THE ECONOMY OF INDIA

The economy of India is characterized as a mixed economy. Half of the India’s workers rely on
agriculture, the signature of a tradition economy. One third of its workers are employed by the
service industry, which contributes two third of India’s output. The productivity of this segment
is made possible by the India’s shift toward a market economy. Since the 1990 India has
deregulated several industries. Its privatized many state owned enterprises and open doors to
foreign direct investment.

The economy of India is also considered as a developing market economy. It is the world fifth
largest economy by nominal GDP and the third largest by purchasing power party. According to
the IMF, on a per capita income basis India ranked 139th by GDP (nominal) and 118th by GDP
(PPP) in 2018.

From Independence in 1947 until 1991 successive promoted protectionist economic policies
with the extensive state intervention and regulation, the end of cold war and an acute balance
of payment crisis in 1991 led to the adoption of a board program of economic liberalization.
Since the start of the 21st century annual average GDP growth has been 6% to 7% and from
2014 to 2018. India was the world fastest growing major economy, surpassing China.
Historically, India was the largest economy in the world for most of the two millennia from the
1st until 19th century. The long term growth prospective of the Indian economy remains positive
due to the young population and corresponding low dependency ration, healthy savings and
investment rates and is increasing integration into global economy. The economy slowed in
2017 due to shock of demonetization in 2016 and introduction of Good and Service Tax (GST)
in 2017. Nearly 60% of India’s GDP is driven by domestic private consumption and continues to
remain the world sixth largest consumer market. Apart from private consumption India’s GDP is
also fueled by government spending, investment and exports. With 520 million workers, Indian
labour force is the world second largest as of 2019. India has one of the highest numbers of
billionaires and extreme income inequality. Since India has a vast informal economy, barely 2%
of Indians pay Income Taxes.
In 2019, India’s ten largest trading partners were USA, China, UAE, Saudi Arabia, Hong Kong,
Iraq, Singapore, Germany, South Korea and Switzerland. In 2018 – 2019 , the foreign
investment in India was 64.4 billion with the service sector, computer and telecom industry
remain leading sector for FDI inflows. India has free trade agreements with several nations
including ASEAN, SAFTA, Mercosur, South Korea, Japan and few others which are in effect or
under negotiating stage.

India is the world sixth largest manufacture, representing 3% of global manufacturing output
and employs over 57 million people.

India ranked second globally in the food and agricultural production, while agricultural exports
were 38.5 billion. The construction and real estate sector is the second largest employer after
agriculture and a vital sector to gauge economic activity.

The Indian textile industry is estimated at 150 billion and contributes 7% of industrial output
and 2% of India’s GDP while employs over 45 million people directly. The Indian IT industry is a
major exporter of IT service with 180 billion in revenue and employs over four million people.
India’s telecommunication industry is the world second largest by the number of mobile phones
and internet users. It is world second largest oil producer and third largest oil consumer. The
Indian automobile industry is the world fourth largest by production. India has the world fourth
largest natural resource with mining sector contributes 11% of the country’s industrial GDP and
2.5% of total GDP. It is also the world second largest coal producer, cement producer, steel
producer and third largest electricity producer.
 CHALLENGES BEFORE INDIAN ECONOMY

India is developing country and the economy is beset with various challenges, but there are
major challenges such as unemployment, poverty, social and economic inequality, and regional
imbalance. These challenges are barriers in balanced development of India. Indian government
has been consequently trying to find solution for these challenges but it has not succeeded in a
full screen. Some of the challenges are as follows :-

1. UNEMPLOYMENT
India is developing country with many problems among them one problem is that of
unemployment. There are many under-employed. In India we find various forms of
unemployment such as, disguised, open, seasonal and educational unemployment.
Basically India’s unemployment is structural in nature. It is associated with the
inadequacy of productive capacity to create enough jobs for all those able and willing to
work.

Causes of unemployment in India :

 Rising in population : In India productive capacity is below the needed quantity as

against this additions to labour force are being made at a fast rate on account of the
rapidly growing population. Thus, while new productive jobs are on the increase the
rate of increase being low, the absolute number of unemployed persons is rising from
year to year.

