Question for discussion:
Should a government only pursue economic growth as its macroeconomic goal?
Tasks: Each group is to read the link in Webquest:
http://zunal.com/webquest.php?user=37349
and research on the respective countries assigned below as the context to respond to the above question:
Group
(1) Singapore
(2) China
(3) Thailand
(4) India
(5) S. Korea
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GROUP 3 (CALEB, HUIXIN, ROBIN, STEPHANIE)
ReplyDeleteShould a government only pursue economic growth as its macroeconomic goal? (Thailand)
A government should not only pursue economic growth as its macroeconomic goal. In general, there are 4 macroeconomic goals a government should consider, which are high and sustained economic growth, full employment or low unemployment, stable prices or low inflation, and close to BOP equilibrium.
Sustained economic growth is an essential macroeconomic growth. Economic growth rate is the percentage change in national output, and high and sustained growth should be the main economic aim of the government. This consists of potential and actual growth. Benefits of economic growth include increased levels of consumption, redistributive benefits and environmental benefits. However, the costs of growth such as the depletion of non-renewable resources and a cut in consumption for investment goods. Overall, the benefits are greater than the costs in the long run, hence it is rational to invest so as to increase the PPC.
Full employment or low unemployment rate should also be taken into consideration because if many people are unemployed in Thailand, the government will have to spend more money on unemployment benefits instead of using them to develop the country. This might also cause a strain on the government reserves. High unemployment rate indicates that labour in the country is underutilized and this is detrimental to the growth of the country because less people are able to contribute to the economy of Thailand. This should not be the case as Thailand as a large population and thus should have comparative advantage in labour. There will also be a drop in consumption of goods because lesser people are able to afford them. This results in a leftward shift of the AD curve and thus a fall in general price level and real national output in Thailand. In 2008, Thailand’s labour force is 37.7M and there are 0.52 unemployed. Of the employed, a large percentage belongs to the agricultural sector, which is vulnerable to external shocks since demand is based on exports to other countries. Thus the government must send workers for skills upgrading to ensure that these workers have other skills to enable them to move on to other jobs in times of recession.
Another macroeconomic goal would be stable prices or low inflation. Inflation is a situation where there is a persistent increase in the general price level. This often leads to disruptions in the market mechanisms. Thailand’s inflation rate has gone up from 89.6% in 2004 to 104.5% in 2009. Since inflation means that a greater proportion of an individual’s income will be spent on the same good as opposed to no inflation, this also means that the individual can now only afford to consume lesser than before. With a decreased consumption in the country, AD would shift left and total national output will decrease. Also, inflation will mean that people will choose not to consume on consumer durables since they would expect future price levels to be lower. Thus consumption will be put on hold and there will be increased savings. The opportunity cost of thrift is consumption forgone and so AD will decrease. This is especially so for a developing country like Thailand, which has the Asian thrift nature where the people generally spend on the necessities.
ReplyDeleteA government should aim for close to balance of payments (BOP) equilibrium. BOP is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. BOP= inflows-outflows. A rising BOP surplus means that there are higher inflows than outflows and can be contributed by a rising current account surplus (e.g. export revenue exceeds import expenditure) and / or rising capital account surplus (e.g. export revenue exceeds import expenditure) and / or rising capital account surplus (short term capital inflows and/or rising FDLs). With rising exports and FDLs, GDP will grow and there will be potential for future growth. However, large surpluses might lead to retaliation from trading partners. On the other hand, A BOP deficit means that a country is spending beyond its means and future generation will have to pay for it in the form of rising taxes. However, if the current account deficit is due to imports of capital goods for development, it may not necessarily be bad as once the productive capacity is built up and goods are exported, the BOP situation will improve.
In conclusion, economic growth is an important macroeconomic goal. However, there are other goals such as the above mentioned which are crucial for the growth of Thailand. Thailand has a comparative advantage in land, natural resources and labour and thus with effective macroeconomic policies by the government as well as collaboration with other countries in terms of trade, for example Free Trade Agreements, Thailand would be able to achieve its 4 macroeconomic goals.
