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Prepared by:
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Lindzay Daye
Sarah Olewinski
Christian Hernandez
Jose Valencia
Sarah Olewinski:
Lindzay Daye:
Christian Hernandez:
Jose Valencia:
Date:
Date:
Date:
Date:
Page 1 of 34
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Executive Summary
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In Asia, there is a country that is home to a peninsula that separates the Arabian
Sea and Bay of Bengal. With a thriving economy that has made one of the best
comebacks in history, India rose to the occasion when the world was aected by
recession in 2008. The Republic of India is located just southwest of a major
economy known as China, and just Southeast of some troubling territory known as
Pakistan, Afghanistan, and Iran. India currently inhabits over 1.2 billion people, and
is the second most populated country in the world (CIA, 2013).
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Some of the major challenges in India are more than just economic, but also
political and ethical. Not only is the countrys economy stagnating - with a slowing
GDP growth rate of 4.7 percent, high inflation, and high unemployment rates
reaching almost 14 percent this year, but the government is plagued with
Page 2 of 34
Indias economy is stronger in terms of the GDP growth rate, but the United States
has a stronger labor force, lower inflation rates, as well as unemployment rates. In
terms of poverty the United States also beats out India but this can be unfair
because of the population dierences, with India having 1.2 billion inhabitants
compared to roughly 300 million in the US. The US also dominates in terms of
corruption in politics, and business (CIA, 2013).
For the first key question, it is more than safe to say that the overall risk level of
Indias economy is between moderate to relatively high. The conclusions drawn
were based on several areas of concern such as corruption within politics, slow
implementation of policies, the alarming amount of suering citizens, and an
unskilled labor force. Other areas of concern included the unemployment rate and
high inflation.
The second key question involves an analysis of Indias monetary and fiscal
policies. Since India has both a high unemployment and inflation rate, the focus
fell upon the greater issue. Fixing the unemployment would involve an increase in
the economys money supply. In terms of the fiscal policy, we determined there
was a need for emphasis on several issues through a side-by-side comparison of
Indias actual spending and our recommendations. These issues involved the
improvement of the well-being of Indias citizens as well as the countrys overall
productivity.
Page 3 of 34
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United States Country Overview
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India Economic Overview
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Several decades after India gained independence from the United Kingdom,
Indias economy was kickstarted into a boom in 1991 after leaning towards a more
capitalistic market. India also shortly began pushing for a self-sucient system
Page 4 of 34
With one of the most diverse cultures in the world, some consider India to be a
continent rather than a country itself. Putting aside Indias alarming population, it
has 16 ocial languages, with English as the means of communication for most
written media, and Hindi as the language most widely used verbally (CIA, 2001).
Dealing with the internal economy of India requires both patience and a firm
understanding of how all of its cultures influence work, function, and influence
society.
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Indias Gross Domestic Product (GDP)
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Page 5 of 34
16,000
12,000
8,000
4,000
0
Uk
Russia
India
Figure 2 - Numerical values retrieved April 18, 2014 from Trading Economics
Similar to most economies in the world, the GDP of the U.S. is dominantly
composed of the countrys consumption, which pertains to public spending.
Consumption takes up $11.1 trillion (over 70 percent of the GDP), investments $2.1
trillion (13.5 percent), government spending $3 trillion (19.2 percent) and net
exports of $0.6 trillion (Vo and Francis, 2012). The negative net exports value
indicates that the U.S. consumes more of its imports than it makes out of its
exports to other countries around the globe. The high amount of consumption
within the economy of the U.S. reflects a high quality of life within the country.
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GDP and The Quality of Life
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Overpopulation:
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As mentioned earlier, with over 1.2 billion people, India sits at the top two most
populated countries in the world. With its current rate, according to a study by the
United Nations (UN), the population of India is set to surpass the population of
China (currently the most populated country in the world) in the year 2028 at a
high of over 1.45 billion people and counting (United Nations, 2013). Other
possible factors would include the culture and literacy in the nation, both of which
are also discussed in this report. Indias literacy rate for the entire population is at
a low of 62.8 percent, with women at a concerning rate of about 50.8 percent
(CIA, 2013). There is also the inevitable phenomenon of the correlation between
family size and social status. For most countries, it is definitely a trend for families
in impoverished areas to be larger than families in well-to-do parts of the nation.
