Challenges with Indian Economy

In 2014, India faced a significant economic challenge with a per capita income of just $1,560, highlighting its status as a developing economy. To put this into perspective, the per capita Gross National Income (GNI) of the USA was a staggering 35 times higher than that of India in the same year. China, another emerging economy, surpassed India with a per capita GNI that was 5 times higher.
Beyond the statistics, India grapples with the harsh reality of unequal income distribution, intensifying the issue of poverty. This economic disparity poses a substantial hurdle to the country’s progress. The struggle against low per capita income has become a central concern, emphasizing the need for comprehensive strategies to address poverty and foster sustainable economic growth in India.

Huge Dependence of Population on Agriculture

One key indicator highlighting the challenges in the Indian economy is the way jobs are distributed across different sectors. The agricultural sector in India, despite meeting the needs of a growing population, faces issues.
As per the World Bank’s 2014 data, around 47 percent of the workforce in India was involved in agriculture. Surprisingly, this sector only contributed 17 percent to the overall national income, indicating low productivity per person. Moreover, the expansion of industries struggled to attract sufficient workforce.

Heavy Population Pressure

Another factor which contributes to the economic issues in India is population. Today, India is the second most-populated country in the world, the first being China. We have a high-level of birth rates and a falling level of death rates.
In order to maintain a growing population, the administration needs to take care of the basic requirements of food, clothing, shelter, medicine, schooling, etc. Hence, there is an increased economic burden on the country.

The existence of chronic unemployment and under-employment

In India, one major economic challenge stems from the large number of people without jobs. It’s tough to find meaningful work for everyone due to the surplus of labor in our country. Additionally, a lack of capital has hindered the growth of secondary and tertiary occupations, leading to persistent issues of unemployment and underemployment.
A significant portion of the workforce, nearly half, is involved in agriculture. However, the productivity of an agricultural laborer has dwindled to the point where it’s hardly making a difference. Furthermore, the rise in educated but unemployed individuals has only added to the country’s problems.

Slow improvement in Rate of Capital Formation

India has historically faced a shortage of capital, but there’s been a gradual improvement in recent years.
Between 2000 and 2005, our population grew by 1.6 percent, necessitating an investment of about 6.4 percent to handle the added pressure caused by this population increase.
To sustain our living standards and counteract depreciation, India now needs a gross capital formation of approximately 14 percent.
The key to enhancing our quality of life lies in boosting the rate of gross capital formation.

Inequality in Wealth Distribution

In the world, eight men own the same wealth as the 3.6 billion people who form the poorest half of humanity.
In India, merely 1 percent of the population has 58 percent of the total Indian wealth. Also, 57 billionaires have the same amount of wealth as the bottom 70 percent of India. Inequal distribution of wealth is certainly one of the major economic issues in India.

Poor Quality of Human Capital

In the broader sense of the term, capital formation includes the use of any resource that enhances the capacity of production. Therefore, the knowledge and training of the population is a form of capital.
Hence, the expenditure on education, skill-training, research, and improvement in health are a part of human capital. To give you a perspective, the United Nations Development Program (UNDP), ranks countries based on the Human Development Index (HDI).
This is based on the life expectancy, education, and per-capita income. In this index, India ranked 130 out of 188 countries in 2014.

Low level of technology

Every day, exciting new technologies emerge, but their widespread adoption faces challenges due to high costs and the need for skilled individuals to implement them effectively.
Bringing in new technology demands both financial resources and a workforce with specialized skills. The shortage of skilled labor poses a significant barrier to integrating these innovations into the economy.
In India, economic concerns are exacerbated by the fact that many struggling farmers can’t even afford basic necessities like improved seeds, fertilizers, and essential machinery such as tractors.
Adding to the complexity, a large portion of enterprises in India is small-scale, making it difficult for them to invest in and benefit from modern and more efficient technologies.

Lack of access to basic amenities

In 2011, the Census of India revealed that almost 7 percent of India’s population resides in rural and slum areas. Shockingly, only 46.6 percent of households across the country have the convenience of drinking water within their homes. Additionally, merely 46.9 percent of households have toilet facilities on their premises.
These concerning statistics not only highlight the challenges faced by individuals in accessing basic amenities but also contribute to the overall inefficiency of Indian workers. The situation is exacerbated by the fact that dedicated and skilled healthcare professionals are essential for the effective delivery of health services. However, ensuring the availability of such professionals in a vast and diverse country like India presents a formidable challenge.

Demographic characteristics

In 2011, India’s population density was 382 people per square kilometer, much higher than the global average of 41 people per square kilometer. The census revealed that nearly 30% of the population was in the age range of 0-14 years, indicating a significant youth demographic.
Additionally, around 62.5% fell within the working age group of 15-59 years, while approximately 8% were 60 years and older. These statistics highlight a substantial dependency burden on the population, emphasizing the need to address demographic challenges.

Under-Utilisation of natural resources

India possesses abundant natural resources such as vast expanses of land, ample water sources, rich mineral deposits, and significant power resources. Unfortunately, the full potential of these resources remains largely untapped due to challenges like difficult-to-reach areas, outdated technologies, and a shortage of financial capital. This underutilization of resources plays a significant role in contributing to economic challenges in India.

Lack of infrastructure

One major issue hindering India’s economic growth is the inadequate infrastructure in various sectors. This encompasses problems in transportation, communication, electricity supply, and distribution, as well as deficiencies in banking, credit facilities, and health and education institutions.
Sadly, this shortfall in essential facilities has resulted in regions across the country not reaching their full potential. The impact is visible in the underutilization of resources and opportunities, hampering overall development.

The main challenges for fiscal health are as follows:

In the year leading up to the elections, the central government might be inclined to announce loan waivers, a popular move among voters.
A mere $10 increase in the price of a crude oil barrel could translate to a 0.2-0.3% rise in Fixed Deposits, affecting the pockets of ordinary citizens.
The government’s decision to raise Minimum Support Prices (MSP) for kharif crops might bring joy to farmers but could also cause a 0.1-0.2% dent in the GDP, while stoking inflation.
With monthly GST revenues falling short of the government’s target of 1.1 lakh crores, averaging only around 0.97 lakh crores in FY19, fiscal challenges loom large.
The resignation of the RBI Governor, reportedly due to disagreements with the Union Government on critical issues, raises concerns about the independence of the RBI and key financial matters.
The ongoing tariff war initiated by the US poses a significant threat to India’s exports, which make up 42% of the GDP, highlighting the vulnerability of the Indian economy to global dynamics.
The Standing Committee on Finance questions the RBI for not taking preemptive action to tackle bad loans, pointing to a deep-rooted problem in the banking system.
With over half of India’s workforce engaged in agriculture, the sector’s ongoing crisis is evident in events like the Farmer’s Long March and protests in New Delhi.
India’s long-term government bond yields, currently at 7.6%-7.8%, are higher than those of comparable developing economies, signaling challenging times ahead for the economy.
While some Indian companies thrive globally, others like Jaypee Infra and Lanco Power face existential crises due to the Twin Balance Sheet problem.
Keeping an eye on international tax practices, India aims to effectively implement OECD’s Guidelines to control Base Erosion and Profit Shifting (BEPS).
India is renegotiating its Double Taxation Avoidance Agreements with other countries to minimize tax avoidance, aligning with global efforts.