Another macroeconomic goal would be stable prices or low inflation. Inflation is a situation where there is a persistent increase in the general price level. This often leads to disruptions in the market mechanisms. Thailand’s inflation rate has gone up from 89.6% in 2004 to 104.5% in 2009. Since inflation means that a greater proportion of an individual’s income will be spent on the same good as opposed to no inflation, this also means that the individual can now only afford to consume lesser than before. With a decreased consumption in the country, AD would shift left and total national output will decrease. Also, inflation will mean that people will choose not to consume on consumer durables since they would expect future price levels to be lower. Thus consumption will be put on hold and there will be increased savings. The opportunity cost of thrift is consumption forgone and so AD will decrease. This is especially so for a developing country like Thailand, which has the Asian thrift nature where the people generally spend on the necessities.
ReplyDeleteA government should aim for close to balance of payments (BOP) equilibrium. BOP is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. BOP= inflows-outflows. A rising BOP surplus means that there are higher inflows than outflows and can be contributed by a rising current account surplus (e.g. export revenue exceeds import expenditure) and / or rising capital account surplus (e.g. export revenue exceeds import expenditure) and / or rising capital account surplus (short term capital inflows and/or rising FDLs). With rising exports and FDLs, GDP will grow and there will be potential for future growth. However, large surpluses might lead to retaliation from trading partners. On the other hand, A BOP deficit means that a country is spending beyond its means and future generation will have to pay for it in the form of rising taxes. However, if the current account deficit is due to imports of capital goods for development, it may not necessarily be bad as once the productive capacity is built up and goods are exported, the BOP situation will improve.
In conclusion, economic growth is an important macroeconomic goal. However, there are other goals such as the above mentioned which are crucial for the growth of Thailand. Thailand has a comparative advantage in land, natural resources and labour and thus with effective macroeconomic policies by the government as well as collaboration with other countries in terms of trade, for example Free Trade Agreements, Thailand would be able to achieve its 4 macroeconomic goals.
Melissa, Yan lin, Jun liang, Aslam, Zhang Xingchen（group 1） said：
ReplyDeleteEconomic growth is the annual percentage increase in an economy’s level of real output over time. It is usually measured by the rate of growth of real GDP or GNP over time. There are two aspects of economic growth----actual economic growth and potential economic growth. Actual economic growth is the annual percentage increase in national output, ie. the rate of growth in actual output. Potential economic growth is the speed at which the economy could growth. It is the annual percentage increase in the capacity of the economy to pruduce or develop, ie. the rate of growth in potential output. Economic growth is a two-sided sword and it may have benefits but these must be balanced by a consideration of the costs of economic growth. Our group will focus on China and examine whether the Chinese government should only pursue economic growth as its macroeconomic goal.
Melissa, Yan lin, Jun liang, Aslam, Zhang Xingchen（group 1）said：
ReplyDeleteChina should not pursue economic growth as a macroeconomic goal of the country. Though it has the fastest growing economy in the world for the past 30 years with an average annual GDP growth of over 10%, this has concealed various drawbacks and adversely affected the quality of life of the Chinese people. In pursuing economic growth, there are several opportunity costs resulting in environmental degradation, negative social impact, brain drain , increased crime rates ,BOP deficit and underemployment. The result is increased disparities in SOL of China.
Melissa, Yan lin, Jun liang, Aslam, Zhang Xingchen（group 1）said：
ReplyDeletePursuing economic growth has caused an environmental catastrophe n China mainly in the form of pollution, affecting mainly the poor. In expanding the secondary sector(manufacturing industry) of the economy, there has been a significant increase in industrial plants and factories in China. In manufacturing goods, these plants emit harmful gases and discharge toxic wastes to rivers. This affected the supply for potable water and caused increased rate of respiratory illnesses and cancer which happens to be China’s leading cause for death according to their Ministry of Health.Severe inconvenience to daily life is caused due to the haze and safety health precaution that needs to be undertaken. According to the International Media report of 2007, 500 million people in China are without safe and clean drinking water and only 1% of Chinese people breathe air that is considered safe by the European Union. Continued persuation for economic growth can only make pollution worse in China. Many people Ares like Linfen and Jingchang where people rely on river as primary water source drinking, washing, food and transportation have decreased standard of living due to China’s persuation of economic growth.