Overpopulation can be a serious issue in India for the following reasons: the
depletion of natural resources, a rise in unemployment and a possibly higher cost
of living. A larger number of people in a nation would require more of its
resources to be consumed at a faster rate to sustain its masses, depleting its
natural resources such as food, water, coal, oil, etc. faster than it should. An
overpopulated country would also develop larger unemployment rates when
handled poorly, which means more people means a tighter competition for
specific jobs. Also, as the demand for resources such as food, water and other
necessities increases when the supply remains constant, a higher cost of living
would develop, leading to a larger problem for the overall population of India.
These issues can easily be prevented by educating the people about modern
contraceptive measures and eective family planning.
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Sanitation:
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With a glaring population of 1.2 billion people, India faces a severe lack of access
to the sanitation facilities based on the standards of The United Nations Childrens
Fund or UNICEF (formerly the United Nations International Childrens Emergency
Fund) - a United Nations Program that provides lasting humanitarian and
developmental aid to both children and mothers in the developing countries of
today (UNICEF, 2011).
Page 7 of 34
100
75
50
25
0
India
USA
Rural
India
USA
India
Urban
USA
According to UNICEFs
numbers, over 35 percent of
Indias total population has
access to proper sanitation,
seen in Figure 4 (UNICEF,
2011). This issue can be
translated into about 778.8
million people in the country
without access to clean
drinking water and adequate
Total
The consumer price index deals with the average price of basket consumer goods
and services. According to Investopedia The CPI is calculated by taking price
changes for each item in the predetermined basket of goods and averaging them;
the goods are weighted according to their importance. Changes in CPI are used to
assess price changes associated with the cost of living. The cost of living is very
important, it aects directly to Indias consumers. When the cost of living increases
it aects society in many
Indias Consumer Price Index (CPI) 2013 - 2014
dierent ways.
245
240
235
230
225
220
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Dec 13
Feb 14
Page 8 of 34
In reality, it resulted in driving the cost of wheat and flour, aecting millions of
consumers that will pay for rising cost of these goods that are found in everyday
items. Indias government deserves to take the majority of the responsibility
because they do not have anyone appointed to look over this sector. Other major
corporations like Kharif are going to take advantage of this opportunity and raise
the consumer price index. When the cost of goods rise it will still make an impact
on (CPI) driving the cost of living enough to hurt the cost of living.
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The United States Consumer Price Index
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According to trading economics, the Consumer Price Index for the United States
has fluctuated over 2013 and 2014. Due to the price of consumer goods and
services fluctuating in 2013 there have been increases and decreases through the
year. In January of 2013, the United States consumer price index was at 231.198
and by January of 2014 it was at 234.594. That is an increase 3.396 increase
during that time period.
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Inflation in India
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India's consumer price inflation has slowed to a 15-month low (refer to Figure 6 of
the next page for an in-depth look at Indias inflation). According to Trading
Page 9 of 34
Inflation Rate
The consumption of edible oils has risen in India drastically. According to Solvent
Extractors Association of India, Indias consumption of edible oil has risen to
around 17.5 million metric ton (mmt) in 2012-13 from 11.6 mmt in 2003-04,
compounded annual growth rate (CAGR) of 4.6%. The significant growth of the
consumption in edible oil means how important cooking oil is to consumers in
India. With inflation decreasing, more consumers should be able to buy more high
quality cooking oil. According to FnBnews, Apart from population growth, another
significant factor that is impacting edible oil demand is the increase in disposable
income amongst the growing middle class. This has led to change in the lifestyle,
which has increased the consumption of edible oils. Instead of the middle class
buying higher quality or healthier cooking oil they could change their lifestyle in
order to adapt to the rise and
US Inflation Rate 2013 - 2014
decrease of inflation.
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Inflation in the United States
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Inflation Rate
1.5
0.5
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
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Indias Real Interest Rates
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According to BBC "The Reserve Bank of India (RBI) raised the benchmark repo
rate - the amount at which it charges to lend to commercial banks - to 8% from
7.75%. The Reserve Bank of India has also projected interest rates to double and
continue to rise. Although India's manufacturing sector is the key to their
economic growth it has significantly slowed over the past two years. The cause of
their recent slowdown is due to the high interest rates for borrowing currency
from banks. India's central bank has refused to lower the interest rate because of
the unpredictable inflation. The Reserve Bank of India believes that keeping
interests rates the same will end up stimulating businesses and consumers but
due to high interest rates it has decreased the amount business and consumers
are borrowing. For instance, BBC News reported that "higher inflation causes
consumers to spend less, and its impact is felt most by India's poor. According to
the World Bank, nearly two-thirds of India's population live on less than $2 a day.
