Roadmap for Answer Writing 1. Introduction Define FDI and its importance in the context of India’s economic reforms. Briefly mention the historical context of FDI in India, particularly post-liberalization. 2. Key Contributions of FDI to Economic Growth Increase in FDI Inflows: Highlight the growth in ...
Model Answer Effects of Persistent Economic Inequality in India India's persistent economic inequality has far-reaching consequences that affect various aspects of society and the economy: Economic Risks: High levels of inequality can undermine economic growth and macroeconomic stability. When lowerRead more
Model Answer
Effects of Persistent Economic Inequality in India
India’s persistent economic inequality has far-reaching consequences that affect various aspects of society and the economy:
- Economic Risks: High levels of inequality can undermine economic growth and macroeconomic stability. When lower-income households struggle to maintain health and accumulate capital, overall economic productivity suffers. Additionally, extreme inequality can erode trust and social cohesion, leading to conflicts that deter investment.
- Increased Social Polarization: Economic inequality hampers poverty reduction and social mobility. In a country already divided by religion, region, gender, and caste, rising inequality introduces another layer of division, exacerbating social tensions .
- Political Risks: Concentration of wealth can lead to a concentration of political power, marginalizing vulnerable populations in policy-making processes. This dynamic can foster crony capitalism and monopolistic practices, further entrenching inequality .
- Hampering of Social Justice: Inequality contributes to various health and social issues, including reduced life expectancy, higher infant mortality rates, and poor educational outcomes. These factors collectively hinder social justice and equity .
- Policy Risks: Growing inequality may provoke backlash against economic liberalization and fuel protectionist sentiments against globalization and market reforms.
Challenges in Addressing Economic Inequality
Several challenges complicate efforts to reduce economic inequality in India:
- Proliferation of Low-Paid Jobs: The NITI Aayog has noted a significant prevalence of low-wage, low-productivity jobs, which restrict upward mobility for many citizens.
- Low Investment in Health and Education: Economic inequalities limit the majority’s ability to invest in health and education, stunting human capital development. Furthermore, government spending in these sectors is minimal compared to developed nations .
- Taxation Issues: Ineffective redistributive policies result in an uneven tax burden, disproportionately affecting the poor. For instance, the poorest half of the population bears nearly two-thirds of the Goods and Services Tax (GST) burden .
- Social Factors: Caste and gender inequalities significantly restrict both intra-generational and inter-generational mobility, perpetuating cycles of poverty and disadvantage .
To address these challenges, measures such as taxing the wealth of the richest 1%, easing the tax burden on marginalized groups, improving access to public services, and strengthening labor rights are essential for promoting equity and social justice in India.
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Model Answer Foreign Direct Investment (FDI) has played a crucial role in India's economic growth and development, particularly since the liberalization reforms of the early 1990s. Here’s an overview of its significant contributions: Increase in FDI Inflows FDI inflows into India have surged dramatiRead more
Model Answer
Foreign Direct Investment (FDI) has played a crucial role in India’s economic growth and development, particularly since the liberalization reforms of the early 1990s. Here’s an overview of its significant contributions:
Increase in FDI Inflows
FDI inflows into India have surged dramatically, rising from $4.03 billion in 2000-01 to $71.3 billion in 2022-23. This increase reflects the growing confidence of foreign investors in the Indian market and its potential for growth.
Facilitating Domestic Investment
FDI has complemented domestic investments across various sectors. A notable example is Walmart’s acquisition of a 77% stake in Flipkart in 2018, which injected substantial foreign capital into India’s retail and e-commerce sectors .
Technological Advancement
Foreign investments have facilitated the transfer of advanced technologies to Indian industries. For instance, Boeing’s partnership with Tata Advanced Systems Limited to produce aerospace structures exemplifies how FDI can enhance technological capabilities in the country .
Positive Impact on the Services Sector
The services sector, particularly IT-BPM and financial services, has seen significant foreign investment. Companies like Accenture and Goldman Sachs are expanding their operations in India, contributing to the sector’s growth .
Employment Generation
Multinational corporations have a substantial impact on job creation. Amazon, for example, has announced plans to create 1 million jobs in India by 2025, highlighting the employment potential of FDI .
Challenges and Shortcomings
Despite these contributions, there are notable challenges. FDI inflows fell by 16% to $71.3 billion in 2022-23 from $84.8 billion in the previous year, indicating a potential decline in investor confidence . Additionally, there is a concerning trend of negative reinvested earnings and capital outflows, which could undermine the benefits of FDI . Furthermore, FDI is concentrated in a few states, with Karnataka, Maharashtra, and Delhi attracting 78% of total inflows in 2021-22, leading to regional imbalances. The manufacturing sector also remains underfunded, receiving only 34.6% of total FDI from 2000 to 2019, despite initiatives like “Make in India” .
In conclusion, while FDI has significantly transformed India’s economic landscape, addressing these challenges is essential for maximizing its long-term benefits.
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