 Slow growth of agriculture : The volume of economic activities of present is being

determined largely by agriculture the rate of rise in such activities is small.

 Slow growth of industry : The modern industrial sector which was to provide increasing
avenues of employment is growing at a very slow place.
 Destroyed industries : During the British period, the flourishing indigenous small-scale
and cottage industries instead of expanding and transforming themselves in to modern
industries were destroyed.
 Slow capital formation : The slow capital formation also inhabited the growth –
potential of activities both in the agricultural sectors and the industrial sector. The
inadequacy of irrigation facilities the shortage of fertilized and power unsatisfactory
transport facilities etc all caused largely by slow growth of the capital goods sectors
have adversely affected the expansion rate of work opportunism in India.

 Retrenchment of labour : In India after the second world war when war-time industries
were being closed there was a good deal of frictional unemployment caused by
retrenchment in the army ordnance factories etc these workers were to be absorbed in
peace time industries.

 Rationalization : The process of rationalization which is started in India since 1950 also
caused of displacement of labour.

 Shortage of capital equipment : In India, it is not the result of deficiency in effective

demand in the Keynesian sense but a consequence of shortage of capital equipment or
other complementary resources

 Inadequate employment planning : Planning in India is operating since 1951 has not
contributed adequately to the solution of this problem this is largely because of the
lower priority to the employment objectives and the under-rationing of human-
resources.

 Labour –surpluses : In India government has no consideration in appropriate real wage

rate policy as instruments of labour intensive techniques in a big way where without
 prejudice to output further little has been done to utilize the Nurks variety of labor
surpluses in village.

 Weak man-power planning : In some sectors of the Indian economy there is more than
we need, while others there is less than we required, so is the case in many regions and
skills. These imbalances have caused by increasing unemployment.

2. PROVERTY
Poverty is socio-economic phenomena in which a section is unable to fulfill even its
basic necessities of life. The poverty in India is a problem with some grave dimension; it
is on the one hand, quantitatively a very big problem as the number of the poor. Indeed
a massive aspect is that it is a problem of very low productivity of the poor, these
peoples resources are poor in terms of assets, skills, credit, availability ,etc. this makes
their earning to be dismally small.

Causes of poverty :

 Paradox of poverty with growth : The Indian economy is beset with a paradox or
contradiction because on one hand increase in growth of economy, on the other hand
these growth benefits did not reach to large masses of the people.

 Rapid growth of population : The incidence of poverty is to an extent also caused by the
population growth which is large among the poor at all-India rate.

 Destroyed industries : During the British period flourishing indigenous small-scale and
cottage industries instead of expanding and transforming themselves in to modern
industries were destroyed.
 Unemployment : In India considerable degree of unemployment and under-
employment is found among rural labours. It has been established that incidence of
unemployment and underunemployment is the highest among casual labours

 Weak bargaining power : Even during periods of unemployment, due to their week
bargaining power, low wages being paid to them so that their extent of poverty has
increased.

 Low assets : In India assets distribution in rural and urban area is unequal according to
RBI data 27% of rural households owing assets worth less than Rs.20, 000 accounted for
only 2.4% of total assets.

 Low education : The low education attainments of the poor and educational
differentials are the main factors for relatively lower levels of income among the poor.
Poor parents are not able to help their children to access higher educational level.

 Inadequacy of anti-poverty programs : Another supplement to the transfer could be

the various special programmes to ameliorate the conditions of the poor. These
however, have not as yet made substantial impact on the poverty.

 Strategy of development : The emphasis all along since the second plan till recently has
been on the building of the capacity for capital goods. This meant to things investment
in capital -intensive projects or less employment.

3. PROBLEMS OF RISING SOCIAL AND ECONOMIC

INEQUALITY IN INDIA
 Firstly, social inequality and secondly economic inequality. Social equalities in a country
are necessary to draw the available human and material resources throughout the
country in to the development process and to enable people in all regions to share the
benefits of development for the harmonious development of India. Generally, social
inequalities are linked to racial inequality, gender inequality and religious and caste
inequality. The way people behave socially, through racist or sexist practices and other
forms of discrimination is called as social inequalities.

