3.12 India Economic Forecast

India has a long and rich history of Hindu and Buddhist cultural developments, one periodically disrupted by invasions from continental Asia. Muslim rule in India began in the 12th century with the Delhi Sultanates, and continued through the 16-19th century Mughal empire, which again unified the country but intensified sectarian divisions. When Aurangazeb's conquests overextended Mughal power, smaller states rose to fill the power vacuum, and Iran under Nadir Shah invaded the country in 1739, sacking Delhi and carrying away an immense amount of booty. France and England obtained permission to trade in the country, and extended their influence by backing local rulers in territorial disputes. The English gradually overcame the French in a series of wars, minor in India and Canada but destructive in Europe, which left the British East India Company an important influence in the country, maintaining sepoy armies, collecting taxes and 'advising' local rulers. After the Indian mutiny of 1857, power was transferred to the British crown, which administered provinces, either directly through a governor and civil service, or through the princely states. {1-4}

Like China, India's share of world trade fell through the nineteenth and early twentieth century: {5}

Share of World

Manufacturing Output

(population in millions)






33% (220)

30% (350)

22% (430)

7% (470)


23% (180)

18% (200)

12% (220)

2% (300)


23% (170)

30% (200)

51% (250)

63% (300)

N. America


0.5% (7)

2% (26)

22% (82)

The British in India built roads, schools, hospitals, lawcourts and railways, bequeathing a viable administration and common language to the country on independence. But they also 'de-industrialized' the country by driving textile workers back to agriculture, perpetuated the existing, often inequitable tax regimes, failed to provide sufficient relief in the great famines of 1876-8 and 1899-1900 in which tens of millions died, and did not hesitate to use force when their rule was threatened (Indian mutiny 1857, Amritsar massacre 1918). On independence in 1947, the country was partitioned between a Hindu Dominion of India and a Muslim Pakistan. Some 12 million Hindus, Sikhs and Muslims moved to their new homelands, but the resulting sectarian violence cost half a million lives. {2-4}

Economic growth was initially slow after independence, averaging 3.5% to the 1980s. Much was state-controlled, and the government embarked on reforms to alleviate poverty, replace a land tax by one on sales, resettle refugees and cope with the disruption of the jute and cotton industries arising from partition. Growth in industry was 4.5% and that in agriculture around 3%, far less than in the southeast Asia economies. There were trade deficits and periodic food shortages. {3} {7}

Change came with liberalization of the economy, and annual revenues grew at almost 12 per cent during the third quarter of the twentieth century. Nonetheless, India's GDP was only 8% of America's in 2007, and many areas remain trapped in rural poverty. The need for a better transport, electricity and justice system is widely recognized. IT development was fostered in the 1998 to 2004 period, however, and India now has an important telecommunications industry, providing call centers for western companies and computing services around the world. Foreign investment in India has increased, but has so far made only modest additions to the GNP. {6} {8}

SWOT Analysis

Strengths {9-10}

Large low-paid labor force
Rapidly growing GNP
Increasingly a base for offshored US and European companies serving the export market
High percentage of land can be cultivated
Extensive natural resources: oil, minerals and forestry
Strong engineering and computing skills
World's largest democracy
English as lingua franca


Inefficient agriculture, contributing 15% to the GDP but employing 57% of workforce.
High unemployment
Some 25% live below the poverty line
Poor infrastructure
Still an oil importer
Low industrialization and mechanization
Very unequal distribution of wealth
Wide divide between urban and rural areas
Corruption and excessive bureaucracy

Internal Opportunities

Large and growing domestic market
Foreign investment encouraged
Improved agricultural approaches

Internal Threats

Vulnerable to economic slowdown
Agriculture excessively dependent on monsoons

Weakness: Industrialization

State control lives on in many industries. India under Nehru focused on heavy industry, at the expense of agriculture reform and export industries. Import substitution was stressed, and licenses place under state control. Indira Gandhi revived agriculture but further tightened state control over every aspect of the economy. Banks were nationalized, trades were restricted, price controls were forced on variety of products and foreign investment was reduced. The Foreign Exchange and Regulation Act of 1973 shut out foreign technology during much of the 70s and 80s.