When households can live on very low wages they are less likely to consider
taking out a loans especially when interest rates are high and on the rise. With an
inconsistent inflation rate, consumers and entrepreneurs shy away from borrowing
from banks. The average consumer is spending less, knowing that they can live
without the luxuries they can't aord while still enjoying their day-to-day lives.
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The United States Real Interest Rates
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In the United States interest rates were at an all-time high between January of
2006 through January of 2007. Interest rates instantly dropped when the stock
market crashed in 2008 (Trading Economics). Society was not prepared and
millions of Americans were aected. Interest Rates fluctuate based on inflation.
The lower the interest rate, the higher inflation.
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Worker Productivity in India
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Page 11 of 34
India has recently made enormous strides in trying to revive their economy by
investing in their infrastructure. The Indian government believes that this will
stimulate the economy and stop the high inflation rates. According to Reuters,
"India's government has set a five year target of investing $1 trillion infrastructure
by 2017, with half coming from the private sector, in a bid to lift economic growth
to 8.4 percent. Investing in infrastructure employs thousands of workers while
opening the way for more ecient manners of transporting goods throughout the
country. If implemented correctly, this will benefit the economy and consumers.
Redi Business reports, "Indias Average growth in productivity in 2008 through
2012 is 5.1 percent. India wants to improve their infrastructure, but without the
workers who are skilled enough to perform the labor, it's going to take additional
time to actually to improve infrastructure by 2017. India is going to end up
spending more funds than what they expected due to this lack of skill. According
to Teach for India, "In India today, 4% of our children never start school. 58% dont
complete primary schools. And 90% dont complete school. At Teach For India, the
fact that only 10% of our children go on to college both saddens and angers us."
This plays a key role in whether India is able to contribute to the labor force with
educated and skilled workers. This issue also needs to be addressed in order to
increase worker productivity and improve infrastructure that will benefit India
overall.
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Worker Productivity in the United States
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Indias Unemployment Rate
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Unemployment in India has slightly increased over the three-year period by about
0.1 percent. According to The Times of India, "The Unemployment rates in India
Page 12 of 34
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The United States Unemployment Rate
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Government Budget Surplus or Deficit
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A budget deficit occurs when the government spends more than it is taking in,
and the opposite would occur for a surplus to be true (Trading Economics, 2014).
Page 13 of 34
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Indias Deficit
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In India, the current deficit is at about 5.3 percent of the total GDP. The Ministry of
Finance is responsible for the record of such deficit. (Trading Economics, 2014). As
you can see in Figure 8 on the
India Government Budget as a Percent of GDP
right, India, along with the rest
0
of the world, was hit hard in
2008 - 2009 which created
-2
the largest deficit India has
seen in over 10 years. In 2011,
India slowed its rate of
-4
investment due to very high
interest rates and inflation. The -6
government later implemented
some reforms and deficit
-8
reduction measures (CIA,
2005 2006 2007 2008 2009 2010
2011
2012 2013
Figure
8
Data
retrieved
April
6,
2014
from
Trading
Economics
2013). Today, India is showing
a push on infrastructure, and
foreign investment, and has a GDP of 3.8 percent. However, India does face some
challenges with its economy and deficit due to slow regulation passing from the
government, crime, corruption, discrimination against women, and limited job
opportunities that do not involve agriculture (CIA, 2013).
