Economic, Political and Technological Factors - India - Essay Example

?International Business [The of the will appear here] [The of the will appear here] [The of the [Date] Using one of the following countries – Brazil, Russia, India, China or South Africa, Mexico, Nigeria or Turkey identify and critically evaluate the key economic, political and technological factors conditions that have enabled it to become a ‘Rapidly Developing Economy’ or ‘Emerging Economy’. Introduction Emerging Economy is a termed coined to defined developing countries that are rapidly undergoing a process of growth through a change in reform or practices. Especially because of the increase in globalization, these economies have been advantageous because globalization has increased foreign investments in such countries. This increase in foreign investments allows room for development and economic growth within these countries. China and India are considered to the top emerging economies at present given their rate of development in the last decade. These countries have been able to develop their infrastructure to such an extent that international countries from all over the world have opened up operation in these two countries. For the purpose of this paper, an attempt would be made to develop an understanding of one of these countries, specifically India. India, though was primarily an agricultural country, has used globalization to develop its technological infrastructure which has been the main source of growth for the country in the last decade. The paper would work on the different factors, specifically economic, political and technological factors, which allow India to enjoy the position of an Emerging Economy. Based on this analysis, recommendations would be developed for India to improve upon its economical position in the coming years. India India is one of the most populated countries of the world and specifically the world’s most populated democratic city. The country that comprises of India consists of diverse people who belong to different casts and sects. Even with the presence of such diversity in the country, it comes forward as a unified country. India came into being after the Indian sub-continent got its Independence from the British in 1947, having being split into two different countries namely India and Pakistan. India, from then onwards operated as a democratic nation with a wide gap between its rich and poor. It was not till the economic reform of 1990 that India was able to enjoy a growth in its economy. Subsequent to the economic reforms, India enjoyed an economic growth that rose to 7 percent annually for three consecutive years, namely from 1994 to 1997. Even during the recent global financial crisis that hit the world in 2007, India was able to show a positive economic growth. It was able to not just avoid the recession but was also able to show a growth of 6.5 percent in 2010 (Lynch, 2010). At present, India occupies a prominent position in the world in terms of its economic position. India is considered to be among the top 15 countries as it is the fourth largest economy after US, China and Japan. India, with its huge labor pool, attracts extensive amount of foreign investment in the form of international companies wanting to open up operations in foreign countries. This being so, India is the second most preferred country, after China, as an investment destination. Critics, however, argue that India is a long way from being considered a developed country. Even though, India has been able to show a consistent economic growth, it may not be able to maintain this growth given its political conditions and infrastructure. They believe that India has not truly capitalized on its current position and thus has not taken to development at a rapid pace. For them, India has not been able to reap the potential that it has given its rich labor pool and technological advancement. In the following section, this paper would analyze the economic, political and technological factors that led to the consideration of India as an emerging economy. Economic Factors Economic reform of 1990 India began being counted as an emerging economy after it adopted the economic liberalization policy in July 1990. Prior to this, India had adopted socialist policies where the government had great control over the economic matters. The state strictly controlled import and export within the country while industries were also controlled by the state. Even though liberalization policies were being planned before this, but they did not reach the stage of implementation. It was after the negative balance of payment that the country decided to implement liberalization. For this, the government under the control of Narashima Rao made an agreement with the International Monetary Fund in order to bail out the country from the crisis. Under this agreement, India was asked to pledge 47 tons of gold with the Bank of England and another 20 tons of gold with the Bank of Switzerland. The IMF also demanded for economic policy changes in the country. Among these changes, IMF demanded deregulation and privatization of the industries, tax reforms, less restrictions on international trade along with adopting measures to check for future inflation in the country Subsequent to adopting these measures, India reported a favorable increase in economy and GDP that reached its highest in 2007 where India recorded a GDP growth of 9 percent. However, subsequent to the global financial crisis that hit the world in 2007, the growth fell to 7.5% in 2012 but still India was able to record a growth in economy despite the world crisis. Foreign Investment Following the economic reforms of 1990, foreign direct investment increased in India from countries all over the world. Economic reforms allowed for foreign companies to easily set up their business in India either through joint ventures or as separate industries. India became popular point for foreign investment for its developed infrastructure, cheap labor and positioning in Asia. India, after China, is the most preferred country for foreign investment according to a report published by United Nations Conference on Trade and Development. Foreign investment from US, UK and Singapore forms bulk of the foreign investment in India. In March 2012, Foreign Direct Investment in India amounted to 8.1 billion dollars (Times of India, 2012). Dependence on Service Sector India, to a great extent, has defied the structural pattern that most developed countries have taken to show a positive economic