Question

Prepare a list of Macro-economic problems of Indian economy and comment on them in brief

Answer 1

 Last but not the least merit is that macroeconomic theory has saved us from the dangers ofapplication of microeconomic theory to the problems of the economy as a whole.REVIEW OF LITERATURESince 1991, the Indian economy has pursued free market liberalisation, greater openness in tradeand increase investment in infrastructure. This helped the Indian economy to achieve a rapid rate ofeconomic growth and economic development. However, the economy still faces various problemsand challenges.1. InflationFuelled by rising wages, property prices and food prices inflation in India is an increasing problem.Inflation is currently between 8-10%. This inflation has been a problem despite periods of economicslowdown. For example in late 2013, Indian inflation reached 11%, despite growth falling to 4.8%.This suggests that inflation is not just due to excess demand, but is also related to cost pushinflationary factors. For example, supply constraints in agriculture have caused rising food prices.This causes inflation and is also a major factor reducing living standards of the poor who aresensitive to food prices. The Central Bank of India have made reducing inflation a top priority andhave been willing to raise interest rates, but cost push inflation is more difficult to solve and it maycause a fall in growth as they try to reduce inflation.2. Poor educational standardsAlthough India has benefited from a high % of English speakers. (important for call centre industry)there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongstwomen. Over 50% of Indian women are illiterate. This limits economic development and a moreskilled workforce.3. Poor InfrastructureMany Indians lack basic amenities lack access to running water. Indian public services are creakingunder the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches themarket; this is one example of the supply constraints and inefficiency’s facing the Indian economy.  4. Balance of Payments deterioration.Although India has built up large amounts of foreign currency reserves the high rates of economicgrowth have been at the cost of a persistent current account deficit. In late 2012, the currentaccount reached a peak of 6% of GDP. Since then there has been an improvement in the currentaccount. But, the Indian economy has seen imports growth faster than exports. This means Indianeeds to attract capital flows to finance the deficit. Also, the large deficit caused the depreciation inthe Rupee between 2012 and 2014. Whilst the deficit remains, there is always the fear of a furtherdevaluation in the Rupee. There is a need to rebalance the economy and improve competitiveness ofexports.5. High levels of private debtBuoyed by a property boom the amount of lending in India has grown by 30% in the past year.However there are concerns about the risk of such loans. If they are dependent on rising propertyprices it could be problematic. Furthermore if inflation increases further it may force the RBI toincrease interest rates. If interest rates rise substantially it will leave those indebted facing risinginterest payments and potentially reducing consumer spending in the future6. Inequality has risen rather than decreased.It is hoped that economic growth would help drag the Indian poor above the poverty line. Howeverso far economic growth has been highly uneven benefiting the skilled and wealthydisproportionately. Many of India’s rural poor are yet to receive any tangible benefit from the India’seconomic growth. More than 78 million homes do not have electricity. 33% (268million) of thepopulation live on less than $1 per day. Furthermore with the spread of television in Indian villagesthe poor are increasingly aware of the disparity between rich and poor. (3)7. Large Budget DeficitIndia has one of the largest budget deficits in the developing world. Excluding subsidies it amountsto nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope forincreasing investment in public services like health and education.8. Rigid labour LawsAs an example Firms employing more than 100 people cannot fire workers without governmentpermission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base andgovernments often shy away from tackling potentially politically sensitive labour laws.9. Inefficient agricultureAgriculture produces 17.4% of economic output but, over 51% of the work force are employed inagriculture. This is the most inefficient sector of the economy and reform has proved slow.10. Slowdown in growth

Answer 2

HI FRIEND

Macro economic problems of Indian economy are : -


> INFLATION - Inflation is a phenomenon of rising general price levels and reducing purchasing power.

> INCREASE IN TAXATION - Government can increase various taxes levied on consumers to reduce the excess money supply in the economy to control the inflation.

> REDUCING GOVERNMENT EXPENDITURE - Government expenditure increases purchasing power of consumer without increasing output. It should be reduced so that money supply is decreased and output is increased to control the inflation.

> UNEMPLOYMENT- It refers to a situation when people people willing to work at a given wage rate cannot find jobs in an economy.

>HIGH PRODUCTION TARGETS - Government should aim for more GDP than the previous years. The process of increased production naturally calls for more employment for the people of he country.

> POPULATION - The increasing population is a major macroeconomic problem for any economy.

> EDUCATION - Education creates awareness among people which makes aware about their income and living standard.

> AWARNESS REGARDING FAMILY PLANNING - Government can make people aware of the benefits of family planning to them as well as to the economy.


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