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United States Narrows the Gap, for Now
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There has not been a surplus in the government budget of the United States in
many years. During the 2009 to 2012 span, the U.S. governments deficit was the
largest in the world relative to the population of the country since 1946 (CBO,
2013). The U.S. is slowly bouncing back, with a GDP growth rate of 1.6 percent and
has gotten the current deficit down to 4 percent (World Fact Book, 2013). This
recovery can be mainly accounted to the changes in taxes and spending within
the countrys government. Some of the tax provisions that helped narrow the gap
would be the expiration of tax rates to high-income families, Social Security
payroll tax, and new taxes (CBO, 2013). Federal debt held by the public is now
about 73 percent of the economys annual output, or gross domestic product
(GDP) (CBO, 2013). Under current laws it is inevitable that the deficit will rise again
Page 14 of 34
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Economic Policy
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In recent years, like many other countries India was experiencing hard times with
a GDP growth rate of -1.90 percent in 2009 (TE.com, 2014). After this record low,
India bounced back with a vengeance putting the economy on a fast track at the
end of that year into 2010, and then finally tapering o around 2 percent for the
last three years. Today, India is showing some promising turnarounds, as well as
some that need to be monitored. With the growth rate slowing down, some are
very skeptical about where the country is going and some see nothing but
opportunity, it depends on the perspective. In this section, some of the major
issues that need to be monitored will be covered, as well as various economic
indicators that indicate an improvement in the Indian economy.
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Things to Monitor
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Few parts of Indias economy are gaining the attention of the government with a
dire need to create change. Examples of these areas include the lack of initiative
in government, the countrys infrastructure, and the major inequality and poverty
that millions of citizens are facing in India.
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Policy Paralysis
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In the past years, Indias government has been known to start things and not finish
them in many aspects. Some examples include infrastructure, foreign direct
investment, and high interest rates (The IMF Blog, 2014). Last year, India was
supposed to bring in the Walmart Chain through FDI, and the government later
stalled (CNBC, 2014). Manmohan Singh, Indias government leader has acquired
the title of having policy paralysis, and he is also known for flip-flopping on
policies after they start (CNBC, 2014). An uncertainty of Economic Policy has fallen
over the country dealing mainly with fiscal and monetary concerns, as well as
regulatory ones (IMF direct 2014). This uncertainty is spilling over in the papers
and this brings up major concern within the citizens of India (IMF Direct, 2014).
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Crumbling Infrastructure Image
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Indias track record when it comes to infrastructure is low with only one in four
projects being completed on time (Financial Times: Rupee dive.., 2014). Investors
Page 15 of 34
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Suering Citizens
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India is one of the fastest growing economies in the world, and in turn the citizens
are paying the price. There is so much push for development in India that the
government is taking over farmers land to use for resources and expansion. This
leaves many farmers without any income, and with many citizens without a supply
of food (Todhunter, 2013). For example, bigger corporations are moving into
agricultural areas and polluting the soil. As a result, the structure for agriculture
has changed and has become so regulated that India faces bad food supply,
health, water, and soil. To highlight the severity of this problem, over 250,000
farmers have committed suicide in India since 1997 as a form of protest
(Todhunter, 2013). This issue is even flowing over into the countrys child mortality
rate and underweight babies. According to UNICEF, 28 percent of the children
born in India between 2006 and 2010 were born underweight, and 48 percent of
children under five years old suered extreme growth stunting due to malnutrition
(Childfund, 2014). However, there has been some improvement regarding this
issue in recent years thanks to the Child fund and several other organizations. The
Childfund has been in India since 1951 (Childfund, 2014). As of 2008, UNICEF
reported that 88 percent of the population living in rural areas had access to good
drinking water (Childfund, 2014). The Dream Bike Campaign was also created for
the cause of promoting education for children all across India.
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Income Inequality
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India has never been so plagued with inequality than it is today. It is estimated that
almost 42 percent of the population is living under the poverty line as of this year
according to the OECD (Childfund, 2014). In 2011, the richest 10 percent of the
population was making almost 12 times as much money as the poorest 10 percent,
as opposed to in 2006 when the gap was only 6 times as much (Childfund, 2014).
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Page 16 of 34
India has implemented some recent initiatives to attract foreign capital and
strengthen the economy (CNBC, 2014). Some could say their eorts are a little
late, as many had written India o, but o-shore investors still see the vast amount
of opportunity in the country (CNBC, 2014). John Luke, chairman of MWV a U.S.
packaging group that sells pharmaceutical and consumer goods packaging says
Were excited by what we see happening and were excited by the longer-term
prospects(Financial Times: Bright Eyes 2013). This became obvious after MWV
bought a company in Gujarat and invested millions of dollars into India (Financial
Times: Bright Eyes.. 2013).
