4 Dividends Of The Economy Of India

The economy of India is characterized as a middle-income developing market economy.

It is the world`s fifth-largest economy by nominal GDP and the third-largest by Purchasing Power Parity (PPP). It is now well recognized that in the last ten years, India has registered the fastest growth in all other major democracies having maintained over 7% each year since 1991 after the Indian Government introduced the LPG (Liberation, Privatization, and globalization) policy.

The past, present, and future of India represent the story of how the slow-growing economy with a growth percentage of only 3.9 took place in the initial 40 years post-Indian Independence, while in the second phase of the 1990s India become the 12th largest economic country in the world.

This period also marks the progressive deregulation of the Indian Economy cutting across all sectors and segments. The high growth levels achieved during the 1990s which are even relevant today and which will reach a high point, judged by past standards, in the current fiscal year will be sustained by FOUR critical drivers described below as “DIVIDENDS”.

No, the Indian economy has not rebounded yet- The New Indian Express

First, the Demographic Dividend- If you look at global demographic trends, it is obvious that the median age of the population in the OECD productivity or a more favorable immigration policy both productivity and growth will be hurt unless there is continued outsourcing of economic activity elsewhere where skilled young manpower is available in abundance.

Second, the Consumption Dividend- On average, 30-40 million people are joining the middle class every year representing a huge consumption spending in terms of the demand for Cell Phones, Televisions, Scooters, Motor Cars, credit goods, and the basket of a consumption pattern associated with rising income.

This consumption growth would be further boosted by the new phenomenon of easy availability of affordable consumer financing from the Indian banking system. The disbursements in the Indian retail financial services market more than doubled over the last three years. Reckon this in conjunction with the increased propensity of the rural population showing increasing preference for articles of mass consumption like Televisions, Electrical pieces of equipment and generally the white and brown goods.

Statistics reveal that the share of consumption expenditure of rural India on food items has decreased from 73% to 59% over the last 30 years, while consumers’ spending on non-food items has gone up from 27% to 41% today.

PSUs: Facing revenue constraints, Centre looks at PSUs for higher dividends  - The Economic Times

Third, the Knowledge Dividend- It is no secret that India has rapidly become the service capital of the world based on comparative factor advantage and its ability to move up the value-added chain. The Indian pharmaceutical sector has achieved global recognition for the production of low-cost high-quality generic drugs and branded medicines. Of all the software firms which have achieved 55% are Indian firms.

Fourth, the Productivity Dividend- Notwithstanding high rates of growth registered in the 1990s and the new growth trajectory which is beginning to unfold, productivity continues to be low in India as compared to other major economies. While productivity has been rising significantly over the past 10 years, there is huge room to improve rapidly. Furthermore, even modest investment of capital will lead to a significant increase in productivity given technological improvements and the favorable Incremental Capital Output Ratio (ICOR).

All this is crucial for the gains for the dividends to be realized because, without the continuation of the reform initiatives, the gains can be frittered away. In this sense, the reforms can either be an acceleration or a brake.

The stable economic macro framework of high economic growth with agricultural sector growth registering 7%, industrial sector growth registering 6% while the service sector growth registering 8% with modest inflation, growing foreign exchange reserves, soft interest rate regime underlines the multiplier reform initiatives cutting across all sectors of the economy be it primary, secondary or tertiary. The strength of the Indian Economy is evidenced by the key macro-economic indicators.

Public sector enterprises: Shoring up non-tax revenue for FY21: Govt  banking on buybacks, dividends - The Economic Times

However, if the past is any guide to the future, the political leadership of successful leadership of governments has broadly adhered to the ongoing reform program. We may have moved with caution but never moved backward. The wider social consensus through which these reforms are being implemented assure their long-term sustainability and continuation.

India has reached the critical mass The mass which has perhaps skipped a stage in the typology of the development moving a large demographic entity into a growth pattern that is increasingly driven by science and technology and innovators of sustained drivers of change.

India cannot afford to ‘limit the realization of a better tomorrow to be deterred by our doubts of today but must move forward with strong and active faith.’ India offers new and exciting investing and trade opportunities in all sectors of its economy.


Edited by Anupama Roy

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