Indian Economy in 2022: Factors which affects Indian Economy
Indian economy is a middle-income developing market economy. Indian economy is at 6th position in the largest economy in the world. India is the fastest-growing major economy in the world by surpassing China. On the basis of per capita income, India is at 145th position by International Monetary Fund. In the financial year 2022 – 2023, the projected nominal GDP growth is 11. 1 %. With a growth of 7 to 8 % in the next decade, India will be the 3rd largest economy in the world by 2030 as stated by the former vice-chairman of NITI Aayog and professor of economics at Columbia University Arvind Panagariya.
The size of the Labour force in India both unskilled, skilled, and young population provides long-term positive growth in the Indian economy. In 2017, the economy slowed due to the introduction of the Goods and Services Tax in 2017 and demonetization in 2016. Pandemic also negatively affected the trade in India in 2020 and India was the 21st largest exporter and 14th largest importer in the world. The service sector of India is contributing more than 50 % to India’s GDP which accounts for only 32. 33 % workforce.
India is a member of WTO (World Trade Organisation) since 1st Jan 1995, WTO ranked 43rd in ‘Global competitiveness Report’ and 63rd in ‘Ease of doing business Index’. With 521 million workers, India is the world’s second-largest country after China in the Labour force. With extreme income inequalities, income tax was paid by barely 2 % of Indians. In 2021, India’s 10 largest trading partners were the USA, China, UAE, Saudi Arabia, Switzerland, Hong Kong, Singapore, Iraq, Indonesia, South Korea.
In 2020 – 21, the FDI (foreign direct investment) in India was 81. 72 billion dollars. Leading sectors for FDI inflows were the service sector, computer software, and hardware and the top investor countries were Singapore with 29 % followed by the USA with 23 % and Mauritius with 9%.
Factors which affects Indian Economy
Economic development can be influenced by various factors which are categorized as economic and non–economic factors.
- Economic factors determine the speed of economic development and growth rate of the economy. Economic factors can be influenced by various of factors such as: natural resource, manpower and population, capital formation, external resource, technological advancement, investing pattern, development planning etc.
- Manpower resources and Population: Manpower is considered as important factor of economic development. Population provides entrepreneurship and labour. With increasing mobility, human capital formation and division of labour, manpower provide support to the economic development. High growth rate of population increases the demand of goods as well as services and results in slower the per capita income growth as in case of India.
- Natural Resources: The proper utilisation and availability of natural resources is a very important factor in economic development of India. High natural resource results in high level of development by properly utilising modern technology. Majorly coalfield in India lies in Damodar Valley, and maximum coal in India is obtained from Raniganj and Jharia which is fulfilling the energy requirement of India.
- Capital Accumulation and Capital formation: For the economic development, formation and accumulation of capital is an important factor. Capital refers to stock of factors (machines, tools and equipment) which is required for the production. Capital formation in India started from 22nd five year planning by establishing steel plants in Durgapur, Bhilai and Rourkela. As the volume of capital formation increases it results to the accumulation of capital. Capital accumulation helps in achieving faster economic development.
- Favourable pattern of Investment: Favourable pattern of Investment is an important parameter for the economic development in which correct selection of industries is done as per the priorities of investment and production technique choice for getting maximum productivity.
- Structure of Occupation: Structure of occupation also determine the economic development of a country. In case of India, too much population depends on agriculture which is not favourable condition for economic development. In India, 60 % of the total working population is in agriculture and 32 % of the total working population is in service sector.
Non – Economic Factors
For a country like India, only the economic factor is not enough for the determination of economic development.
- Education: Economic growth is related with the spread of education. The increasing literacy rate of India is playing an important role in the economic growth of India. The Literacy rate of India is currently 74. 04 %.
- Change in Institutional and social factors: Rigid and conservative social and institutional set up adversely affect the economic growth as well as retards its pace and this can be achieved by increasing the literacy rate of India.
- Proper implement of law and order: Proper implementation of law and order increase the pace of economic development. Proper formulation of fiscal and monetary policy in an effective manner can results in increment investment and capital formation. Government of India and Reserve Bank of India is handling the fiscal and monetary policy for economic growth.
The gross NPA of India declined in 2019 after 7 years to 9. 1 % and in 2020 it slips to 8. 2 % but it increased during the Covid period which negatively impacted India’s economy. One of the major reasons for NPA is our primary and industrial sector and for its reduction government and economic development, the government is launching various schemes for providing financial strength in these sectors.