China’s crime rates have increased as they pursue economic growth. The increased income disparity and massive unemployment as country seeks more skilled labour, and lesser of the primary sector, leaves many people desperate to earn money. In addition, those whose livelihood has been severely affected due to pollution like the ones who rely on rivers for their livelihood, are left deperate in search for income to feed their families. They turn to crime as a desperate and immediate way to help salvage their vulnerable economic situation. Since 1965, crime rates have only gone up in China. From 1995 to 1996 only , the capture of illegal small arms has increased from 100000 to 300000. The changes in economic policy had influence in the characteristics of criminality. Chinese men are smuggled to countries throughout the world for exploitative labor, being evidence of how desperate they are. Though China has enjoyed economic growth, the government has to fund a lot for law enforcements and increased security. Wages of officials also needs to be incresed to reduce rates of bribary.
Melissa, Yan lin, Jun liang, Aslam, Zhang Xingchen(group 1)said:
ReplyDeleteHowever, Pursuing positive economic growth would bring benefits to the economy as a whole in China as it helps to alleviate problems like unemployment which is a massive problem in China due to the large pool of labour. Increasing Gross Domestic Product (GDP) would imply that the economy is producing more goods and services. Hence, firms, with an increase in output, would have to employ more of the factors of production, in particular labour. In China, where the industry are more labour-intesive, this would help to alleviate the unemployment problem of China as firms would employ more labour to help produce more labour-intensive products like shoes and clothes. And with more people employed, there would be an increased in demand of goods and services due to more disposable income of people and this would further stimulate more economic growth for China.
Not only does it alleviate the problem of unemployment, it also increases the amount of goods and services available for consumption in the country. This will increase the material standard of living of the people with increased in consumption opportunities. There would be a significant increase in the living standards of the people of China as there are many provinces in China that experiences limited supply of quality goods and services for consumption.
Thirdly, with an increase in GDP, followed by an increase in income of the people, there would be a subsequent increase in the tax revenue for the government due to increase in income tax and corporate tax collected. If this amount of tax revenue were to be spent wisely by the Chinese government on educating the people of China, improving the environment and attracting foreign direct investment(FDI) it would stimulate further growth for her economy and improving the living standards of people with better healthcare system etc.
In conclusion, our group think the Chinese government should continue to pursue its economic growth as it is a developing country and various problems like unemployment and poverty still plague the country. The fast economic growth is one of the most effective way to solve these problems. However, besides economic growth, the government shoud also pay attention to the problems caused by the economic growth, like widening gap between the rich and the poor, environmental catastrophe and the rising crime rate. These will render the economic growth ineffective in solving the various problems in China. Therefore, the Chinese government should still pursue economic growth as its macroeconomic goal but at the same time, significant attention should be given to the side-effects rising from economic growth.
Sarah's group (Singapore)
ReplyDeleteCOST OF ECONOMIC GROWTH
In order for economic growth to take place, firms will require financing in order to invest in factors like capital goods and Research & Development (R&D) which helps in obtaining new technology. Such finance can come from higher savings or higher taxes, either way leading to a dip in consumption. Thus, consumption can be seen as a trade-off for economic growth in the short run. However, in Singapore’s case, consumption plays a small role in our Gross Domestic Product (GDP), with our trade (X-M) making up about 60% of our annual GDP. Furthermore, consumption in Singapore has been relatively low compared to other countries due to our thrifty nature and the implantation of the Central Provident Fund (CPF) which “forces” us to save part of our money. Therefore, the cost of economic growth in terms of the loss in consumption can be seen to be acceptable.
Secondly, growth involves changes in production both in terms of the goods produced and in terms of the techniques used and the skills required. The rapid rate of growth also leads to rapid rate of change. If the skills and knowledge of the labour force does not improve as quickly as technological advancement, unemployment will be caused. The danger of labour mismatch has increased in recent years in Singapore due to the fast pace of technological changes, and the increased need for higher skills and educational qualifications to perform the new jobs created. For example, Singapore Economics Development Board estimates that 2 of 3 new jobs that new manufacturing investments bring will require skilled labour. In comparison, only about 35 per cent of our existing labour force has post secondary and above qualifications.
