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Report Paper On India: Economic and Social Progress and Challenges
Report Paper On India: Economic and Social Progress and Challenges
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India - Consumption
Economic growth surges in the first quarter of FY 2018
In the first quarter of FY 2018—which ran from April to June 2018—GDP grew 8.2%
in year-on-year terms in Q1 FY 2018, up from 7.7% in Q4 FY 2017. The figure was
above the 7.6% expansion that market analysts had expected and was the highest
reading in over two years. All in all, this would suggest that the Indian economy
emerged strongly from the downturn that followed the abrupt demonetization of
November 2016 and the road bumps caused by the introduction of the Goods and
Services Tax in July 2017. Higher economic growth in April–June was primarily
underpinned by greater consumer spending. Private consumption growth
accelerated to 8.6% in April–June, up from 6.7% in January–March and the fastest
expansion in two-and-a-half years. Meanwhile, government consumption increased
by 7.6% in Q1, down substantially from the 16.9% expansion in Q4. Fixed
investment rose 10.0%, which, although strong, was still down from 14.4% in Q4.
Exports of goods and services expanded 12.7% in Q1, significantly higher than the
3.6% growth recorded in Q4. Import growth also accelerated in Q1, rising from
10.9% in Q4 to 12.5%. The external sector consequently detracted 0.3 percentage
points from economic growth in Q1, notably less than the 1.2 percentage-point
deduction in Q4.
Commenting on the Q1 results and the short-term economic outlook for India,
analysts at Nomura added:
“Overall, the data suggest an economy in the midst of a strong recovery in [Q1], but
the key question is its sustainability. We have our doubts because higher oil prices,
tighter global financial conditions and our view that the global economy is set to
cyclically slowdown suggest a number of external headwinds. Moreover, we expect
the government to cut capital expenditure (given budget constraints) and investment
decisions to be delayed (political uncertainty ahead of elections). Therefore, we
believe that growth cyclically peaked in [Q1].”
The economy picking up in FY 2018 and growing 7.3%, which is unchanged from
last month’s forecast. In FY 2019, our panel expects GDP to expand 7.5%.
Consumption Data
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Middle Class Growth
Throughout India's history, most of its people have lived in desperate poverty. As recently
as 1985, more than 90 percent of Indians lived on less than a dollar a day. Yet India is
poised to undergo a remarkable transformation. New research from the McKinsey Global
Institute (MGI) shows that within a generation, the country will become a nation of
upwardly mobile middle-class households, consuming goods ranging from high-end cars
to designer clothing. In two decades the country will surpass Germany as the world's fifth
largest consumer market.
The headlines of India's growth story are well known —after the country began reforming
in the early 1990s, economic growth jumped to about 7 percent. It slowed in the late '90s
but since 2002 has proceeded at a blistering pace, surpassed only by China among the
world's large economies. Less well known is how this growth is reshaping the lifestyle of
Indian families. MGI's research portrays a dramatic transformation that will touch Indians
up and down the income pyramid, from the poorest rural farmer to the wealthiest IT
entrepreneur. Companies that fail to understand the unique desires and tastes of the
new Indian consumer will miss out on a half-billion-strong market that along with China
ranks as one of the most important growth opportunities of the next two decades.
One of our most striking findings is how dramatically recent growth has reduced the
numbers of the poorest Indians, a group we call the deprived. They earn less than
90,000 Indian rupees a year ($1,969 per household, or about a dollar per person per
day), and include subsistence farmers and unskilled laborers who often struggle to find
work. They can be found across India, from its isolated villages to its sprawling urban
slums. Many depend on government-subsidized food to get enough calories each day.
Since 1985, the ranks of the deprived have fallen from 93 percent to 54 percent of the
population, as 103 million people moved out of desperate poverty and many millions
more were born into less grim circumstances. When we factor in population growth, there
are 431 million fewer deprived Indians today than there would have been had the poverty
rate remained stuck at its earlier level, making India's economic reforms the most
effective antipoverty program in its history. If growth continues at its recent pace, we
expect a further 291 million people to move out of poverty over the next two decades.
