Over the past few years, the Indian economy has shown immense progress and an upward trend with respect to growth. Post the Global Financial crisis of 2008, Indian economic growth was the second highest in the world and even achieved the record highest of 8 percent in 2015.
The factors that have driven the economic growth in the country can be identified as micro, macro as well as institutional in nature. Three key factors can be acknowledged in this regard. The first one that has propelled economic growth in our country is the demographic growth. India, with the second largest population, comprising largely of the youth, has evolved as a demand driven economy. Increased demand and consumption are the resultant outcomes of this population growth.
Secondly, the trend towards urbanization has resulted in a sea change in the outlook of the people in terms of both the standard of living as well as in the consumption pattern. The advent of social media and the technological revolution encompassing the development of the e-commerce sector in both urban and rural India, have also been instrumental in stimulating high demand and consumption.
The third and most important factor can be identified as the highly supportive and favourable government schemes and policies for trade, investment and commerce, which have actually resulted in marking India as one of the most conducive destinations for conducting business. Other than being instrumental in boosting growth, these factors are imperative for the evolution of India as a global market.
India is in fact, one of the most consistent and faithful markets for domestic and foreign products with the favouritism latching more on to foreign brands and indicatives. The growth of the Indian economy at an average of 7.2 percent is commendable but at the same time worth cross-checking as well. What type of growth the economy is experiencing is an important question to be pondered upon. Other significant considerations include, is the economy investment or consumption driven? Is our GDP growth rate nominal or real? This article therefore tries to understand the various economic, social, institutional and policy factors contributing to the growth of India as a global market.
Demographic features of consumption
India is the second most populated country in the world, with half of the population in the category of young and dependent people, thus making it almost perfect for creating a strong, consistent, ever growing demand-driven market economy. The population growth has been simultaneously characterized by increased purchasing power and an improved standard of living. The growth in population is reflected in the growing need for more goods and services. The demand for consumer goods, health and other provisions, food products and beverages is also at its peak level.
In 1991, the Indian economy opened up its market through the reforms of globalization and liberalization. The market scenario and economic conditions were sluggish during this period and were also characterized by high fiscal deficit. The per capita income, standard of living, investment opportunities and consumption demand were low. The economic reforms of 1991 thereby opened up new dimensions in trade and commerce. Although the trends of urbanization and changing consumption patterns among the urban population became quite popular, poor income and earnings, low per capita income, lagging infrastructural set up and inferior standards of living retarded the growth aspect in rural areas. But the last two decades brought in a miraculous change in the consumption pattern as well as the living standards of the rural population. The consumption growth rate for the rural population stood at 9.7 percent whereas the urban growth rate was 8.6 percent in 2017-18. This, therefore, indicated growing consumption demand in rural areas especially with noticeably high demand for consumer durables, health services, education, food and beverages, services etc. The increase in disposable income, changing tastes and habits, technology and literacy rates have in fact, played a great role in bringing about this change. The consumption data from GDP reveals a sharp increase in the Private Final Consumption Expenditure (PFCE) as against the Gross Fixed Capital Formation (GFCF). The GFCF growth rate reduced to 10 percent in March 2018 from 14.4 percent in March 2017. Against this backdrop the consumption expenditure accounts for 54.9 percent of GDP at constant prices, registering a growth rate of 6.9 percent according to the 2017 GDP data. This increased demand for consumption goods has implied a great opportunity for manufactures and entrepreneurs to reap huge profits
The trend of urbanization
The trend of urbanization parallel to the population growth has brought in a complete change in the consumption pattern of the masses. Earlier, the consumption pattern of the Indian population focused on coarse grains and cereals in terms of food items. With the entry of online food delivery systems and applications like Zomato, Uber Eats and others, the entire notion of food consumption has been revolutionized. Though the development of the E-commerce sector was late and gradual in India, the penetration was deep and sustaining. On the other hand, the textile preferences were much more traditional and Indian in their outlook. Logical and technical connectivity coupled with low price and ease in availability further boosted the growth of online sectors particularly in clothing as well. The popularity of foreign brands and availability of high-quality choices have created an obsession towards foreign products. With urbanization, the nature and type of work structure has also undergone drastic changes. An enhancement in the field of the IT sector, BPOs and related software fields has in fact created a ‘Desktop culture’ along with ensuring high income for the employees. This trend has resulted in a trend of doorstep delivery system adding on to the popularity of online firms.
