10 Challenges in the Indian Economy

10 Challenges in the Indian Economy

Friends, as we all know the economy is the backbone of a country. Economic status defines the growth of a country. Every day we come across news related to our economy. But, have you ever wondered, why our economy tends to be sluggish.

This post will enlighten you about 10 major challenges faced by the Indian economy. Not only this, the following points will prove out to be useful in your general awareness preparation.

Since 1991, the Indian economy has witnessed developments in trade & commerce, infrastructure, technology, and more. However, the Indian economy still faces various challenges. Let’s go through them.

  1. Inflation

The increase in prices of food products and other goods & services in India is an ever increasing problem. Current inflation rate in India is 6.51%. For instance, in 2013, the inflation rate was approximately 11%, despite the growth rate being 4.8%. From this data, we can infer that inflation is not because of excess demand, but is also caused by cost push inflationary factors. For example, constraints in agriculture cause rise in food prices, which further leads to inflation.

  1. Poor educational standards

Around 22-25% of the population in India lives Below Poverty Line (BPL). They are unable to afford quality education and as a result literacy rate declines. Education standard is worse in villages & rural areas. Around 40% of the Indian women are illiterate. This hampers economic development.

  1. Poor infrastructure and rural development

Nearly 70% of the Indian population lives in rural areas. Many of them don’t have access to basic amenities like water, electricity, proper roads, and medical facilities. It is, therefore, the need of the hour to take their economic and social development to the next level.

Only the urban and metropolitan cities have witnessed improvement in infrastructure and facilities, for instance, the ‘Golden Quadrilateral’ highway network in India has enhanced road connectivity across major cities in the country.

Investments and necessary measures are necessary to improve infrastructure and develop the existing ones (railways and roads; technology; education; health; small and medium enterprises) in rural areas to augment growth across the country.

  1. Sustainable and inclusive growth

In 2015-16, India’s GDP was around 7.5%, which is an essential to meet country’s development standards. Significant challenges for sustainable and inclusive growth still persist in our country, such as the fiscal deficit, slowing investment and industrial credit.

  1. Demographic dividend and regional influence

As per a survey, 250 million Indians are categorized in the middle class. Bilateral and multilateral communications can strengthen the relationship among Asian countries. Initiatives such as spice route can expand opportunities for trade and cultural relations.

  1. Large budget deficit

Among the developing countries, India has one of the largest budget deficits. Excluding the subsidies, the budget deficit is nearly 8% of GDP.

  1. Rigid labour laws

As per a rule, firms having 100+ employees cannot terminate them without the government’s permission. This discourages firms from expanding to over 100 people. Trades unions take a stronger stand and the government doesn’t tackle such sensitive labour laws.

  1. Inefficient agriculture

Ours is an agrarian economy with 51% of the workforce employed in agricultural activities. Agriculture produces 17.4% of economic output. This is the most inefficient sector with the output being very low as compared to the employed workforce.

  1. Equalising development across states

The diversity of cultures and traditions across India is remarkable. However, wide variation in socio-economic development is a challenge faced by our economy. Policies should not be biased toward specific states.

  1. Slowdown in growth

In 2013-14, the rate of economic growth was 4-5%. This is a major cause for concern as India needs a high growth rate.

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Let’s glance through expected questions.

  1. Agriculture employs what percentage of the Indian population?
  2. Which industry employs maximum number of women?
  3. When was the new liberalization policy announced?
  4. What causes the decrease in demand?