Most of these former poor will move into the class we call the aspirers, households
earning between 90,000 and 200,000 rupees ($1,969-$4,376) per year. Aspirers are
typically small shopkeepers, farmers with their own modest landholdings or semiskilled
industrial and service workers. Their lives are not easy, but aspirers generally have
enough food and might own items such as a small television, a propane stove and an
electric rod for heating water. They spend about half of their income on basic necessities,
and many of their other purchases are bought second-hand or in what Indians call the
"informal economy." Over the next 20 years this group will shrink from 41 percent of the
population to 36 percent, as many of them move up into the middle class.
The next two groups—seekers, earning between 200,000 and 500,000 rupees ($4,376-
$10,941), and strivers, with incomes of between 500,000 and 1 million rupees ($10,941-
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$21,882)—will become India's huge new middle class. While their incomes would place
them below the poverty line in the United States, things are much cheaper in India. When
the local cost of living is taken into account, the income of the seekers and strivers looks
more like $23,000 to $118,000, which is middle class by most developed-country
standards. Seekers range from young college graduates to mid-level government
officials, traders and business people. They enjoy a lifestyle that most of the world would
recognize as middle class and typically own a television, a refrigerator, a mobile phone
and perhaps even a scooter or a car. Although their budgets are stretched, they scrimp
and save for their children's education and their own retirement.
Strivers, the upper end of the middle class, tend to be senior government officials,
managers of large businesses, professionals and rich farmers. Successful and upwardly
mobile, they are highly brand-conscious, buying the latest foreign-made cars and
electronic gadgets. They are likely to have air conditioning, and can indulge in an annual
vacation, usually somewhere in India.
The middle class currently numbers some 50 million people, but by 2025 will have
expanded dramatically to 583 million people—some 41 percent of the population. These
households will see their incomes balloon to 51.5 trillion rupees ($1.1 billion)—11 times
the level of today and 58 percent of total Indian income.
The other major spending force in India's new consumer market will be our last
segment—the global Indians, earning more than 1 million rupees ($21,882, or $118,000,
taking into account the cost of living). These are senior corporate executives, large
business owners, high-end professionals, politicians and big agricultural-land owners.
Today there are just 1.2 million global Indian households accounting for some 2 trillion
rupees in spending power. But a new breed of ferociously upwardly mobile Indians is
emerging—young graduates of India's top colleges who can command large salaries
from Indian and foreign multinationals. Their tastes are indistinguishable from those of
prosperous young Westerners—many own high-end luxury cars and wear designer
clothes, employ maids and full-time cooks, and regularly vacation abroad. By 2025, there
will be 9.5 million Indians in this class and their spending power will hit 14.1 trillion
rupees—20 percent of total Indian consumption.
As the seismic wave of income growth rolls across Indian society, the character of
consumption will change dramatically over the next 20 years. A huge shift is underway
from spending on necessities such as food and clothing to choose-based spending on
categories such as household appliances and restaurants. Households that can afford
discretionary consumption will grow from 8 million today to 94 million by 2025.
Long-established spending attitudes are already changing rapidly. Branded clothes are
becoming de rigueur for the wealthiest Indians—Christian Dior, Louis Vuitton and
Tommy Hilfiger already have a presence in the country. Gucci, Armani and Versace are
on their way. For generations, Indians did their daily shopping at fresh-food markets and
regarded packaged foods as "stale." However, just like their Western counterparts, a
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new generation of busy urban Indians is starting to appreciate the convenience and
choice offered by packaged foods. Likewise, many Indians have traditionally viewed gold
jewellery as a safer way to save than banks, but young Indians today are likely to see
jewellery as a fashion statement, not a savings plan. They are also increasingly
comfortable using credit cards —the share of Indians who carry plastic has quadrupled
since 2001.