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Foreign Capital/Foreign Direct Investments
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India used to operate as a closed economy back in the 90s. At the time taris
went above 200 percent and there were also strict restrictions on any foreign
investments, but since then India has loosened its grip. In September 2013, the
Indian Government decided to open up to foreign investment markets such as
retail, aviation, and broadcasting. The government also cut taxes on overseas
borrowing, and raised the price of fuel (CNBC, 2014). Quantitative restrictions
have been eliminated on imports and the customs of foreign investments have
settled in numerous sectors (WorldBank, 2014). India has recently signed many
trade agreements with countries, both near and far, in an eort to increase exports
and to continue the growth of the economy. Examples of which include
Bangladesh, China, South Korea, and the United States. Some the these
agreements include the India-Sri Lanka Free Trade Agreement, The
Comprehensive Economic Cooperation Agreement with Singapore, and the IndiaNepal Trade Treaty. There have also been Preferential trade agreements with
Chile, Afghanistan and Mercosur (Worldbank, 2014). The country has made a shift
towards the benefits of consumers when addressing trade and investment policies
protection. In the Foreign trade policy for 2009, it states, For India to become a
major player in world trade, we have to also facilitate those imports which are
required to stimulate our economy (Worldbank, 2014).
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Infrastructure in India
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India has put up over $1 trillion for spending on infrastructure for the next five
years (Financial Times: Rupee dive.., 2013). This eort for development benefits
companies in India and also becomes a source of attraction for many foreign
investors. In 2013, India created the Cabinet Committee on Investment (CCI) to
Page 17 of 34
India is trying to keep its economy on the fast track, but the government is
overlooking its citizens. This is a major issue flagged by the alarming size of the
population that is suering today. Wage is high and labor opportunities are low.
Although there are some positive policies that India has implemented to help the
image of infrastructure and improve foreign capital and trade policies, the country
still has a long way to go. If India plans to sustain the economy close to the level it
was even at last year, the government needs to continue creating strong and
lasting relationships for trade, and address the internal issues the country is
facing, while also balancing its many goals in infrastructure.
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Indias Roadblocks and Challenges
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Corruption
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Government Corruption
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Page 18 of 34
Approximately 815 million voters will be eligible to vote for the upcoming election
(The Guardian). This election period will focus on corruption, unemployment,
raising inflation, a faltering economy, womens safety and national security as just
some key issues for India (BBC). The election phased over six weeks to allow
successive redeployment of security personnel- has been described by analysts
as the most important in decades (The Guardian). Professor Jaydeep Chhokar of
the association for Democratic Reforms said in the article you cant have
lawbreakers making laws for society (The Guardian). One government ocial
states heinous crimes are one thing, but a lot of the other charges are made just
to defame someone. There should at least be a convection in a higher court
before ending someones career (The Guardian). A problem with the Indian
people according to Milan Vaishnav who is a specialist in Indian politics says that
voters often support politicians with criminal records, rather than shunning them
(The Guardian). He also said there are a lot of issues of corruption but that is
distinct from criminality. Criminals may be broadly negative in terms of general
society welfare but for one section of society can be very positive (The Guardian).
I would not want to see my country driven by corruption. It is safe to assume that it
would not run very smoothly like India. They are facing a lot of corruption and it
needs to be fixed to give the Indian people a better place to live.
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Economic Corruption
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Another recent article entitled A Bad Boom looked at the serious issues of
fighting economic corruption (The Economist). A massive scam was uncovered
with hundreds of ocials and politicians in the state of Karnataka in the pockets of
an illegal mining mafia (The Economist). Over five years the illegal mafia has made
profits of 2 billion or more shipping illegal iron ore to China (The Economist). This
is not the first time India has heard of a scandal like this. A lot of transactions that
put public resources into private hands allocations of radio spectrum, for
example, credit from state banks have come under suspicion (The Economist).
Before he became boss of the central bank in India last year, Raghuram Rajan
worried publicity in India could start looking like an oligarchy along the lines seen
in Russia: too many people have got too rich based on their proximity to the
government (The Economist). In a recent poll 96% of Indians said corruption was
holding their county back, and 92% thought it has got worse in the past five years
(The Economist). A senior figure in the Congress party worries that the law for
Page 19 of 34
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Health Issues - Disease
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Another problem in India is disease. In a recent article entitled India may be free
of polio- but the disease hasnt be eradicated yet it explains that India is poliofree (The Guardian). A regional certification commission is expected to declare the
World Health Organization south-east Asia region polio-free (The Guardian). This
is a historic achievement for India (The Guardian). Last January India completed
three full years without a new case of polio (The Guardian). This means the
disease had finally stopped within its borders (The Guardian).