Forms or types of social inequality

Following are the major types of social inequalities.

 Gender inequality : One of the major forms of social inequality comes in the form of
gender. Gender identity refers to persons internal “acceptance of sex, gender or sexual
categorization as descriptive of themselves, among other ways, transgender and
gender-variant persons can express their gender through their appearance the
statement they make or official documents they present. The emphasis on gender
inequalities is born out of the deepening division in the roles assigned to men and
women, particularly in the economic, political and educational spheres. Women are
under re-presented in political activities and decision making processes in most of the
states.

 Racial inequality : Racial inequality is the result of hierarchical social distinction

between ethnic groups within a society and often established based on characteristics
such as skin, color and physical characteristics or an individual’s place of origin or
cultural. Unequal treatment and opportunities between racial groups is usually the
result of some ethnic groups being considered superior to others.
  Caste inequality : The caste system is a type of social inequality that exists primarily in
India. Caste may be dependent on one’s occupation or based on origin or by birth. There
are often a number of restrictions assigned to people of lower caste, such as restrictions
on sharing food and drink with members of other castes, restriction on going to certain
places such as Temple, the enforcement endogamy and the use of caste –based dress
and food habit. These restrictions have been enforced through physical violence or
exploitation. Lower castes are more likely to live in slums and have low status jobs and
income.

 Age inequality : Age discrimination is defined as the unfair treatment of people with
regard to promotions, recruitment, and resources privilege because of their age. It is a
set of beliefs, attitudes, norms and values used to justify age based prejudice,
discrimination and subordination .

 Class inequality : This class inequality was used by Karl marks, the two major social
classes such as working class and capitalists class with significant inequalities.

Problems of rising economic inequality in India

India is developing country and there are many problems, among all the basic problem is the
economic inequality. Economic inequality is also known as the gap between rich and poor.
Income inequality is nothing but wealth disparity or wealth and income difference. The term
typically refered to an inequality among individuals and group within a society but can also
refered to an inequality among the countries. Indian economy is beset with gross economic
inequalities, there are inequalities in income with a very few concerning a very large chunk of
total income and a very large numbers getting a very small proportion.
Causes of economic inequality :

There are many reasons for economic inequality in India they are as follows:-

 Wealth distribution : In India a few own a large chunk of income earning assets some
others who do not own or own a part of the assets they operate, organize, finances,
through banks, co-operatives etc; these inequality enable the few to gets incomes in the
from of rent, interest and profit. As these assets accumulate and pass on from
generation to generation, the earning capacity of these continuously increases.
 Income distribution : Income distribution is not just in India. As far as the rural area is
concerned the ownership pattern of the land is highly unequal. The marginal households
which accounts for as many as 72% of the rural households own very little about 17% of
the land. On the other hand large holding who are about 1% of the rural households but
they have their ownership as much as 14% of the area. The position of urban areas is
not much different.
 Inadequate employment generation : In India, for long the increase in employment
opportunities remained less than the rise in the labour force. The situation at present
days is very bad. Since large, many remain unemployed or under-employed, their
earnings continue to be little or nil for most of their live. The result is that these people
remain at the lowest rung of the income scale. And the number of such people increases
with the rapid growth in population. Thus, workless peoples are income less. All this
explains the fact of large inequalities of income in India.
 Differential regional growth : Of the large many at the bottom rung of incomes a very
great proportion lives in poor regions and most of the few at the top live in the high
income state/ regions, this is the geographically fact of income inequalities for the
country as a whole.
 Growth factor : As development proceeds the earning of different groups rise
differently. The incomes of the upper income and middle income groups rise more
rapidly than those of the poor. Thus, growth itself is one reason of economic inequality
 Rising rural population : One such factor is the rapidly rising rural population, which
keeps the earning depressed in the village. As against this, those who enter the modern
sector get larger share of the rising income. Further, those with skills get still larger
incomes as the demand for the skilled labour rises much faster than that of the unskilled
labour.
 Capital-formation : The capital-intensive type of growth leads to concentration of
income in few hands who supply capital.
 Urbanization : Modern industries are generally located in urban areas; they give rise to
the demands of urban population for things such as transport, housing, drainage water
supply, electricity, health care etc. This is also accentuates income inequalities in India.
Urbanites are well placed as compared to the rural people in taking advantages of these
income earning opportunities. The poor do not get much in fact they may even be
worse off.
 Wages and salaries : Highly skilled workers earn more than unskilled. This fact causes
for increased economic inequality.
 Taxation : Regressive tax system increased the leavl of economic inequality because this
system is burden on the poor.