Of course, many of India's new consumers still have relatively modest means. Despite
rapidly rising incomes, average spending will still lag behind countries such as Indonesia.
Like China's, India's market will be based more on volume than on per capita spending.
While luxury-goods makers may be able to sell to India's global consumers with little
modification to their products, those selling to India's new middle class will need to be
innovative to square the difference between the rising aspirations of consumers and their
still-modest pocketbooks.
One such company is Tata Motors, India's leading auto manufacturer, which has
announced its intention to introduce the world's first "one lakh" car. One lakh refers to the
price, 100,000 rupees, or just $2,100. This will probably be the cheapest car in the world.
Historically, a new car was out of reach of the vast majority of Indian households. But as
incomes rise, car prices fall and financing becomes available to more people, a huge
pool of pent-up demand will be released. In a tie-up with the State Bank of India, car
manufacturer Maruti (majority-owned by Suzuki) is now offering customers the chance to
buy one of its cars with lower monthly payments than if they were buying a motorbike.
Over the next 20 years, we expect to see spending on cars growing by 12 percent per
year. While more Indians will enjoy the freedom of their own transport, it's not hard to
imagine the impact on the nation's environment and increasingly clogged roads.
Affordability continues to be the hallmark of successful new consumer-product launches.
In the household-products sector, an example of keen pricing is the $66 washing
machine built by Videocon, the Indian consumer-electronics company. The Videocon
washer was successful not just because it was cheap, but because its design was
attuned to the needs of Indian families—for example, it will automatically finish a wash
after one of India's frequent power outages—and it dropped costly standard features
such as a drying cycle, which is unnecessary in India's hot climate.
Smart companies recognize that old consumer habits die hard. For generations, rural
Indian families have either made their own clothes from bolts of cloth or had the local
tailor make their garments relatively cheaply. Many remain suspicious of ready-to-wear
clothes. Arvind Mills, India's leading denim manufacturer, overcame these misgivings by
offering a "ready to stitch" jeans kit to local village tailors. It also distributed sewing-
machine attachments for stitching the heavy denim and trained the tailors to use the kits.
Within two months, more than a million of these Ruf 'n Tuf kits were sold.
India's shift to a consumer society will only accelerate as more people become
"connected" via mobile phones, the Internet and TVs, and as advertising becomes a
more prominent part of people's lives. Before India embarked on its program of economic
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reforms, the country had only 0.8 fixed telephones per 100 people, and virtually no
mobile phones. While fixed-line penetration has almost tripled to 2.2 per 100 people, the
real growth story has been in mobile, which has exploded and is expected to reach 211
million subscribers by the year-end. India's mobile market is currently growing even
faster than China's, and we expect overall communications spending to continue to grow
at a very rapid 13.4 percent per year over the next two decades. Other fast-growing
categories will include transport, education and health care. It is testament to the
determination of Indians to work for a more prosperous future that the highest priorities
will be these "economically enabling" areas of spending that boost productivity and
economic growth. Indeed, Indians will spend more of their disposable income on these
categories than consumers in just about any other country. But the boost in private
health-care spending, which we expect to double from 7 percent of all consumer
spending today to 13 percent in 2025 (second only to the United States in percentage
terms), also shows the weak underbelly of the nation's growth story. Despite the
immense progress that India has made, the public sector—in particular, health,
education and infrastructure such as roads and power—is in a desperate condition.
Thus, many Indians will spend their rising incomes to opt out of public services and go
private unless those services improve.
While India's rising wealth will provide more resources to tackle these issues, its fast-
growing population will stress its public services even further. India's success to date has
been built on its human capital—a hardworking and increasingly educated population. If
the country's growth is to continue, the reforms that have revolutionized its private sector
will need to reach its notorious government bureaucracy as well. If this does occur, the
dynamism of India's people will do the rest.