Other diseases that are causing problems in India are Tuberculosis and HIV.
Every fifth new tuberculosis case in the world lives in the Indian
subcontinent (healthissuesindia). India has been less severely aected by the
HIV epidemic than many other countries, despite early predictions of disaster, but
still has almost three million people living with the virus (healthissuesindia).
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Education
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The human capital of India is not very good and needs to be improved. About 4
percent of children that live in India never start school (Teach For India). 58%
dont complete primary schools (Teach For India). 90% dont complete school
and only 10% of children go on to college (Teach For India). With children not
going to school at all or not completing school in India, it lowers the amount of
skilled workers in India and skills needed to accumulate for people in the labor
force. This can also be considered under technological knowledge. With Indian
Page 20 of 34
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Natural Resources
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India has many rich natural resources. The country produces as many as 87
minerals including fuel, metallic, non-metallic, and atomic minerals (Business
Today). India is very rich in coal and investors want to expand their business to
India. Investors say that the Indian mining environment is scaring them away
(Business Today). There have been problems in acquiring land for new mines and
delays in government approvals (Business Today). Increased judicial scrutiny
following corruption scandals in the allotment of mining blocks and environmental
degradation caused by illegal mining have made matters worse (Business Today).
Again, we see the aspect of corruption. Anil Agarwal chairman of Vedanta Group
says developing our natural resources and the resultant growth of manufacturing
can generate enough funds for infrastructure, alleviate poverty and create
employment (Business Today). Poverty, unemployment and bad infrastructure are
major problems in India today.
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U.S Connections with India
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India has a strong relationship with the United States. The United States are
working on a lot of projects with India. India U.S bilateral relations have
developed into a global strategic partnership, based on increasing convergence
of interests on bilateral, regional, and global issues (Indian Embassy). President
Obama characterized India-U.S relationship as one of the defining partnerships of
the 21 century (Indian Embassy). India is a strong resource to the United States as
well. President Obama should utilize all that India has to oer. The bilateral
cooperation is now broad-based and multi-sectoral, covering trades and
investment, defense and security, education, science and technology, cyber
security, high-technology, civil nuclear energy, space technology and applications,
clean energy, environment, agriculture and health (Indian Embassy). All of these
aspects listed above are important but the one that needs the most attention in
particular would be Indias trade.
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Trade
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The trade between India and the United States is very strong. Indian exports
accounted for USD 35.96 billion during the period January-October 2013,
registering a growth rate of 4.11% over the same period last year and the growth
Page 21 of 34
A Ministerial Trade Policy Forum and a Ministerial level Economic and Financial
Partnership was put in place to strengthen the bilateral engagement with the trade
and economic issues (Indian Embassy). Also as of 2009, the two governments
issued a joint statement to strengthen their bilateral agreement (US Embassy).
The two governments outlined a Strategic Dialogue that will focus on five
principal pillars: strategic cooperation; energy and climate change; education and
development; economics, trade and agriculture; science and technology, health
and innovation (US Embassy). The development of two way trading listed above
have developed innovation, economic growth, and job creation for both nations
(US Embassy). The last part of job creation is very important in both countries
today considering their high unemployment rates.
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Problems With Trade
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With what is going on in Russia right now, it does have the United States
concerned and it could be aecting trade. India is supporting Russia (The
Diplomat). As the largest democracy in the world, a burgeoning capitalist
economy and an increasingly important military power, India has been viewed as a
counterweight to Chinas rise and an anchor of the U.S.-led international
order (The Diplomat). Through the collapse of the Soviet Union India and Russia
maintain deep cooperation on political, military and economic dimensions (The
Diplomat). Russian trade with India rivals the latters trade with the United States,
and Indian companies have made huge investments in Russian energy firms and
energy projects in the Bay of Bengal (The Diplomat). Rather than using an
American energy firm, India decides to use Russia.
