Pillars of Growth of the Indian Economy

Posted in Finance Articles, Total Reads: 3777 , Published on December 15, 2015

The Indian economy is going through a recovering period, growing close to 9% before the recession to 7% in the last quarter of the 2015-16 fiscal. It is globally acknowledged that despite the recent slack in the economy, prospects of Indian economy remain optimistic. The reason for that could be India's tremendous potential in improving its current state of economy. There are primarily four different areas - Infrastructure, Human Capital, Business Regulation, and Finance - in which considerable amount of work needs to be done for the Indian economy to grow at its potential.

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For decades India's infrastructure has remained substandard and inadequate and is not being able to match the pace of a growing economy. Be it the lack of roads, highways, airports, seaports, power plants, or the expansion of railways, India is facing huge cash crunch problems. Not only the problem of financing infrastructure projects is an impediment but also the regulations and approvals in various ministries, which sometimes take years to get, are considered a big obstacle. Now, the government does not have deep pockets to finance the various infrastructure projects primarily because of the large amount of subsidy burden. Therefore, the government has no avenue left but to form a partnership with private players so as to minimize its burden. The condition of infrastructure in India has been stagnant over the years with 40% of the villages does not have access to roads. Now, Infrastructure can contribute a lot towards the Indian economy with regards to ease of transportation, thereby reducing the cost of doing business. Investors are reluctant to invest in India due to its poor infrastructure with no adequate connectivity among cities and sub standard roads. Furthermore, a push in infrastructure activities will create jobs, which in turn increase employment and economic growth. So, for all these reasons, improving infrastructure becomes paramount in boosting India's economy.

Human Capital

To provide a quality education in India seems an elusive task. India education sector is languishing with very few numbers of students completing their high school and senior high education, let alone the college graduates. Poor families are unable to send their children to schools because of financial reasons, and this is where the government can play a big role. Government can too sometimes feel incapable in delivering to the education needs of the poor primarily for the reasons of political compulsion. India has 65% of its population below 35 years of age, and to leverage this demographic dividend it needs to provide them with the skill set that economy is demanding otherwise this dividend, which India hopes to reap on would become more of a liability than of an asset. To provide basic education and skills to the significant proportion of population is indeed a daunting challenge, but India has to act now with its full capacity if it wants to grow sustainably at 10% per year.

Business Regulations

To establish a business in India is as tedious and hectic as to teach a 5 year old about monetary policies. Business Regulations have become archaic, needing a complete overhaul. Most of them were established decades ago, and they do not make much sense in today's world. Moreover, these business regulations are not conducive to companies in expanding their business activities, and especially the entrepreneurs feel perturbed by these outdated regulations. The job of the company gets even more aggravated when they have to face venal politicians and bureaucrats to get things done. Ambiguity in state taxes is also a concern for the industries with different state authorities asking for multiple taxes. Tax Regulations need to be much clearer and concise. To provide employment to the increasing labor force, we need to make it much easier for the entrepreneurs to set up businesses in India so that they can generate employment. As of now that entrepreneur culture is missing.


Finance is also one of the areas where government needs to pay heed. Most of the people in India, especially in rural India, do not have bank accounts. A migrant person living in a city cannot safely transfer money to someone living in a village. Bank accounts do provide safe remittances and an opportunity to earn real interest on the savings. The Reserve Bank of India is doing its part in reaching to the people living in rural areas by setting up payment banks, which will provide basic financial services, but this is a small step forward in a long journey and lot needs to be done not just by the RBI but also by the Government.

This article has been authored by Ankit Khatri from International Management Institute(Delhi)

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