Infrastructure Growth
Infrastructure sector is a key driver for the Indian economy. The sector is highly
responsible for propelling India’s overall development and enjoys intense focus from
Government for initiating policies that would ensure time-bound creation of world
class infrastructure in the country. Infrastructure sector includes power, bridges,
dams, roads and urban infrastructure development. In 2016, India jumped 19 places
in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th amongst 160
countries.
Market Size
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Investments
• In June 2018, the Asian Infrastructure Investment Bank (AIIB) has announced
US$ 200 million investment into the National Investment & Infrastructure Fund
(NIIF).
• Private equity and venture capital (PE/VC) investments in the infrastructure
and real estate reached US$ 3.9 billion with 29 deals during the first half of
2018.
• Indian infrastructure sector witnessed 91 M&A deals worth US$ 5.4 billion in
2017
Government Initiatives
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Pradhan Mantri Awas Yojana (Urban). In May 2018, construction of additional
150,000 affordable houses were sanctioned under Pradhan Mantri Awas
Yojana (PMAY), Urban.
Road Ahead
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Environmental Challenges: Causes and Impacts The key environmental challenges
that India faces relate to the nexus of environmental degradation with poverty in its
many dimensions, and economic growth. These challenges are intrinsically
connected with the state of environmental resources, such as land, water, air, and
their flora and fauna. The proximate drivers of environmental degradation are
population growth, inappropriate technology and consumption choices, and poverty,
leading to changes in relations between people and ecosystems, and development
activities such as intensive agriculture, polluting industry, and unplanned
urbanisation. However, these factors give rise to environmental degradation only
through deeper causal linkages, in particular, institutional failures, resulting in lack of
clarity or enforcement of rights of access and use of environmental resources,
policies which provide disincentives for environmental conservation (and which may
have origins in the fiscal regime), market failures (which may be linked to
shortcomings in the regulatory regimes), and governance constraints. Environmental
degradation is a major causal factor in enhancing and perpetuating poverty,
particularly among the rural poor, when such degradation impacts soil fertility,
quantity and quality of water, air quality, forests, wildlife and fisheries. The
dependence of the rural poor, in particular, tribal societies, on their natural
resources, especially biodiversity, is self-evident. Women in particular face greater
adverse impacts of degradation of natural resources, being directly responsible for
their collection and use, but rarely for their management. The poor are also more
vulnerable to loss of resilience in ecosystems. Large reductions in resilience may
mean that the ecosystems, on which livelihoods are based, break down, causing
distress. The loss of the environmental resource base can result in certain groups of
people being made destitute, even if overall, the economy shows strong growth. For
the poor, several environmental resources are complementary in production and
consumption to other commodities, while a number of environmental resources are a
source of income or food. Poverty and environmental degradation are also reinforced
by, and linked to population growth, which in turn, depends on a complex interaction
of diverse causal factors and stages of development. Poor environmental quality has
adversely affected human health. Environmental factors are estimated as being
responsible in some cases for nearly 20 percent of the burden of disease in India,
and a number of environment-health factors are closely linked with dimensions of
poverty. It has been shown that interventions such as reducing indoor air pollution,
protecting sources of safe drinking water, protecting soil from contamination,
improved sanitation measures, and better public health governance, offer
tremendous opportunities in reducing the incidence of a number of critical health
problems. It is also evident that these environmental protection measures would be
difficult to accomplish without extensive awareness raising, and education, on good
practices with respect to public and private behaviour.
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Objectives of the National Environment Policy 2006
The objectives relate to current perceptions of key environmental challenges. They
may, accordingly, evolve over time:
1) Conservation of Critical Environmental Resources: To protect and conserve
critical ecological systems and resources, and invaluable natural and man-made
heritage, which are essential for life support, livelihoods, economic growth, and a
broad conception of human well-being.
2) Intra-generational Equity: Livelihood Security for the Poor: To ensure equitable
access to environmental resources and quality for all sections of society, and in
particular, to ensure that poor communities, which are most dependent on
environmental resources for their livelihoods, are assured secure access to these
resources.