Thirdly, if growth involves using a greater amount of resources rather than using the same amount of resources more efficiently, certain non-renewable resources will run out more rapidly. This will eventually lead to degradation and exhaustion of the earth’s resources. However, Singapore has adopted energy efficient strategies to maximize the usage of resources. For example, Singapore Economic Strategies Committee submitted the report of its key recommendations to the Prime Minister in Feb 2010 to help Singapore build a smart energy economy. The report consists of 5 key strategies which are diversifying energy sources, enhancing infrastructure and systems, increasing energy efficiency, strengthening the green economy and pricing energy right. Therefore, the cost of economic growth in terms of the exhaustion of the resources may not affect Singapore so significantly since Singapore implement policies to use resources more efficiently.
Sarah's group (Singapore)
ReplyDeleteBENEFIT OF ECONOMIC GROWTH
1) Increased Consumption
Given that Singapore's economic growth exceeds our population growth, ceteris paribus, economic growth results in an increase in real national income which leads to increased consumption by households as the average spending power of each household increases. Singapore's average GDP per capita has grown by 30.27% from S$ 39,683 to S$ 51,656 between the period of year 2000 to 2009. Thus leading to an increase in the standard of living. Singaporeans will now have a higher purchasing power and are able to purchase more goods and services that will add to their welfare benefits. Hence, Singaporeans will be able to lead a more luxurious lifestyle by having more material goods and enjoy life to a greater extent and thus increased welfare of the society.
2) Alleviate other macroeconomic problems
The increase in economic activity would result in the generation of more income by the multiplier effect. Thus Singapore's real national income increases, and this leads to increased demand for goods and services. Hence, producers will invest in capital goods to increase production to meet demand, as a result, the potential growth of Singapore's economy will increase so this may lead to decrease in inflation (imagine a greater movement in the AS graph rightwards with AD graph also moving rightwards but by a lesser extent). Also, as economic growth increases, more and more resources will be needed to produce goods and services, hence spare capacity such as unemployed skilled labour will be brought back into the workforce to produce goods. Hence, economic growth not only attain the macroeconomic goal of increased wealth of the nation but also help to reduce other problems such as unemployment and high inflation rate.
3) Improvement in technology
As Singapore GDP increases, more money can be invested to the Research and Development (R&D) sector which can potentially result in the development of more efficient production techniques. In fact, there has been a significant increase in the number of organisations performing R&D as Singapore economy grows. For instance, in 1997 only 543 organisation are involved in R&D but this number grows two folds to 1049 in 2007. This is also supported by a tremendous increase in Singapore Gross Expenditure on R&D (GERD) from only 0.85 % in 1990 to an expected 3 % in 2010. Furthermore, the government has also mapped out its R&D objectives via S&T Plan 2010 to secure Singapores position as a pre-eminent R&D hub. This potential development in technology will not only lead to an increase in productivity, which will further promote potential growth, but also probably result in numerous environmental benefits when cleaner production method is discovered. This will increase welfare of the people in Singapore as negative externalities are reduced or removed.
BEATRICE'S GROUP (INDIA)
ReplyDeleteEconomic growth is the annual percentage increase in an economy's level of real output over time. It is usually measured by the rate of growth of real GDP or GNP over time. A satisfactory rate of economic growth is one where positive per capita rates of growth in real GDP take place, and is important for two reasons. First, economic growth growth improves the overall standards of living of individuals in an economy. This assumes that individuals prefer more to less. Secondly, economic growth is one way to reduce poverty in an economy, or worldwide if the economy is large enough. This is significant for an economy like India's, which is a developing country and is estimated to have a third of the world's poor. According to a 2005World Bank estimate, 42% of India's population falls below the international poverty line of $1.25 a day, which is a staggering statistic.
