Indian Economy

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Reasons for Persistent Poverty in India

Despite significant efforts to eradicate poverty, India continues to grapple with persistent poverty, affecting approximately 228.9 million people, making it the country with the largest number of poor individuals globally . Several factors contribute to this ongoing issue:

1. Limited Fiscal Capacity: Both the central and state governments face constraints in their fiscal capacity, which limits their ability to allocate sufficient resources for poverty eradication initiatives. This financial limitation hampers the effectiveness of various schemes aimed at alleviating poverty.
2. Corruption and Administrative Inefficiencies: Many poverty alleviation programs suffer from corruption and inefficiencies in administration, preventing benefits from reaching the most disadvantaged populations. This misallocation of resources undermines the intended impact of these initiatives .
3. Agricultural Challenges: The fragmentation of land holdings and disguised unemployment due to surplus labor contribute to low agricultural productivity. As agriculture is a primary source of income for a significant portion of the population, these challenges hinder income growth and perpetuate poverty .
4. Population Growth and Resource Limitations: Rapid population growth exacerbates the strain on limited resources, making it difficult to invest adequately in human capital. This lack of investment affects the overall well-being of the poor, limiting their opportunities for advancement .
5. Inequitable Economic Growth: The lack of inclusive growth and inadequate wealth distribution means that the benefits of economic growth do not reach all segments of society. The trickle-down effect of economic progress is minimal, leaving many still in poverty .
6. External Economic Shocks: International events such as wars and pandemics can destabilize macroeconomic conditions, leading to inflation and other economic challenges that further entrench poverty .

To effectively tackle persistent poverty, India needs to shift its spending focus from broad subsidies to targeted support for vulnerable populations and increase public investment in long-term development initiatives .

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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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Health and poverty are intricately linked in a cyclical manner, where one exacerbates the other. Poor health often leads to reduced productivity, preventing individuals from accessing better economic opportunities and income, thus perpetuating poverty. In India, where public spending on healthcare remains low (2.1% of GDP), many families are forced to bear high out-of-pocket expenses. According to the WHO, more than 55 million people are pushed into poverty annually due to healthcare costs. Additionally, poverty restricts access to essential resources like clean water, sanitation, and nutritious food, leading to poor health outcomes. This further hinders economic mobility, especially among vulnerable populations.

How Inclusive Healthcare Promotes Inclusive Growth

1. Reducing Inequality Inclusive healthcare ensures access to affordable medical services for all, regardless of their socio-economic status. This helps break the cycle of poverty and inequality, particularly among marginalized communities. By reducing out-of-pocket health expenditure, inclusive healthcare enhances financial stability and allows for better long-term consumption. For example, the Affordable Care Act in the USA successfully reduced income inequality among various racial and ethnic groups.
2. Empowering Women By providing comprehensive maternal and reproductive healthcare, inclusive healthcare systems empower women, improving their participation in the workforce and decision-making. The Nordic region’s focus on inclusive healthcare for women has contributed to a high female employment rate of 73.5%.
3. Balanced Regional Development Inclusive healthcare also addresses disparities between urban and rural regions. In India, Kerala’s focus on inclusive healthcare has contributed to its balanced growth and development, bridging the healthcare gap between regions.
4. Improving Children’s Outcomes Effective healthcare interventions help reduce malnutrition and infectious diseases among children, resulting in better educational outcomes. Healthy children are more likely to attend school and perform well academically, supporting India’s long-term development. According to studies, stunted children earn 20% less as adults than their healthier counterparts.
5. Reducing Barriers to Employment Inclusive healthcare also reduces health-related employment barriers, especially for individuals with disabilities. Access to healthcare services ensures that all individuals, regardless of health conditions, can participate in the workforce.

In line with the United Nations’ Sustainable Development Goal (SDG) 3, India is increasing its healthcare expenditure, with schemes like Ayushman Bharat to ensure inclusive healthcare for all.

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India’s agriculture sector, contributing 14% to the country’s GHG emissions, faces significant challenges. However, traditional knowledge offers sustainable solutions for promoting environmental conservation and agricultural resilience. These age-old practices, rooted in local ecosystems, can contribute to more sustainable farming practices.

1. Effective Resource Management

Traditional knowledge emphasizes efficient resource management, such as the Kaipad system in Kerala. This unique fish-farming technique uses tidal water for irrigation while integrating rice and fish farming, promoting a balanced ecosystem. This system ensures optimal use of water resources while maintaining agricultural productivity.

2. Rainwater Harvesting

In the face of depleting groundwater resources, traditional rainwater harvesting systems offer a sustainable solution. One notable example is the Zabo System of Nagaland, where a protected forest area on top of a hill collects rainwater, which is then stored in tanks and used for irrigation in the paddy fields below. This system helps conserve water and supports agricultural sustainability.

3. Food Security

Traditional agricultural practices help preserve local ecosystems and enhance food security. The Bari system of Assam, a home garden method, utilizes kitchen waste and fallen tree leaves as manure to grow local crops like jackfruit, banana, and mango. This promotes biodiversity and supports local food systems.

4. Organic Manure

In regions like Kerala, traditional knowledge has fostered the use of organic manure, where farmers mix cow dung, used fuel wood ash, and coconut fiber waste to create chemical-free fertilizers. This practice promotes soil health and reduces reliance on synthetic chemicals.

5. Crop Diversification and Pest Management

The Baranaja system, practiced in the Himalayas, involves growing diverse crops without pesticides, promoting biodiversity and protecting crops from extreme climatic events. Additionally, natural pest management methods, such as using neem-based pesticides, reduce the dependence on harmful chemicals and enhance sustainability.

Conclusion

Reviving and integrating India’s traditional knowledge systems into modern agricultural practices can play a crucial role in enhancing sustainability, protecting the environment, and securing food supplies in the face of climate change. These methods offer valuable lessons for building a more resilient agricultural system.