growth. Traditionally, countries show an economic growth as they shift their focus from being agricultural countries to being industrialized nations. Even though, India was primarily an agricultural country, it did not later develop into a country relying strongly on its manufacturing sector. India’s dependence on agriculture decreased from 60 percent to a mere 24 percent between 1950 and 2004. Following this decrease, the industrial sector increased from 13 to 25 percent while the service industry moved from 28 to 51 percent (Papola, 2005). Even to date, India relies heavily on its service sector rather than any other sector. While most countries, including China, show a positive economic growth due to their manufacturing sector, this is not true for India; as India relies on its service sector. In this manner, India defies the traditional patterns. India is able to progress due to its service sector mainly due to the fact that recent dependence on technology has led to an increase in demand of the service sector. With India sporting a high population, it was able to use this to its advantage by providing services at lower rates when compared to the developed nations. Political Factors In terms of politics, India is a democratic nation. India abides by a federal form of government, quite like that of United States. In India, power rests in the hands of the President, with the Prime Minister taking up the second position. Despite adopting economic reforms, the government of India has been criticized for hampering the economic progress of the country. Perhaps the biggest impediment to the growing economy of India is the corruption prevalent within the country. Even the Prime Minister of the country, Manmohan Singh has been implicated for stooping to corruption. ‘Most recently, the government was accused of selling coal fields to politically connected conglomerates on the cheap, resulting in a loss of $210 billion for the government’ (The Week, 2012). Corruption in India is quite common in the upper echelons of the government and thus it is not surprising that it makes its way lower in the government, in the form of police bribery. Corruption in India is so prevalent because of the lack of proper check measures adopted by the country. The duty of putting measures rests in the hands of the government but the government is unwilling to do this duty since it itself is performing such tasks. Even though the country is democratic to quite an extent but this does not prevent corruption to a great extent. One reason behind this could be the illiteracy within the country. While a good number of people in the country are educated, there are even more who are uneducated and thus do not have the knowledge to bring about change within the country. Even though India has opened its gate for foreign investment, there still appears to be a lot of red tape given the corruption within the country. The government makes and takes back decisions in the blink of a second. Recently the government vowed to open its retail sector for foreign stores such as Wal-Mart but later backtracked on this policy given its weak retail position (The Economist, 2012). Furthermore, the government is unable to expand with the changing economic scenario. While the country has gone through a consistent rise in GDP, the government has not reacted by bringing in suitable changes. The budget remains the same except for minor tweaks. It seems as the government is unwilling to explore new limits and this poses serious limits of the growing business sector. The business sector, specifically the service sector, feels a need for an improved infrastructure that the government is unable to provide for. It also seems that the government is only interested in furthering its own cause rather than that of the masses. There exists severe nepotism within the country and even in politics. For example, Sonia Gandhi wants her son Rajiv Gandhi to take over the rule of the country despite others showing good promise (The Economist, 2012). Thus, the biasness and corruption prevalent within the country is seriously hampering the development of the country to the next level. Technological Factors Perhaps the biggest contributor to the growth of Indian economy can be attributed to its technological development. India has been able to develop a strong IT base that has provided the foundations for the rest of the business and even agricultural sectors to grow. Even illiterate people within India know how to operate a computer and that contributes to a lot in this age of globalization. India has been able to prosper in its business sector due to the presence of its IT industry and business process outsourcing (BPO). Metropolitan cities such as Mumbai, Chenai, Bangalore, Hyderabad and Kolkata depend on this industry for 90% of their exports. The IT sector in India contributes to 25 % of the employment rate in the country and 40 % of the country’s GDP (Sharma, 2006). India has been able to bank on the increase in the dependence of the service sector due to two reasons. One of them is its cheap labor availability while the other is the technology improvement within the country. As the need for service labor increased due to increase in communication, India took the opportunity and provided cheap service labor for developed countries. For example, companies in developed countries such as US found it more viable to open up call centers in India and link them to their own country through the use of internet. However, the IT sector in India is criticized for its lack of government initiation. The government has done little to solve the issues that the IT sector faces. ‘Some areas immediately demand e-support in law, such as internet pornography, safety of children, protection of privacy, taxation, jurisdiction regulation and competitiveness, IPR in cyberspace, universal access, internet education, consumer protection, internet gaming and effective censorship’ (Ahuja, 2000). Though the government realizes these issues, they have done little to address them. Recommendations Even with the consistent economic growth in India, one can observe glaring holes in the economy that make the country far from perfect. With the current population of India, the growth of 7 percent is not enough to sustain the economy and poverty is still prevalent within the country. As a result, India is still considered an emerging economy due to many reasons including its corrupt and selfish political parties, its inability to bring the needed reforms within the country, the wide