4. REGIONAL IMBALANCE IN INDIA

 Balanced regional growth is necessary for the harmonious development of Indian economy.
But regional imbalance is major problem in India. In India at present picture of extreme
regional variation in terms of economic growth, per capita income, the proportion
population of living below the poverty line, working in manufacturing industries etc. have
been studied.

Dimensions of Regional imbalance in India

 Poverty line : Regional imbalance do exists in various states of India. There are some
states forward and some states are backward. For example Orissa,(47.15%) Bihar,
(42.60%) Madhya Pradesh, (37.43%) states are at bottom of poor list in India and based
on the proportion of poverty, Jammu Kashmir, Goa, Punjab, states are economically
forward.
 Industry : Regional disparities is also exists in industry of India. Maharashtra, west
Bengal, Tamil Nadu, Gujarat, Uttar Pradesh, Uttaranchal, Bihar, Madhya Pradesh states
are industrial developed states which have contributed provided 83.5% industrial
production out of total production, while others states are contributed 16.5% industrial
production in India.
 Proportion of literacy : Regional disparities is visible in literacy, Kerala and Tamil Nadu
have achieved higher levels of literacy, and in Kerala proportion of literacy is 90.9%
which is level at top. Among the backwards states, Uttar Pradesh, [56], Bihar (47.0%)
Rajasthan, Madhya Pradesh (64%) Delhi (82%) Maharashtra (77%) Tamil Nadu (74%)
have very poor records in terms of literacy.
 Density of population : In India average density of population is 325 persons per sq km
among the different states of India , Delhi (9340) Chandigarh(7900), Kerala, West
Bengal, Bihar, Tamil Nadu, And Uttar Pradesh are highly densely populated states but
Madhya Pradesh, Rajasthan, Himachal Pradesh, Nagaland are low densely populated
states.
 Population of urbanization : Nearly 27.8% population is living in urban areas of India.
But unequal proportion found in various states. Among the various state Maharashtra
(42.4%), TamilNadu (44%), Gujarat (37.4%), West Bengal (28%), Andhra Pradesh
(27.3%), Himachal Pradesh (9.8%), Bihar (10./5%) living the population in urban areas.
Thus, regional disparities are also exists in urbanization in India.
 Net State Domestic Product : On the basis of NSDP in forward state (Punjab,
Maharashtra, Haryana, Gujarat, west Bengal, etc) indicated an annual average growth
rate of 6.3% during 1990-91 to 1997-98. As against them, the backward states indicated
a growth rate of 4.9% during the pre reform and post reform period. It is notable that
during the pre reform period consequently increased the regional disparities.
 Consumption of power : Regional disparities are visible in consumption of power such
as Andhra Pradesh, Kerala, and West Bengal, and all the other forward states are the
national average of 338 kwh in 1996-97. As against them the backward state especially
Uttar Pradesh and Bihar is way behind at 145 kwh and 194 kwh. respectively. It is
imperative that unless the industrialization process picks up in these state, the
disparities would continue.
 Transport facilities : In case of transport facility Kerala, Tamil Nadu, Punjab, West
Bengal, Gujarat states are developed. There are adequate railways facilities : but in
Assam, Orissa; Madhya Pradesh states are not having adequate railway facility. So
regional disparities in India were michend.
 Social infrastructure and human development : Wide disparities are visible among
different states like Kerala and Tamil Nadu have achieved higher levels of human
development and health infrastructure. Among the backward states like Uttar Pradesh,
Bihar, Rajasthan have very poor record in term of literacy and human development.
 Irrigation : While considering irrigation infrastructure, Punjab have 95% of irrigated
area. But other states are backward in irrigation facility
 Infrastructure disparities : While considering infrastructure, Punjab, Tamil Nadu,
Haryana, West Bengal, have achieved higher levels of infrastructure. While other states
poorer in infrastructure.
Causes of regional disparities

