Abstract
Gross Domestic Product, which measures in monetary terms that value of all final goods and services, produced in a year, is an instrument to measure the size of the economy. To an extent, it also provides information regarding the health of the economy, in the form of economic growth. However, in this academic exercise, we have selected GDP per constant and labor force size to calculate GDP per worker, which provides us information regarding the improvements in the labor market. Labor market plays an important role in GDP’s expansion; however, there are other factors too, such trade, urbanization, human capital, etc., which play an important role in the expansion and improvement of an economy. In this study, we have discussed these mentioned factors in detail and attempted to understand that how these factors have played their part in the development of India’s economy. We learn that some of these factors have played a major part, whereas the other factors were less relevant in comparison. However, it is apparent that all these factors have their significance and relevance. The Indian state is emphasizing on some of these factors more than other factors. For instance, Indian state introduced several human resource development programs that intend to develop the human resource, which most sensitive and important of all resources.
Introduction
Gross Domestic Product, which measures the monetary value of all final goods and services produced in a country in a year, is an appropriate and simple method to examine the economic growth of any country. GDP shows the total value of production produced by the whole community in a country. Every person who lives within the premises of a country plays his/her role in GDP either he is the citizen of the country or foreigner. There are some methods of measuring GDP.
Nominal:
This measurement includes price increases, and it is a type of raw measurement. It consists of updates data on a yearly basis, which is not inflation adjusted and could be misleading.
Real:
Like Nominal GDP, Real GDP also measures the monetary value of final good and services produced by a country (in a year); however, it is inflation adjusted, which makes it more precise.
GDP per Worker
GDP per Worker, which is one of the sub-subjects of this academic exercise, is calculated by dividing GDP (constant) with total labor forces. The statistics, regarding GDP (constant) and total labor force, retrieve from the World Bank’s website. The data spans the period of 22 years, from the year 1994 to 2016. The nature of the data is time-series, which permits us to understand the changes in two variables (GDP constant and GDP per worker) over a long period. (Note: This analysis is descriptive rather than statistical analysis, in which regression and such other techniques are used.)
GDP Per Worker Graph
| Year | GDP constant | Labor Force | GDP per Worker |
| 1994 | 2.75E+13 | 3.61E+08 | 76126.32 |
| 1995 | 2.96E+13 | 3.68E+08 | 80273.69 |
| 1996 | 3.18E+13 | 3.75E+08 | 84714.14 |
| 1997 | 3.31E+13 | 3.83E+08 | 86467.33 |
| 1998 | 3.51E+13 | 3.9E+08 | 90050.15 |
| 1999 | 3.82E+13 | 3.98E+08 | 96125.32 |
| 2000 | 3.97E+13 | 4.06E+08 | 97896.07 |
| 2001 | 4.16E+13 | 4.17E+08 | 99792.2 |
| 2002 | 4.32E+13 | 4.29E+08 | 100723.3 |
| 2003 | 4.66E+13 | 4.41E+08 | 105639.8 |
| 2004 | 5.03E+13 | 4.53E+08 | 110881.5 |
| 2005 | 5.5E+13 | 4.66E+08 | 117884.5 |
| 2006 | 6E+13 | 4.67E+08 | 128525.4 |
| 2007 | 6.59E+13 | 4.68E+08 | 140835.1 |
| 2008 | 6.85E+13 | 4.69E+08 | 146040.2 |
| 2009 | 7.43E+13 | 4.7E+08 | 158146.7 |
| 2010 | 8.19E+13 | 4.71E+08 | 174082.5 |
| 2011 | 8.74E+13 | 4.74E+08 | 184435 |
| 2012 | 9.21E+13 | 4.77E+08 | 193226.7 |
| 2013 | 9.8E+13 | 4.86E+08 | 201713.8 |
| 2014 | 1.05E+14 | 4.95E+08 | 212885.4 |
| 2015 | 1.14E+14 | 5.04E+08 | 225888.6 |
| 2016 | 1.22E+14 | 5.13E+08 | 237726.8 |
It is apparent that GDP per Worker has grown steadily; however, there has been no dramatic increase in GDP per worker. It suggests that the labor market is being influenced very methodically and subtly by GDP expansion (The World bank, 2018).
Economic Reforms
Economic reforms were introduced by the Indian government in 1991 and the later years. The main purposes of these reforms were liberalization of the economy, giving more opportunities to the private sector, etc. Industrial policy was main reform in 1991. The new economic policy of 1991 was made to enhance competition between different sectors. And this policy had very significant and positive effects on GDP. Main features of New Economic Reforms are under here.
1-Industrial Sector
Before these economic reforms, the only public sector was allowed to operate critical industries. Private and foreigner investors were not allowed to operate industries which are producing capital goods. So after economic reforms of 1991 put a very positive effect on GDP.