gap between the rich and the poor class and also because of the division of the country on different levels including racial, cultural and regional levels. The most basic issue that the Indian economy needs to address is the political issue. The government, at this point of time, is unable to bring about the necessary changes and to develop the infrastructure properly. The corruption and nepotism make this almost impossible. Since the country is a democratic nation, it can bring about the needed changes. It could push the government to bring about reforms and to seriously consider the issues plaguing the governmental institution. Within the national elections coming up in the near future, the public has the perfect opportunity. The government at every point is responsible for ensuring that the economy moves on the right path and if the government is not willing to take up this responsibility, then the task would be quite haywire. Another change that the country needs is within its infrastructure. As the economy is booming, it places great demands on the infrastructure of the country which at this point of time is not keeping up pace with the developments within the country. As a result, businesses are being hampered and they cannot explore their full potential. Since the government is unable to properly address this issue, it needs to explore other options. Corruption within the country has made it quite difficult to bring about the development in the needed time. A viable option here is to open up infrastructure development for the private sector or even for foreign investors. Foreign investors would be willing to invest further in the country given its potential and for the revenues it may bring about in the country. Infrastructure needs to be developed in terms of better communication and transportation. Even though the infrastructure of India is quite developed, it is not keeping up with the needed pace. The private sector would ensure this as it is not restricted by bureaucracy and corruption. The government at this point is too slow to bring about the needed change in time. Another issue that needs to be addressed at this time is the changing and growing needs of the IT sector. Since the IT sector in India is one of the most flourishing sectors, the government needs to focus on it to a great extent. This involves developing laws and codes of practice to provide the necessary backup to this sector. The government needs to develop laws in conjunction with international standards so that the sector remains at par with international standards. Also the government needs to provide the suitable infrastructure for the progress of the IT sector. This would be done by increasing the budget for the IT sector. The disparity between the rich and the poor is also a cause of concern for India. The poor class mostly resides in rural areas and is limited to activities of agriculture. The rich, however, have made use of the changing global scenario and taken to jobs pertaining to the service and IT industry. It is mainly the rich class that have gained from the economic liberalization in the country and used that to get richer. The middle class in India is non-existent when compared with these two classes. Also since the country is becoming the target of foreign investors because of its cheap labor, the labor rates in the country have not kept par with the increased foreign investment. Thus, the poor are being forced to work on cheap rates while the rich have taken advantage of this situation. This can be improved by allowing the poor class opportunities of entrepreneurship and providing small term loans so that they could also fully realize their potential. The government here should also ensure that jobs are created for the rural population. They need to provide more support to the farmers since agriculture contributes to a large part towards the economy of the country. Also the government needs to set minimum wage rates to prevent exploitation of its labor class. India also needs to focus on its weak retail sector. This can be done by allowing foreign investors to provide the infrastructure for development. Since Wal-Mart is interested in setting up stores in the country, the country can take advantage of this by providing the necessary access. This would allow India to not just strengthen its retail sector but also learn from the most successful giant of the retail industry. The economy of India is right now on the right path. India has progressed quite a lot as it capitalized on developing its service sector, a sector which is growing in the recent age of globalization. Also the IT sector provided the necessary background for this growth. Even though, the GDP has grown constantly in the last decade, India needs to work hard still to sustain this growth. For this, India needs to develop its service sector further. This would be done by decreasing the involvement of the government in this sector and allowing private businesses to get more control. In conclusion, we can say that the core of the problem in India right now is its political issues which are hampering the growth of the economy to a better position. If the government is able to improve upon itself, the entire economy would move towards better change. Even though the Indian economy is growing at a constant pace, but this pace is still not enough to sustain the increasing needs of the growing Indian population. References Ahuja, S. (2000) Information Technology in India: The Shift in Paradigm. Delivered at the Where in the World Conference, Budapest. Lynch, K. 2010. India: An Emerging Economic Power, Policy Options, Retrieved from http://www.irpp.org/po/archive/apr10/lynch.pdf Papola, T. 2005, Emerging Structure of Indian Economy: Implications of Growing Inter-sectoral Imbalances, Institute for Studies in Industrial Development Sharma, J. (2006), Diaspora: History of and Global Distribution, Encyclopedia of India (vol. 1) edited by Stanley Wolpert, pp. 331–336 Times of India. 2012. India attracts highest ever FDI of $8.1 bn in March, Retrieved from http://timesofindia.indiatimes.com/business/india-business/India-attracts-highest-ever-FDI-of-8-1-bn-in-March/articleshow/13070736.cms The Economist, 2012, Losing its magic: Politics is preventing India from fulfilling its vast economic potential, Retrieved from http://www.economist.com/node/21551061 The Week, 2012, Why India's booming economy is stalling: 3 theories, Retrieved from http://theweek.com/article/index/226066/why-indias-booming-economy-is-stalling-3-theories Read More