Foreign and government policies
The turning around of foreign, investment and industrial policy have played an important role in the huge inflow of funds and investment to India. The phase of globalization and industrialization enriched India with foreign inflows, increased accumulation of foreign reserves, bilateral as well as multilateral trade agreements and thus paved the path for the emergence of India as a key player. The past decade witnessed the emergence and establishment of a large number of foreign as well as domestic producers and entrepreneurs. Over these years, the consumer durable sector has attracted huge foreign and domestic investment. India has emerged as the second largest electronic market with massive investment from foreign players especially Japan and China. Thus, the electronic goods and manufacturing sector has great potential in India as a market for appliances and durables like air conditioners, refrigerators etc. India has also evolved as a booming market for smartphones, which has also had a strong penetration effect in the rural areas. The smartphone market of India has grown to 14.5 percent in 2018 with an increase in the shipment unit volume to 142.3 million units. The import of electronic appliances has recorded revenues of up to US $54 billion in FY2018. In fact, the Indian appliances market is expected to grow at a rate of 41 percent CAGR between 2017-20. The increased purchasing power at a controlled inflation rate coupled with the influence of social media has played an instrumental role in creating a reliable market in India for firms. Ironically, this prevailing trend will end up in a situation of measuring poverty in terms of the ability to afford a smartphone than having one square meal a day.
The government policies in the field of Foreign Direct Investment signify a major step taken in the direction of this initiative. 2015 onwards, the government liberalized FDI in many sectors thereby initiating the first wave of foreign inflows after the liberalization period. Further, the introduction of the ‘Make in India’ scheme aiming to boost the manufacturing sector by portraying India as an attractive haven for mutual collaboration of domestic-foreign private partnership was appreciable. Along with the ‘Make in India’ scheme, the introduction of the ‘Digital India’ policy provided a viable policy background and government consent for the effective undertaking of business and commerce. India is the world’s second largest mobile manufacturing country with more than 120 factories operating within. The import rate of electronic goods has also been noticed to be quite high, and in addition to this, the government of India (Ministry of Electronics and Information Technology) also introduced the National Policy on Electronics in February 2019 in support of such goods. Also, a new Consumer Protection Bill has been approved by the Cabinet that could result in effective implementation of consumer laws and rights. Added to this, the 100 percent Foreign Direct Investment under the automatic route in the Electronic System Design and Manufacturing sector has also attracted further investments and undertakings. The share of FDI in single brand retail has been increased and measures are being taken to extend the same to multi-brand retail.
The domain of agriculture and related fields are not resistant to these changes. The Indian farming sector has evolved to become the most sought after area of invasion for foreign companies and initiatives. The recent ruction between farmers and Frito Lay is an outcome of this intervention. The idea of corporate farming is also becoming popular in many Indian states. Illiterate and unaware farmers are manipulated as well as exploited. As much as growth and development uplift the Indian economy and its sectors, agriculture remains to be the most deprived one of all. The plight of the agriculture sector leaping from bad to worst with the fact that it employs the most number of people, has multiplied the state of deterioration. This doesn’t mean an inflationary pressure is desired in the agriculture sector; rather a reasonable and good price is desired and expected.
On the surface level, though consumption-driven growth seems to be quite impressive, for an economist the growing consumption followed by falling investments doesn’t seem to be a good indicator. The slack or deficiency in demand was hardly a problem in India or it hardly stood out. On the other hand, supply constraints continued to be a big issue. However, the entry and dominance of foreign companies and products succeeded in countering this issue to a certain extent. But the supply of goods produced and dominated by foreign providers has its own repercussions and costs for the Indian economy, specifically when domestic undertakings are struggling hard over the issues of quality, credit creation, property rights, diverged demand and competition. Over the years, India has witnessed massive mergers and acquisitions of domestic companies with foreign ones. This trend if continued, would lead to the extinction of indigenous products and companies. The economic policies of globalization and privatization were introduced with the aim of increasing efficiency and accessibility as well as facilitating technological progress.
What India needs is a mutually supportive and collaborative foreign-domestic partnership instead of the monopoly of foreign MNCs. Growth must not proceed at the long-term cost of the elimination of domestic players. The policy makers and government should evolve to a better level of understanding and evaluating the economy in terms of growth and investment. The long-term cost of exploitation, resource extraction, land acquisition by foreign players, environmental degradation, unhealthy consumption patterns and threats to marginalized groups especially to the farmers must be anticipated and timely addressed. The idea of global partnerships may attract the nation and the notion of protectionism may seem to be the feasible option for the citizens. However, it must be kept in mind that the credibility of the system lies in the ability to indulge in global undertakings without compromising on the integrity of the nation.
Picture Courtesy- Scroll.in