Economic growth can bring about many benefits to India. Firstly, it can lead to an increase in consumption levels. When economic growth outstrips population growth, it will lead to higher real income per head. This can lead to higher levels of consumption of goods and services. If human welfare is related to the level of consumption, then growth provides an obvious gain to society.
Also, economic growth can help alleviate other macroeconomic problems. People have aspirations of rising living standards. Without a growth in productive potential, people's demands for rising incomes are likely to lead to higher inflation, balance of payments crises (higher levels of imports) and industrial disputes. Growth in productive potential helps to meet these aspirations and avoid macroeconomic crises.
Furthermore, there are redistributive benefits to economic growth. If incomes rise, the government can redistribute incomes from the rich to the poor without the rich losing in absolute terms. For example, as people's incomes rise, they automatically pay more taxes. This is significant for a country like India, where the income inequality, measured by the Gini coefficient, has worsened in the last decade. At the all-India level, the Gini coefficient has moved up from 0.43 (1995-96) to 0.45 (2004-05). The extra revenue for the government can be spent on programs to alleviate poverty. Such initiatives would include the supplying of basic commodities, particularly food at controlled prices, available throughout the country as the poor spend about 80 percent of their income on food. Without a continuing rise in national income as a result of economic growth, the scope for helping the poor is much more limited.
BEATRICE's GROUP (INDIA)
ReplyDeleteEconomic growth is the annual percentage increase in an economy's level of real output over time. It is usually measured by the rate of growth of real GDP or GNP over time. A satisfactory rate of economic growth is one where positive per capita rates of growth in real GDP take place, and is important for two reasons. First, economic growth growth improves the overall standards of living of individuals in an economy. This assumes that individuals prefer more to less. Secondly, economic growth is one way to reduce poverty in an economy, or worldwide if the economy is large enough. This is significant for an economy like India's, which is a developing country and is estimated to have a third of the world's poor. According to a 2005World Bank estimate, 42% of India's population falls below the international poverty line of $1.25 a day, which is a staggering statistic.
Economic growth can bring about many benefits to India. Firstly, it can lead to an increase in consumption levels. When economic growth outstrips population growth, it will lead to higher real income per head. This can lead to higher levels of consumption of goods and services. If human welfare is related to the level of consumption, then growth provides an obvious gain to society.
Also, economic growth can help alleviate other macroeconomic problems. People have aspirations of rising living standards. Without a growth in productive potential, people's demands for rising incomes are likely to lead to higher inflation, balance of payments crises (higher levels of imports) and industrial disputes. Growth in productive potential helps to meet these aspirations and avoid macroeconomic crises.
Furthermore, there are redistributive benefits to economic growth. If incomes rise, the government can redistribute incomes from the rich to the poor without the rich losing in absolute terms. For example, as people's incomes rise, they automatically pay more taxes. This is significant for a country like India, where the income inequality, measured by the Gini coefficient, has worsened in the last decade. At the all-India level, the Gini coefficient has moved up from 0.43 (1995-96) to 0.45 (2004-05). The extra revenue for the government can be spent on programs to alleviate poverty. Such initiatives would include the supplying of basic commodities, particularly food at controlled prices, available throughout the country as the poor spend about 80 percent of their income on food. Without a continuing rise in national income as a result of economic growth, the scope for helping the poor is much more limited.
BEATRICE'S GROUP (INDIA)
ReplyDeleteAnother positive aspect of economic growth would be its environmental benefits. As people grow richer, they can afford to become less preoccupied with their own private consumption and more concerned about living in a clean environment. The regulation of pollution tends to be tougher in developed countries than in the developing world.
However, economic growth may also affect the quality of life of Indians, because of its adverse effects on the environment and on the health of the people.
Much of the blame lies on regulatory agencies — state pollution control boards (SPCBs) and state industrial development corporations — that were initially created to control and monitor the industrialization process in India. Instead, these agencies have been reduced to mere rubber stamps to promote industrialisation at an increasingly hasty pace so as to attain rapid economic growth.
