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On the surface, India's economy looks solid heading into 2016, with third quarter 2015 growth up 7.4% over third quarter 2014. Industrial production also expanded by 9.8% in October compared to a year earlier. On the downside, inflation picked up in November 2015 to 5.4%, reaching a one-year high. The fiscal situation in India improved with the current account deficit falling to 1.3% ofgross domestic product (GDP) in 2015 from 4.8% in 2013. Heading into 2016, however, the economic challenges India faces are more deep-rooted, persistent and harder to solve.
Population Growth
India ranks second after China in total population. Its population is growing 20% per decade, leading to problems that include food deficits, sanitation deterioration and pollution. Although economic growth numbers look promising, the living standards of most citizens are not changing. Over 30% are living below the international poverty line, and there are not enough jobs to change that condition. The food and nutrition deficit has created a 20% death rate due to malnutrition. Clean drinking water is in short supply, and severe water shortages are common. Sanitation is a massive ongoing problem that the government has been unable to address. For example, 8% of India's population has no access to toilets, and 75% of surface water is contaminated by human waste. Moreover, 60% of India's GDP is lost to health-related costs. China and India are the two most egregious environmental polluters in the world. India uses coal for 80% of its power requirements, and it has been slow to transition to cleaner energy sources. New Delhi and other cities in India are among the most polluted in the world, and car emissions in these urban areas are creating breathing and skin ailments.
Crumbling Infrastructure
India has not been able to improve its deteriorating infrastructure in business, education and health care. In business, a study found that China manufacturing is 1.5 times more efficient than India. In terms of economic freedom, India ranks as the 128th freest economy in the world. Public transportation and roadways have not kept pace with population growth. Housing, sanitation and power facilities are woefully inadequate. The education infrastructure is backward, and over 280 million adults are illiterate. Many children do not attend school at all and instead begin working before reaching their teen years. India's health care infrastructure is also abysmal, ranking 112th of 190 countries. More than 70% of the population has limited or no access to health care services. India lags behind the modern world in many ways. Over 50% of the population is still involved in agriculture, which is an extraordinarily high number for a country trying to make giant technological strides in the 21st century. Indians involved in agriculture have the least access to basic education and health care necessities.
Graft and Corruption
The great Indian-born writer Salman Rushdie once commented in regard to India's graft and corruption that "Indian democracy is one man, one bribe." The problem costs India's economy 6.3% of GDP per year. A recent survey found that 60% of respondents point to corruption, bad business practices and delays as the biggest problems that entrepreneurs face, inhibiting growth of their businesses. The reasons for this damaging practice include competing government bureaucracies, a complex and opaque tax system and a lack of clear laws and procedures. Corruption is also strengthened by poverty and lack of opportunity in the job market. The problem is immense and deeply ingrained in India's culture. A solution is not imminent.
Looking Forward
India's economic growth looked good on the surface in 2015. However, it could come to a crashing halt in 2016 if a recession or stock bear market slams the world. Even without those added burdens, no one can reasonably expect much progress in solving India's deep-rooted economic problems in 2016. The solution timetable is very long and will consume many years of effort by more than one generation. As per the Global Footprint Network report for 2016, India would soon be reaching a population level where it would become very difficult to meet the needs and aspirations of so many more people in so short a time. The pace of growth of the geriatric population is faster now, and India will double its proportion of people above 64 years in age over the next 25 years. In many high-income countries, this kind of demographic transition has taken more than a century to happen. Also, one needs to take into account the fact that people above the age of 65 have a higher per capita consumption on healthcare, which is between 3.4 times to 5.4 times higher than the amount spent on healthcare by people below 65.
The dependency ratio in India has increased from 7.8 in 1950 to 11.1 in 2010 — the average number of economically dependent population per 100 economically productive population, for a given country, territory or geographic area, at a specific point in time — and this would be a challenge for a developing country like India. To meet these challenges, effective steps need to be taken in the direction of; • population stabilisation; • address the issue of quality of life without freezing growth; • increasing life expectancy and keeping the dependency ratio low; • increasing incomes and removing disparities; • bridging the urban and rural infrastructural divide; • create employment opportunities and wealth, technology, natural resources, food and nutrition for the increasing population and zero import regime in agriculture; • renewable and solar energy to make the requirements future-proof; • factor the transition between rural-tribal- urban and smart cities over the next 100 years; • building a socio-economic framework that supports social harmony as we progress materially and culturally, with high ethical standards;
All this would mean redefining and reinventing fundamentals for future planning and development, and this requires a totally new level of thinking.
By: Abhishek Sharma ProfileResourcesReport error
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