase in investment both domestically and from abroad.

3. India is benefiting from the process of globalisation. This has enabled a significant increase in its trade with both Asian countries and the West. India’s low labour costs have given it a comparative advantage in many labour intensive industries such as textiles and even modern day call centres.

4. Increased investment in education and infrastructure. Admittedly India still suffers from a shortage of key skills and communication networks. However they have improved considerably from previous standards.

5. Diversification of the Economy. In the past India was reliant on agriculture as its main source of output and jobs. However recently India has been able to diversify into new areas of technology and has become one of Asia’s leading specialists in IT. With many new industries based around Mumbai.

India still lags far behind many economies in certain fields such as Education, GDP per Capita and a modern infrastructure. However it is noticeable that there is increased optimism about the prospects for the Indian economy. There is new growing middle class who are keen to spend money on both manufactured goods and the Service sector. This is providing increased investment opportunities which foreign companies are increasingly taking. However despite the growth the Indian economy faces significant problems such as pollution, congestion and continued levels of poverty and inequality. It is hoped that future economic growth will enable India to more adequately deal with these social and economic problems.

About the Author

Richard Pettinger studied Politics and Economics at Lady Margaret Hall, Oxford University. He now works as an economics teacher in Oxford. He enjoys writing essays on Economic and he edits an Economics Blog focused on UK and US economies:

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Article Published/Sorted/Amended on Scopulus 2007-03-25 20:01:56 in Economic Articles

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