Deregulation started in early 1980s and accelerated in the 1990s. Trade, financial and industrial policies were liberalized, and subsidies, tax concessions and export incentives offered through currency depreciation. GDP that had been around 3.5% in the 1970s grew to over 5% in the 80s, but restrictions and the tariffs continued to be among the highest in the world. {11}

Indian Liberalization Model

India complied with many reforms required by IMF in 1991, but trade union power and subsidies remained 'uncorrected'.

Costs of Globalization

The opening of India to international competition came at great cost to its rural poor. {25} Besides the usual requirements — allow free entry to capital, reform banks, tax and investment legislation, slim down the public service, cut social welfare and infrastructure projects, and sell off the more profitable public enterprises to large, often foreign companies — the IMF recommended abolishing the minimum wage, which was already low, effectively US 10-15 cents/day on farms though higher in factories and industrial concerns. Large companies like Bata were enabled to replace their payroll workers on US$3/day with independent cobblers on $1/day, a pattern repeated in the jute, small engineering and garments industries. Public servants and private sector workers were laid off, some 4-8 million in a workforce of 26 million, and trade union resistance appreciably weakened. {22} Destitution was particularly acute in rural areas and some hundreds of thousands of farmers and local craftsmen have either starved to death or committed suicide to escape the onerous loans they had been compelled to take out. {23} Genetically modified cotton has become a further burden, being more vulnerable to water shortages, and requiring costly pesticides and the repurchase of stocks as the seeds lose their vigour after one generation. {24} Large businesses eventually prospered under open markets, but with a net flow of assets from the impoverished to the more comfortably off as foodstuffs and manufactures were diverted from local consumption to overseas markets. With social distress and polarization came unrest and growth in Hindu and Muslim fundamentalism, unwelcome in a political system still notably corrupt. {22}


Until the global downturn, Indian growth under liberalization was little short of spectacular. In 1991, 36% of India's 846 million people, or a little over 304 million people, lived on less than one dollar a day. Though India had added 156 million more people by 2001, the number of its poorest fell by 37 million. {10} Certainly the GDP growth dipped thereafter, to 6.7% over the 2008-9 period, but recovered to 6.9% over the 2011-12 period. Investment was the hardest hit, though suffered only a -0.2 % contraction (year on year) over April-December 2011. {13} As all developing countries, however, India still vulnerable to global markets. {26}

Moody's estimate is for GDP growth to remain around 5.5-60% in 2012-13. {14} {11} Financial Services Intelligence's predictions for 2012 were a little more optimistic: 8.6% in real GDP growth, and inflation reined back to 6.2% (from 8.4% in 2011). The sharp decline in the value of the Indian rupee, and a rise in oil prices, could threaten inflation levels. {15} Both Fitch and Standard &Poor have given more negative predictions, however, stressing the need for structural reforms and greater debt reduction. {16} The OECD estimates for real GDP growth were 7.3% in 2012 and 7.8% in 2013. {17}

Many commentators have western perspectives, and were perhaps spooked by poor figures in the first half of 2012. {18} India has done better over the last decade than Russia, Brazil and Indonesia. Investment has fallen, but was still a healthy 35% of GDP in 2011-12. Reforms have stalled, true enough, but India's politicians periodically make mischief from the best of plans.

The Indian rupee is currently under pressure as the US Federal Reserve announces plans to reduce its quantitative easing (QE) program, a problem exacerbated by India's current account and fiscal deficits. {26-7}

eBusiness Implications

For many years after independence, the Indian company was state run, and that legacy lives on in permit restrictions, state control of power production, and corruption in allocation of licenses for land, telecoms and natural resource development. {19} Most publicized has been the 2G auction of telecom licenses: a court action overturned the 2008 allocations, and licenses have have been repriced upwards, to levels the original bidders seem unwilling to pay.

India is the world's second-largest cellular market, with 894 million subscribers at the end of 2011. Fierce competition between the 15 operators has kept call rates cheap. Regulation has prevented mergers and spectrum sharing. Consequently, and despite efficiency measures (sharing towers, compressed traffic and outsourcing), the companies are not doing well. Only one of the big four operators came close to recouping its cost of capital in 2011, and smaller companies are bleeding billions of dollars annually. {20} Adding to woes is uncertainty about vital issues: the fees on existing spectrum, the terms under which old licenses are renewed, under which corruptly obtained licenses must be returned, and the rules on mergers and acquisitions. It is even unclear whether non-voice 4G licenses, originally intended for data only, can be legally modified to allow voice services. The auction of spectrum for 3G services in 2010 was clean, but allowed only four or five slots in each geographic area, far fewer than the companies formerly operating there, whose customers must now change operator or hope to piggyback off a rival networks. India's politicians, in short, encouraged hosts of companies to enter the voice market, and then ensured that many of them couldn't offer the latest technology. Banks have also cut credit lines to the industry, making it hard for small companies to survive. Consolidation is inevitable. {21}

So the current muddle, which underlines the message of this section. Business is not controlled by common sense alone, but by political interests that have their roots in historical and sometimes now discredited economic models.