There are many facts which have caused regional disparities in India.

 Historically : The existence of backward regions started from British rule in India. The
British helped the development of those regions which possessed facilities for
prosperous manufacturing and training activities. Maharashtra and West Bengal were
the states preferred by the British industrialists. And the rest of the country was
neglected and remain backward.
 Trends of new investment : The private sector has a tendency to concentrate it in an
already well developed area. Thus, they were reaping the benefits of external
economies. Thus, the trends of new in investment was greater in such area.
 Preferred regions : Some regions are preferred because of certain location advantage.
The iron and steel factories or oil refiners will have to be only in those technically
defined areas, which are optimal from all the standpoints considered together.
 Geography climate : Geography climate is very important factor in economic
development. In India Himalayan state, such as northern Kashmir, Himachal Pradesh,
the hill district of U.P; and Bihar has remained backward because of inaccessibility.
 Land system : In India land distribution is not equal in rural area. And the absence of
effective land reforms allowed the structure in most rural India to remain inimical to
economic growth.

5. BALANCE OF PAYMENT DETERIORATION

Although India has built up large amounts of foreign currency reserves, the high rates of
economic growth have been at the cost of a persistent current account deficit. In late
 2012, the current account reached a peak of 6% of GDP. Since then there has been an
improvement in the current account. But, the Indian economy has seen imports growth
faster than exports. This means India needs to attract capital flows to finance the deficit.
Also, the large deficit caused the depreciation in the Rupee between 2012 and 2014.
Whilst the deficit remains, there is always the fear of a further devaluation in the Rupee.
There is a need to rebalance the economy and improve the competitiveness of export

6. UNDERDEVELOPED INFRASTRUCTURE
Being an LDC, India’s infrastructural facilities or economic and social overheads of
capital are inadequate. It consists of (a) transport and communications, (b) energy, (c)
finance, housing and insurance, (d) science and technology, and (e) health, education,
etc.
Availability of these infrastructures creates the conditions for favourable growth. The
superstructure of an economy largely depends on the availability of infrastructural
facilities.
As far as social and economic overheads are concerned, India is poor. It is indeed true
that her railway and road networks are comparable to the developed nations. But her
demand for infrastructural facilities and services outpace their supplies. Per capita
energy use (oil equivalent) of an Indian in 2004 was 531 kg vis-a-vis USA’s 7,921 kg. Even
China’s per capita energy use was higher (1,242 kg.) than India’s.
Compared to other countries, India is poor in information technology. In 2005, the use
of personal computers per 1,000 Indians was as low as 16 as against 762 per 1,000 US
people. India’s health expenditure as a percentage of GDP was 1.39 p.c. in 2007-8 over
the USA’s 15 p.c. of GDP.
Thus, India’s social infrastructural facilities are not only inadequate compared to the
needs, but also awfully low compared to different countries of the world.
7. LOW LEVEL OF TECHNOLOGY
Due to illiteracy, use of advanced or sophisticated technology is rather an exception in
India. Because of the limited growth of technological institution, we are forced to use
primitive methods of technology whose productivity is low.
Though modern industrial sectors employ advanced technology, village industries still
employ old and hackneyed methods even in the age of modern science and globalized
world. This is nothing but technological dualism that persists in LDCs like India. Truly
speaking, low productivity of Indian labour is explained in terms of low level of
technology.

