Economy Watch

The factors affecting a country’s growth are many depending whether a country is developing, developed or under developed. India is a developing country and is moving fast towards being a developed one. Population plays a vital role in the drawing a difference between a developing and a developed country. Developing countries strive to attain a considerable degree of industrialization in relation to their populations having a low standard of living. Hence it is right to ay that there is a significant. There is a strong connection between low income and a high population growth. The definition of developed country is still debatable but usually it is used for countries with a high GDP (Gross Domestic Product). A high Human Development Index (HDI) is recently used as one the terms to measure whether a country is developed or not. It combines national income, with other measures. In HDI indices for life expectancy and education hold importance Undoubtedly, Indian economy is one of the fastest growing economies.
In this article we focus on the  gross domestic product (GDP) or gross domestic income (GDI) which is the amount of goods and services produced in a year, in a country. It takes into account the market value of all final goods and services made within the borders of a country in a year. Its measured in three ways:
  • ·         product (or output) approach,
  • ·         the income approach,
  • ·         the expenditure approach
The method used for calculation of India’s economic growth is the Expenditure method i.e. GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).
   Y = C + I + G + (X − M)

Along with the GDP , the         policies set by the    government play a major role in determining the economic growth because these policies indirectly or directly affect the inflation of the country. An example of this in the September quarter where India’s domestically-powered economy grew more than expected. Reserve Bank of India (RBI) was forced to intervene and tighten monetary policy. India has been little affected by the global financial crisis although it experienced severe economic imbalance in 2009 and a major decline in the agricultural production due to delay in monsoons. International Monetary Fund (IMF) report on 6TH January, 2011 states “India’s medium-term growth prospects remain strong. The economy is expected to continue to expand rapidly, supported by high investment and productivity gains.”
However food inflation remains a big concern for the country ending at 16.91 per cent for the week ended January 1, 2011. The government is trying to balance growth and inflation keeping into account the millions of people still living in poverty. Indirectly a high inflation affects in a big way as it causes a wage- price spiral which is difficult to break through. Dharmakirti Joshi, chief economist at Crisil, the Indian arm of Standard & Poor’s states “If food prices rise, wages go up because workers will demand high wages. Wages going up make cost of products go up, and manufacturers will try to pass it on to the consumer. It’s called a wage-price spiral.” In such a case the government might have to sideline its concern for growth and focus on managing inflation. Hence, it would be right to say that even though the country might not have been very affected by the global crisis but a major setback may be seen on growth due to the rising food inflation. The reason why the soaring food prices in India become a matter of concern is because two-thirds of the billion-plus population lives in poverty.

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