Points to Note

1. Relative failure of state-controlled industries.
2. Rapid growth under economic liberalization.
3. Disadvantages of political rather than technical management of industry.

Sources and Further Reading

1. India: History. Geographia. 2005.
2. A History of India by Herman Kulke, Hermann Kulke and Dietmar Rothermund. Routledge 2010.
3. Economic history of India. Wikipedia. August 2012.
4. The Origins of the Modern World: A Global and Ecological Narrative from the Fifteenth to Twenty-first Century by Robert B. Marks. Rowman and Littlefield, 2007.
5. Contours of the World Economy, 1-2030 AD by Angus Maddison. O.U.P., 2007. Historical summaries and estimates of income and populations: extensive references.
6. Investment Led Growth in India: Hindu Fact or Mythology by Peter E. Robinson. Univ. Western Australia. March 2010.
7. Economic Growth in Independent India: Lumbering Elephant or Running Tiger? by Deepak Nayyar. Economic and Political Weekly. April 2006. NewSchool.
8. The Enigma of India's Arrival: A Review of Arvind Virmani's Propelling India: From Socialist Stagnation to Global Power by Kaushik Basu. Robert Looney Homepage.
9. What is the economic SWOT analysis of Indian? by Muhammad Muavia Khan. Wiki Answers. Accessed July 2012.
10. Swot Analysis of Indian Economy. OPPapers. Accessed July 2012.
11. Industrialization by Puneet Kuthiala. ThoughtDots. July 2010.
12. Escaping the 'Hindu rate of growth' by Salil Tripathi. Guardian. June 2006.
13. Outlook for the Indian Economy: Growth expected to remain moderate in 2012-13 unless substantive policy measures are undertaken to boost investment sentiments by Anjan Ghosh and Aditi Nayar. ICRA. 2012.
14. Moody cuts India's growth rate estimate. UPI. August 2112.
15. India's Economic Outlook For Year 2012. Unidow. August 2012.
16. Fitch downgrades India's outlook to 'negative'. BBC News. June 2012.
17. India - Economic forecast summary (May 2012). OECD. May 2012.
18. Despite policy paralysis, India's growth is still among the highest for emerging economies by Arvind Panagariya. Economic Times. June 2012.
19. India's economic reforms Now finish the job. Economist. April 2012.
20. License Scandal Rattles India's Telecom Nirvana. Reuters. March 2012.
21. Happy customers, no profits. India's mobile industry is magnificent but also a mess. Economist. June 2011.
22. The Globalization of Poverty and the New World Order, Second Edition by Michael Chossudovsky. Global Research, 2003. Chapter 10.
23. Indian Farmers Trapped and Desperate by Graham Peebles. Counterpunch. January 2013.
24. In India, GM Crops Come at a High Price by Vivekananda Nemana. N.Y.T. October 2012. Note that better yields and profits with GM cotton were found in a study by the Georg-August University of Goettingen, however: Genetically Modified Crops Are Good For Poor Farmers In India by Noah Plaue. Business Insider. July 2012. An article in Nature, noting the discrepancy with majority opinion, suggested that wealthier farmers may benefit more from GM products: Genetically modified cotton gets high marks in India by Gayathri Vaidyanathan. Nature. July 2012. Improved farming techniques generally rather than GM hybrids may in fact be the reason for improved yields: 10 Years of Bt Cotton: False Hype and Failed Promises: Cotton farmers' crisis continues with crop failure and suicides. Coalition for a GM-Free India. 2012.

25. India: Growing Inequality and Destructive Development by Graham Peebles. Counterpunch. February 2013.
26. India's rupee hits another record low against US dollar by Heather Stewart. Guardian. August 2013.
27. Why is the Indian rupee depreciating? by Kavaljit Singh. Madhayam. September, 2013.