8. SKILL DEVELOPMENT
As already stated, in contrast to the developed world, occupational structure in Indian
economy didn’t changed in accordance with the growth of different sectors because of
which majority of the work force was still engaged in agriculture which was crippled
with low productivity. There are only two ways to increase the income of agriculture
labour – either by increasing the agriculture productivity or by transferring the surplus
labour from agriculture to industrial and service sector. Though government is working
on improving the agricultural productivity but as a matter of fact, it can never match the
productivity of industrial and service sector. So only second option of transferring the
surplus labour from primary to secondary and tertiary sector seems viable. This will also
increase the wages of labour in agriculture sector because of reduction in labour supply
Therefore, it is expedient for the non-agriculture sector to generate enough jobs to
absorb the surplus labour from the agriculture. For that matter, programmes like ‘Make
In India’, ‘Start Up India and Stand Up India’ are expected to create sufficient jobs in
secondary and tertiary sector. However, most of the future jobs will require skills while
the majority of agriculture is unskilled. In order to make the Indian work force eligible
for all the future jobs, development of skill in them is of utmost importance. Skill
 development is also necessary to exploit the demographic dividend which will start
accruing due to aging population in the developed world. Imparting skills in the millions
of workforce will not be an easy challenge for the government.  

9. IMPROVING GOVERNANCE
Improving the governance is another serious challenge faced by the country at this
moment. All our efforts to achieve rapid and inclusive development will come to naught
if we cannot ensure good governance both in the manner public programmes are
implemented and, equally important, in the way the government interests with the
ordinary citizen.
Corruption is now seen to be endemic in all spheres and this problem needs to be
addressed urgently. Better design of projects and implementation mechanisms and
procedures can reduce the scope of corruption.
Much more needs to be done by both the Centre and States to reduce the discretionary
power of the government, ensure greater transparency and accountability and create
awareness among citizens. The right to Information Act empowers the people to
demand improved governance and we must be ready to respond.
Quick and inexpensive dispensation of justice is an aspect of good governance which is
of fundamental importance in a successful civil society. The legal system in India is
respected for its independence and fairness but it suffers from notorious delays in
dispensing justice. Delays result in denial of justice. Delays cost money and therefore it
is difficult for the poor in India to afford justice. Fundamental reforms are needed to
give justice two attributes: speed and affordability.

10. HIGH LEVEL OF PRIVATE DEBT

 Buoyed by a property boom the amount of lending in India has grown by 30% in the
past year. However, there are concerns about the risk of such loans. If they are
dependent on rising property prices it could be problematic. Furthermore, if inflation
increases further it may force the RBI to increase interest rates. If interest rates rise
substantially it will leave those indebted facing rising interest payments and potentially
reducing consumer spending in the future

11. LARGE BUDGET DEFICITE

India has one of the largest budget deficits in the developing world. Excluding subsidies,
it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows
little scope for increasing investment in public services like health and education.

12. RIGID LABOUR LAW

As an example Firms employing more than 100 people cannot fire workers without
government permission. The effect of this is to discourage firms from expanding to over
100 people. It also discourages foreign investment. Trades Unions have an important
political power base and governments often shy away from tackling potentially
politically sensitive labour laws.

13. POOR TAX COLLECTION

 According to the Economist, India has one of the poorest tax to GDP rates in the whole
world. India’s tax revenue as a % of GDP is just 12%. Compared to an EU average of 45%.
This poor tax collection rate reflects widespread corruption, tax avoidance and
complicated tax rates. In 2017, Narendra Modi has sought to improve tax collection
rates and reduce complications through the introduction of a general sales tax (GST)
which involves a single tax rate – rather than tax rates applied multiple times at
different stages of production. 

14. BUSINESS DIFFICULTIES

According to the World Bank, the ease of doing business in India is poor. India ranks
130/190. Big issues for companies include
 Ease of enforcing contracts
 Dealing with construction contracts
 Paying taxes
 Trading across border

EFFECT OF CORONAVIRUS (COVID-19) ON INDIAN ECONOMY

The Indian economy has been experiencing significant slowdown over the past few quarters. In
the third quarter of the current fiscal, the economy grew at a six-year low rate of 4.7%.
Investment and consumption demand had been languishing and a number of stimulus
measures have been taken to bring back the economy on a growth path. There was a strong
hope of recovery in the last quarter of the current fiscal. However, the new coronavirus
epidemic has made the recovery extremely difficult in the near to medium term. The outbreak
has presented fresh challenges for the Indian economy now, causing severe disruptive impact
on both demand and supply side elements which has the potential to derail India’s growth
story.