2-Delicensing
The new industrial policy of 1991 gave relief to the private sector by licensing as they could invest in fifteen sectors without going through long licensing formalities. So, it also puts a very good effect on GDP.
3-Foreign Competition
It was another important point in economic reforms. It welcomed to foreign investment and technology in India. It started a new era in Indian economy.
4-Trade & Investment
Extensive liberalization of foreign trade and investment was the key points of new economic reforms. Export & export liberalization and promotion policies were introduced. Due to this policy, foreign direct investment and foreign portfolio investment were entered in India.
5-Public Sector
Reforms were also introduced in the public sector to make it more effective and efficient. It aimed to focus on key and strategic sectors.
6-Financial Sector
The government introduced many reforms for the liberalization of the financial sector. Banking reforms, capital market reforms, money market reforms, etc.
Role of Investment
Role of investment is very important in GDP of a country. Many significant steps have been taken by the Indian government to improve the credentials of GDP. Due to these important steps, now Indian economy is one of the strongest economies in the world.
- It was decided to invest 2.1 trillion in public sector banks over the next few years and 7 trillion in construction.
- The loan was approved for sugar mills up to 1 billion USD to enhance the capacity and for direct benefits for farmers.
Although it has been a great challenge to increase the credentials of private investment in India, private investment has been the main key to economic growth for the last year 2018-19. (GFCF) Shows the demand for investment for smooth economic growth, which was 3.3% in FY 17 and jumped to 6.8% in FY 18. It is only the result of key reforms made by Indian government, such as bankruptcy laws, goods, and services tax and continues inflow of foreign direct investment.
On the other hand, private investment is still facing problems in the form of corporate debt overhang, stress in the financial sector, industrial capacity and regularity and policy challenges putting negative effects on economic growth.
Private investment consists of quarters of total GFCF has not been forthcoming by government policies to improve the economic growth.
Human Capital Accumulation
Economists and states consider human resource as one of the most important resource of all the resources and they are deliberately investing in human capital to develop it. India too is concerned regarding the development of human resource, and it has developed various strategies to develop its human capital. To develop and nurture human capital, India is investing in conventional and unconventional (technical) education programs and health sector (Behbudi, 2010). National Rural Employment Guarantee Scheme (NREGS) is one such example of investment in human capital. This accumulation of human capital will affect the size and quality of India’s economy (Shah & Steinberg, 2015).
Role of Trade Expansion
Trade has a strong and deep impact on Gross Domestic Product; therefore, countries, emphasize on trade to meet various socioeconomic and political-economic objectives. The size of the trade grew significantly in last two decades, and it benefitted the Indian economy a lot (Mahadevan, 2010). Not only the sizes of imports and exports have grown, but also goods and services that are trodden have also changed significantly. For instance, technological/IT products and services are exported in large numbers by India (Ibef.Org, 2018).
Role of Urbanization
Urbanization understands the population shift from rural regions, from a country to, to urban centers. It usually occurs because urban centers are the focus of development and these urban centers produce economic opportunities that are more lucrative. In India too, their urbanization is occurring at very high pace, which affects the economic development of the country. Only in last ten years, from 2001 to 2011, there is an increase of 3.35%. The urbanization has directly affected labor market, which has reduced the cost of production and it allowed the Indian government to develop the accumulated capital in a more systematic manner (Poddar, 2013).
Conclusion
In the end, it is concluded that every country intends to increase the size of its GDP, for which it devise strategies and puts special emphasis on certain economic factors. We learn that India is emphasizing on its human capital and trade to increase the size of GDP. Other than these identified factors, Foreign Direct Investment and Industrialization or other such factors, which are being focused on meeting various kinds of socioeconomic objectives. Also, Indian state does not hesitate in using the fiscal instrument to realize economic objectives. In fact, we can use human resource development programs as for fiscal policy initiatives that intend to improve the economy.
References
Behbudi, D. (2010). Natural Resource Abundance, Human Capital And Economic Growth In The Petroleum Exporting Countries. Journal of Economic Development, 35(3), 81-102.
Ibef.Org. (2018, January 31). Foreign Trade Policy Of India. Retrieved from https://www.ibef.org/economy/trade-and-external-sector
Mahadevan, R. (2010). Dynamic effects of trade and output volatility on the trade-growth nexus: Evidence from Singapore. Journal of Economic Studies, 37(3), 314-326.
Poddar, G. S. (2013). Rapidly Growing Population of India and Its Economic Development : An Analysis. Anusan dhanika, 5(1/2), 127-131.
Shah, M., & Steinberg, B. M. (2015). Workfare and human capital investment: Evidence from India. National Bureau of Economic Research, 1-40.
The World bank. (2018, January 1). World Development Indicators. Retrieved from http://databank.worldbank.org/data/reports.aspx?source=2&country=HIC
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