From an India Today article, it talks about how the people of India think that trade
between India and the US is not going very good. The circulation of trade will
depend on the US, as the responsibility for the malaise aecting out ties rest
mainly on its shoulders (India Today). The US misjudged their current US
ambassador to India. A more serious political misjudgment by the US for which
Page 22 of 34
Key Question #1: What is the level of economic risk for conducting business in
this country?
India is an economy that has been seen as a power house in terms of growth
since 2008, but there are many issues facing India that make us believe that the
growth rate will not sustain their economy for long. Through our research we rate
Indias Economy at a moderate to high level of risk.
The Political System in India is very corrupt with many politicians obtaining a
criminal record, and the citizens labeling them as bottlenecks meaning not much
is being accomplished. The relationship between companies and the government
is very disconnected and has led to decline in the amount of business done
between the two. Having the whole country, and the world for that matter, openly
knowing that conducting business in India is at risk for corruption and backhanded
strategy forces international businesses to be hesitant in conducting business
there. Furthermore, Indians are more willing to vote a politician that has a criminal
record into oce versus a clean one. This raises more issues that go deeper
than politics, but raises issues of ethics of the people.
The ability to do business in India is another issue. For a decades India had cut
itself o from the rest of the world in order to regain stability and build the county
up without any risk. This worked but it closed India o from international business.
India has of course opened up to doing business with the world again, but the
government still creates many challenges like high tari rates, local content
requirements, and many other red tap strategies that push away foreign
investment.
The labor force in India is very poor, and this has created a lag in productivity. A
major issue within the labor force is the lack of skills and specialization to do high
level jobs that will promote economic growth; one of these sectors is in
Infrastructure. India is trying to boost their infrastructure industry to stimulate the
economy but without skilled labor, the work is falling behind. This is another
reason for the slowdown in GDP growth.
Key Question #2: What Fiscal & Monetary Policies should India pursue to
promote economic growth and development?
!
Monetary Policy
!
When deciding what would be best for India in terms of Monetary Policy, we
struggled at first. The reason being is when a country is deciding whether to look
at shrinking or expanding the money supply, you typically look at two things:
Inflation and the Unemployment rate. If Inflation is high, the government should
shrink the money supply to bring inflation down. When Unemployment is high, the
government will normally expand the money supply to promote spending, and
investment. Most countries have only one of these issues at a high level, but in
India, both are extremely high. This made us feel that no matter which we choose
the other is going to suer. Our only solution was to go with the one that had a
higher rate, and focus our eorts towards bringing that one down, which ends up
being the Unemployment rate which is currently resting at around 14 percent (CIA,
2014). For India, we decided the government will expand the money supply to
help the more than 40 percent of Indias citizens living under the poverty line
(Childfund, 2014). The goal is with more money circulating the country, more
people will be able to supply for themselves, and be able to better their lives, and
get a job. Also with more money circulating, businesses are more likely to hire,
and invest back into the community which will also lower the unemployment rate.
!
Fiscal Policy
!
!
Health
!
!
Education
!
Health
28%
Education
23%
Defense
19%
!
Research & Development
!
We were extremely surprised by how low this section was maybe because of the
fact the India closed themselves o from the rest of the world for so long.
Spending on research and development is the best way for a country to gain
innovation and a competitive edge in areas other than technology, so we
substantially raised the percentage. Some of the areas we felt specifically needed
more attention in research and development would be labor training, and
eciency in business, as well as sanitation systems, and health.
!
Industry & Employment
!
One of the main reasons that we wanted to emphasize this sector was the
unskilled labor force in the country due to the lack of proper training available in
most industries. With more money going into this sector, availability for more
important training within the workforce would be more feasible for businesses
Page 25 of 34
!
Infrastructure
!
Infastructure
3%
Health
30%
!
Transportation
!
!
Conclusion
!
The second part of this conclusion pertains to our deepest gratitude and highest
acknowledgment for our instructor Elizabeth Manser-Payne. Her persistent and
perpetual guidance for Indias representative team (along with the other teams
representing countries such as Germany, Japan, Mexico, and Russia) was crucial
to both the development and growth of each respective teams reports. Not only
has her work and time been beneficial to the reports, but her constant chiding and
strict policies have molded her students into fine individuals ready to take on what
is thrown in the workforce.
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