For example, Gujarat’s rivers are bearing the brunt of industrial pollution, as are the people living on the banks of these rivers due to effluents released by the common effluent treatment plant (CETP) in Vatva. Often, drug factories in Vapi dump rejected batches of drugs into the open which contain chemicals that are highly toxic. Not only has this polluted the groundwater but it has also damaged fertile lands. In Bajwa, a village in Vadodara district, industrial waste has been accumulating for the past 30 years and there is barely any productive agricultural land for development. Although there is some attempt made by industries to construct landfill sites, environmental health has not been kept in mind. One example is GIDC’s Nandesari Industrial Estate north of Vadodara, in which plans of a site to dump toxic wastes are severely flawed and there are fears of a major ecological disaster.
The 1994-95 annual report of the Gujarat Pollution Control Board (GPCB) says that the chemical oxygen demand level in the Amlakhadi river is 11,007 milligramme /litre (mg/l) when the prescribed GPCB level is only 250 mg/l. Even the biological oxygen demand, which stands at 442 mg/l, far exceeds the GPCB limit of 30 mg/l. Moreover, a study conducted by the environment pressure group, Greenpeace, has found toxic metals such as lead, mercury, chromium and zinc in the effluents released into the Amlakhadi. During monsoon, the effluents sometimes overflow and destroy the farmlands. Environment impact assessments by the National Productivity Council, Gandhinagar, in 1997-98 showed high levels of lead contamination in the groundwater of Nandesari. Samples taken nearby the GIDC dump contained 38.25 milligramme per litre (mg/l) of lead, whereas the permissible limit is 0.05 mg/l for drinking water. The study also states that the groundwater has been severely contaminated to a depth of about 60 metres.
BEATRICE'S GROUP (INDIA)
ReplyDeleteAs such, we see that the pursuit of economic growth does come at a relatively high cost, as the physical environment is seriously damaged which may in turn cause the immaterial standard of living of Indian nationals to decrease dramatically. This is because their health may be adversely affected despite being better off financially, as a result of rapid industrialization as a means to achieving economic growth and pulling people out of the poverty cycle.
Moreover, in the process of attaining economic growth, there may be a rising disparity in the income distribution amongst Indian citizens. Economic inequality comprises all disparities in the distribution of economic assets and income. Wealth distribution in India is fairly uneven, with the top 10% of income groups earning 33% of the income. Despite significant economic progress in recent years, about a quarter of the nation's population earns less than the government-specified poverty threshold of $0.40/day. Slums located next to high-rise commercial buildings are also commonplace in Cochin, India and are testament to the increasingly apparent income gap as a result of economic growth that is heavily concentrated in certain industries.
In addition to affecting levels of trust and civic engagement, inequality in society has also shown to be highly correlated with crime rates. Furthermore, too wide a disparity may lead to social discontent and may be a threat to the social fabric of India as a result of the social divide.
Many often see economic growth as the surest way out of poverty for developing countries, but closely tied to growth is the issue of equality. A correlation between growth and inequality does not by itself challenge the need for economic growth; however it is important that India strives for the improvement of the quality of life of its people, which means providing better health, education, and other services to the poor and the rich.
The success of economic growth can be said to come from the cheap labour that India has to offer. This thus gives incentives to foreign MNCs to invest and set up factories in India. Such examples would be Nike and Billabong, which specialise in sports and Surfing apparel respectively. These MNC’s provide employment to the large Indian population and thus stimulates economic growth through the means of employment. Furthermore the marginal propensity to consume of the people working for these MNCs increases, thus, raising the demand for goods which brings about actual economic growth, as the rate of actual output increases to meet the demand of the population.
However in the long run, as the Indian population increases and if the population is not educated and maintain their lowly skilled workforce, which command low salaries, there would seize to be economic growth. This will be due to the significant changes that the world would undergo, for instance the improvement of technology and the growing trend for countries to move into knowledge base economies. This would result in unemployment due to the lack of skills required for such skilled jobs.