3) Inter-generational Equity: To ensure judicious use of environmental resources to
meet the needs and aspirations of the present and future generations.
4) Integration of Environmental Concerns in Economic and Social
Development: To integrate environmental concerns into policies, plans,
programmes, and projects for economic and social development.
5) Efficiency in Environmental Resource Use: To ensure efficient use of
environmental resources in the sense of reduction in their use per unit of economic
output, to minimize adverse environmental impacts.
6) Environmental Governance: To apply the principles of good governance
(transparency, rationality, accountability, reduction in time and costs, participation,
and regulatory independence) to the management and regulation of use of
environmental resources.
7) Enhancement of Resources for Environmental Conservation: To ensure
higher resource flows, comprising finance, technology, management skills, traditional
knowledge, and social capital, for environmental conservation through mutually
beneficial multi stakeholder partnerships between local communities, public
agencies, the academic and research community, investors, and multilateral and
bilateral development partners.
This policy has evolved from the recognition that only such development is
sustainable, which respects ecological constraints, and the imperatives of justice.
The Objectives stated above are to be realized through various strategic
interventions by different public authorities at Central, State, and Local Government
levels. They would also be the basis of diverse partnerships. The following
Principles, May accordingly, guide the activities of different actors in relation to this
policy.
1) Human Beings are at the Centre of Sustainable Development Concerns
2) The Right to Development
3) Environmental Protection is an Integral part of the Development Process
4) The Precautionary Approach
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5) Economic Efficiency-a) Polluter Pays
b) Cost Minimization
6) Entities with “Incomparable” Values: Significant risks to human health, life, and
environmental life-support systems, besides certain other unique natural and man-
made entities, which may impact the well-being, broadly conceived, of large numbers
of persons, may be considered as “Incomparable” in that individuals or societies
would not accept these risks for compensation in money or conventional goods and
services. A conventional economic cost-benefit calculus would not, accordingly,
apply in their case, and such entities would have priority in allocation of societal
resources for their conservation without consideration of direct or immediate
economic benefit.
7) Equity: The cardinal principle of equity or justice requires that human beings
cannot be treated differently based on irrelevant differences between them.
8) Environmental Standard Setting: Environmental standards must reflect the
economic and social development situation in which they apply.
9) Preventive Action: It is preferable to prevent environmental damage from
occurring in the first place, rather than attempting to restore degraded environmental
resources after the fact.
10) Environmental Offsetting: There is a general obligation to protect threatened or
endangered species and natural systems that are of special importance to sustaining
life, providing livelihoods, or general well-being. If for exceptional reasons of
overriding public interest such protection cannot be provided in particular cases,
cost-effective offsetting measures must be undertaken by the proponents of the
activity, to restore as nearly as may be feasible, the lost environmental services to
the same publics.
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injunctions. Accordingly, a judicious mix of civil and criminal processes and sanctions
will be employed in the legal regime for enforcement, through a review of the existing
legislation.
Substantive Reforms:
1) Environment and Forests Clearances: Environmental Impact Assessment (EIA)
will continue to be the principal methodology for appraising and reviewing new
projects.
2) Coastal Areas: Development activities in the coastal areas are regulated by
means of the Coastal Regulation Zone notifications and Integrated Coastal Zone
Management (ICZM) plans made under them. However, there is need to ensure that
the regulations are firmly founded on scientific principles, including the physical,
natural, and social sciences.
3) Environmentally Sensitive Zones: Environmentally Sensitive Zones may be
defined as areas with identified environmental resources having “Incomparable
Values” which require special attention for their conservation.
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Energy consumption
Although India’s per capita energy consumption is one of the lowest (and much lower
than developed countries) India still ranks 4th largest energy consuming nation in the
world according to the latest report released by U.S Energy Information &
Administration. United States is the biggest Energy Consumer followed by China and
Russia.
