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Published by: OutlookMagazine on Sep 15, 2011
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India has been in the midst of a major and rapid economic expansion, with an economy projected
to soon be the world’s third largest. Although there is widespread and serious poverty in the
country, observers believe long-term economic potential is tremendous, and recent strides in the
technology sector have brought international attention to such new global high-technology
centers as Bangalore and Hyderabad. However, many analysts and business leaders, along with
U.S. government officials, point to excessive regulatory and bureaucratic structures as a
hindrance to the realization of India’s full economic potential.198

Although India has made major
progress in reducing corruption, it is still perceived as a major obstacle for the economy.199


high cost of capital (rooted in large government budget deficits) and an abysmal infrastructure
also draw negative appraisals as obstacles to growth.200

Ubiquitous comparisons with the progress
of the Chinese economy show India lagging in rates of growth, foreign investment, poverty
reduction, and in the removal of trade barriers.201

It is a testament to the strength of India’s economy that, even in the face of widespread
corruption, poor infrastructure, political uncertainty, inflationary pressures, and more recently,
declining rates of foreign investment, it has continued to grow by at least 8% annually in recent
years. In the absence of such major obstacles, the national economy would most likely enjoy
double-digit growth, and in many respects government is seen to be an impediment rather than
facilitator of better performance.202

According to the International Monetary Fund (IMF), India’s nominal gross domestic product
(GDP) in 2010 was $1.538 trillion, making it the 9th

largest economy in the world. However, with

a population of 1.17 billion people, India’s per capita GDP is $1,265, 139th

in the world and
slightly higher than that of Pakistan, but still below that of Bhutan. Although India has had one of
the fastest growing economies in the world since 2001, relatively high income disparities have
left much of India’s population in poverty. According to the United Nations Development
Program (UNDP), nearly a third of India’s population, and more than 60% of its women, live
below the national poverty line.203


In 2006, the U.S.-India CEO Forum—composed of ten chief executives from each country representing a cross-
section of key industrial sectors—issued a report identifying India’s poor infrastructure and dense bureaucracy as key
impediments to increased bilateral trade and investment relations (see “U.S.-India Strategic Economic Partnership,”
U.S.-India CEO Forum, March 2006 at http://planningcommission.nic.in/reports/genrep/USIndia.pdf).


Berlin-based Transparency International placed India 87th

out of 178 countries in its 2010 “corruption perceptions
index,” characterizing it as moderately corrupt, with a score of 3.3, comparable to China, Greece, and Thailand. India
also appears in the lowest cluster of the group’s 2008 “bribe payer’s index.”


Most recently, India’s infrastructural challenges were made apparent when preparations for October’s
Commonwealth Games in Delhi were marred by numerous problems, including unsanitary venues and a bridge
collapse (“The Con Games,” India Today (Delhi), August 2, 2010; “Games Fiasco Highlights Fissures in Indian
Government,” Reuters, September 23, 2010).


India’s traditional “it’ll do” (chalta hai) attitude, a form of satisficing, is seen to underlie many of its infrastructural
and bureaucratic problems, potentially hindering the country’s growth as a global power (“As Games Close, India
Ponders a Deep-Seated ‘It’ll Do’ Attitude,” Los Angeles Times, October 15, 2010).


“Why India Can’t Grow at 10 Per Cent,” India Today (Delhi), February 28, 2011; “In India, Dynamism Wrestles
With Dysfunction,” New York Times, June 8, 2011.


See http://www.undp.org.in/whatwedo/poverty_reduction.

India: Domestic Issues, Strategic Dynamics, and U.S. Relations

Congressional Research Service


India was struck by the secondary effects of the global financial crisis of 2008, but its impact was
comparatively light. According to the IMF, real GDP growth decreased from 7.3% in 2008 to
5.7% in 2009. While its financial sectors were largely insulated from the collapse of selected
financial markets, the ensuing economic slowdown (particularly in Europe and the United States)
led to a drop in demand for India’s leading exports. In addition, the decline in global liquidity
placed downward pressure on India’s currency, the rupee. With less access to overseas capital,
India’s private sector turned to domestic sources, leading to a rise in interest rates. To expedite
India’s recovery, the Indian government passed a fiscal stimulus package amounting to about 3%
of GDP in December 2008.

Consultations have begun for the India’s 12th

five-year plan. Deputy Chairman of India’s Planning
Commission Montek Ahluwalia wrote a May 2011 article summarizing India’s performance
during the 11th

five-year plan and setting out four major challenges for the 12th

five-year plan.
According to Ahluwalia, India had done well in achieving the growth targets of the latest plan,
but was less successful in efforts to reduce poverty. Although overall poverty rates were lowered,
India continues to struggle with significant income and wealth inequality across regions, and
between the urban and rural population. Looking ahead to the 12th

five-year plan, Ahluwalia sees
four major challenges: (1) managing the energy sector; (2) managing the water resources; (3)
addressing the problems associated with the expected urbanization; and (4) protecting the
environment during rapid economic growth. He also highlights ongoing issues for India that
include provision of basic services to the poor, access to education (particularly in rural areas),
and the rise of “crony capitalism,” wherein government officials and major corporations selfishly
manipulate markets and government procurement to the detriment of India.204

India’s economy is showing signs of rebounding from the 2009 slowdown. Real GDP growth in
FY2010 was 7.4% and in FY2011 was 8.5%. India’s Planning Commission has set a goal of 10%
annual growth for the nation’s 12th

Five-Year Plan (2012-2017). However, the nation faces several
major obstacles to further economic development, including endemic and stubborn poverty; poor
infrastructure; corruption and market economy restrictions; inflationary pressures; fluctuating
rates of foreign investment; and other issues.

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