India is ranked the fourth largest in terms of Purchasing Power Parity, this has then led to it being a preferred destination for Foreign Direct Investments (FDI). India, being strong in terms of telecommunication, information technology, pharmaceuticals, has led to a surge in FDIs. In addition, India has a large pool of skilled managerial and technical expertise, this then attracts even more of such FDIs to invest in India. The liberalized FDI policy approved in 2005 has also allowed up to a 100% FDI stake in ventures. Industrial policy reforms have also substantially reduced industrial licensing requirements, removed restrictions on expansions and facilitated easy access to foreign technology and FDI. This has then caused an upward moving growth curve of India.
BEATRICE'S GROUP (INDIA)
ReplyDeleteAs such, we see that the pursuit of economic growth does come at a relatively high cost, as the physical environment is seriously damaged which may in turn cause the immaterial standard of living of Indian nationals to decrease dramatically. This is because their health may be adversely affected despite being better off financially, as a result of rapid industrialization as a means to achieving economic growth and pulling people out of the poverty cycle.
Moreover, in the process of attaining economic growth, there may be a rising disparity in the income distribution amongst Indian citizens. Economic inequality comprises all disparities in the distribution of economic assets and income. Wealth distribution in India is fairly uneven, with the top 10% of income groups earning 33% of the income. Despite significant economic progress in recent years, about a quarter of the nation's population earns less than the government-specified poverty threshold of $0.40/day. Slums located next to high-rise commercial buildings are also commonplace in Cochin, India and are testament to the increasingly apparent income gap as a result of economic growth that is heavily concentrated in certain industries.
In addition to affecting levels of trust and civic engagement, inequality in society has also shown to be highly correlated with crime rates. Furthermore, too wide a disparity may lead to social discontent and may be a threat to the social fabric of India as a result of the social divide.
Many often see economic growth as the surest way out of poverty for developing countries, but closely tied to growth is the issue of equality. A correlation between growth and inequality does not by itself challenge the need for economic growth; however it is important that India strives for the improvement of the quality of life of its people, which means providing better health, education, and other services to the poor and the rich.
The success of economic growth can be said to come from the cheap labour that India has to offer. This thus gives incentives to foreign MNCs to invest and set up factories in India. Such examples would be Nike and Billabong, which specialise in sports and Surfing apparel respectively. These MNC’s provide employment to the large Indian population and thus stimulates economic growth through the means of employment. Furthermore the marginal propensity to consume of the people working for these MNCs increases, thus, raising the demand for goods which brings about actual economic growth, as the rate of actual output increases to meet the demand of the population.
However in the long run, as the Indian population increases and if the population is not educated and maintain their lowly skilled workforce, which command low salaries, there would seize to be economic growth. This will be due to the significant changes that the world would undergo, for instance the improvement of technology and the growing trend for countries to move into knowledge base economies. This would result in unemployment due to the lack of skills required for such skilled jobs.
India is ranked the fourth largest in terms of Purchasing Power Parity, this has then led to it being a preferred destination for Foreign Direct Investments (FDI). India, being strong in terms of telecommunication, information technology, pharmaceuticals, has led to a surge in FDIs. In addition, India has a large pool of skilled managerial and technical expertise, this then attracts even more of such FDIs to invest in India. The liberalized FDI policy approved in 2005 has also allowed up to a 100% FDI stake in ventures. Industrial policy reforms have also substantially reduced industrial licensing requirements, removed restrictions on expansions and facilitated easy access to foreign technology and FDI. This has then caused an upward moving growth curve of India.
BEATRICE'S GROUP (INDIA)
ReplyDeleteOne specific example would be the high investments made in India by Mauritius. This would be due to the fact that double taxation is avoided due to a tax treaty between India and Mauritius, and since Mauritius is a capital gains tax haven, it effectively creates a zero-taxation FDI channel.
However, one sector which needs greater relaxation of FDI restrictions would be the politically sensitive areas such as insurance and retailing.
Despite robust economic growth, India continues to face many major problems. The recent economic development has widened the economic inequality across the country. Despite sustained high economic growth rate, approximately 80% of its population lives on less than $2 a day (PPP). Even though the arrival of Green Revolution brought end to famines in India, 40% of children under the age of three are underweight and a third of all men and women suffer from chronic energy deficiency.