India’s energy consumption has more than doubled since 1990 and although India
has one of the highest amounts of coal reserves, she is heavily dependent on
imported crude oil. Coal currently accounts for nearly 41 percent of energy produced
in India.
Energy Balance
India
Electricity total per capita
Own consumption 1,048.00 bn kWh 782.57 kWh
Production 1,289.00 bn kWh 962.53 kWh
Import 5.24 bn kWh 3.92 kWh
Export 5.15 bn kWh 3.85 kWh
India
Crude Oil Barrel per capita
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Production 734,500.00 bbl 0.001 bbl
Import 3.79 m bbl 0.003 bbl
India
Natural Gas Cubic meters per capita
Own consumption 102.30 bn m³ 76.39 m³
Production 31.24 bn m³ 23.33 m³
Import 18.67 bn m³ 13.94 m³
Export 270.00 m m³ 0.20 m³
Carbon footprint
India
total
per capita
CO2 emissions in 2014 2.24 bn t 1.67 t
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Nuclear power 43.28 bn kWh 1,6 % 7,2 % 32.32 kWh 1,183.83 kWh
Water power 389.53 bn kWh 14,4 % 23,4 % 290.87 kWh 3,823.32 kWh
Renewable energy 394.94 bn kWh 14,6 % 16,2 % 294.91 kWh 2,650.77 kWh
Total production 2,705.09 bn 100,0 % 100,0 % 2,019.96 16,333.99
capacity kWh kWh kWh
Working-Force Trend
The secret to empowering a powerful behemoth like India lies in understanding and
navigating the intricacies of its complex economy. The picture is fascinating and
complex for an economy that is both expanding quickly – it was the world's 4th-
fastest growing in 2016 - and will have the world’s youngest population by 2022.
Today, 65% of India's population is of working age. That is a great resource full of
great potential - but it raises some parallel concerns. In 2015, the Wall Street
Journal reported that while the Indian workforce grows by 12 million each year, that
fresh supply is not met with demand. Only 5.5 million jobs are created annually. And
for sure, as the Revolution advances, new skill requirements will further challenge
India’s young people. Quality education in India is a privilege for the very few.
Primary and secondary education suffer from poor standards and a high drop-out
rate. While 35% of Indian postgraduates achieve degrees in the key STEM (science,
technology, engineering, mathematic) fields, according to the 2012 OECD figures,
these candidates are often hindered in the job market due to limited proficiency in
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English and a lack of soft skills. India must make sure that its great talent pool
becomes both employable and able to contribute towards building a developed
nation. India's Labour Force Participation Rate dropped to 53.8 % in Dec 2017,
compared with 53.9% in the previous year. India's Labour Force Participation Rate is
updated yearly, available from Dec 1990 to Dec 2017, with an average rate of 59.4
%. The data reached the an all-time high of 60.8 % in Dec 1994 and a record low of
53.8 % in Dec 2017. India's Labour Force Participation Rate is reported by reported
by World Bank. In the latest reports, India's Population reached 1,316.0 million
people in Mar 2018. Unemployment Rate of India increased to 3.5 % in Dec 2017.
India's Labour Force Participation Rate from 1990 to 2017 in the chart:
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India Labour Last Previous Highest Lowest Unit
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References
• https://www.focus-economics.com/country-indicator/india
• https://www.mckinsey.com/mgi/overview/in-the-news
• https://www.ibef.org/industry/infrastructure-sector-india.aspx
• National Environmental Policy, Government of India 2006.
• http://shodhganga.inflibnet.ac.in
• https://www.worlddata.info/asia/india/energy-consumption.php
• https://trak.in/tags/business/2013/03/19/indias-energy-consumption-4th-
largest-in-the-world/
• https://www.ceicdata.com/en/indicator/india/labour-force-participation-rate
• https://www.weforum.org/agenda/2017/10/india-workforce-skills-training/
• https://tradingeconomics.com/india/labor-force-participation-rate
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