Demand Side Impact - Tourism, Hospitality and Aviation are among the worst affected sectors
that are facing the maximum brunt of the present crisis. Closing of cinema theatres and
declining footfall in shopping complexes has affected the retail sector by impacting
consumption of both essential and discretionary items. Consumption is also getting impacted
due to job losses and decline in income levels of people particularly the daily wage earners due
to slowing activity in several sectors including retail, construction, entertainment, etc. With
widespread fear and panic now increasing among people, overall confidence level of consumers
has dropped significantly, leading to postponement of their purchasing decisions. Travel
restrictions have severely impacted the transport sector. Hotels are seeing large scale
cancellations not only from leisure travellers but even business travellers as conferences,
seminars and workshops are getting cancelled on a large scale.

Impact on Financial Market - Greater uncertainty about the future course and repercussion of
Covid-19 has also made the financial market extremely volatile, leading to huge crashes and
wealth erosion, which in turn is impacting consumption levels. One of the major slides in the
domestic equity markets was seen on March 12, when following the trend of the global equity
markets, both the BSE Sensex and NSE Nifty crashed by more than 8% in a single day. The BSE
Sensex dropped over 2,919 points – its biggest one-day fall in absolute terms while the NSE
Nifty dropped by 868 points. An estimated Rs 10 lakh crore of market cap was reportedly wiped
off due to this single day fall. The fall has continued till date as investors resorted to relentless
selling amid rising cases of coronavirus. On March 19, Indian equity markets again plunged to
new low. Sensex closed 581 points lower at 28,288 and Nifty fell 205 points to end at 8,263.
With equity markets likely to remain volatile in future as well, further wealth erosion of
investors is expected.
Supply Side Impact - On the supply side, shutdown of factories and the resulting delay in supply
of goods from China has affected many Indian manufacturing sectors which source their
intermediate and final product requirements from China. Some sectors like automobiles,
pharmaceuticals, electronics, chemical products etc. are facing an imminent raw material and
component shortage. This is hampering business sentiment and affecting investment and
production schedules of companies. Besides having a negative impact on imports of important
raw materials, the slowdown in manufacturing activity in China and other markets of Asia,
Europe and the US is impacting India’s exports to these countries as well.

Impact on International Trade - China has been a major market for many Indian products like
sea food, petrochemicals, gems and jewellery etc. The outbreak of coronavirus has adversely
impacted exports of these items to China. For instance, the fisheries sector is anticipated to
incur a loss of more than Rs 1,300 crore due to fall in exports. Similarly, India exports 36% of its
diamonds to China. The cancellation of four major trade events between February and April is
likely to cause an estimated loss of Rs 8,000-10,000 crore in terms of business opportunity.
India also exports 34% of its petrochemicals to China. Due to exports restrictions to China,
petrochemical products are expected to see a price reduction.

CONCLUSION

Indian economy is witnessing huge challenges in the course of its growth. There were around
21% people below poverty line in 2011-2012 out of which 7% reside in rural areas. This shows
the need to develop rural areas. Rural areas need credit and marketing facilities and also
development of ancillary industries to create jobs and uplift standard of living in rural areas.
The country also needs to invest huge amount in building both social and economic
infrastructures i.e. Power generation, Health, Education etc. Every year many people enter the
labor force. Government has to create jobs for those who are already unemployed and also for
those who are entering the labor force. Development is needed to solve the problems of
poverty, unemployment, rural development, infrastructural development but not at the cost of
environment. Therefore Sustainable development is the need of the hour i.e. the process of
development which meets the needs of the present generation without reducing the ability of
the future generations to meet their own needs.

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