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 India has witnessed impressive economic growth in recent decades, but the benefits have been disproportionately distributed, leading to significant wealth and income inequality. As per the Oxfam 2023 report, 5% of Indians control more than 60% of the nation's wealth, while the bottom 50Read more
Model Answer
India has witnessed impressive economic growth in recent decades, but the benefits have been disproportionately distributed, leading to significant wealth and income inequality. As per the Oxfam 2023 report, 5% of Indians control more than 60% of the nation’s wealth, while the bottom 50% own just 3%. This stark disparity is driven by several key challenges:
- Dependence on Indirect Taxes: A significant portion of India’s tax revenue comes from indirect taxes, which are regressive. These taxes impact low-income households more, exacerbating wealth inequality. Since indirect taxes are levied on goods and services that everyone must buy, they disproportionately burden the poorow Female Labour Force Participation:** Gender inequality further deepens economic disparities. The female labour force participation rate in India dropped from 27% in 2010 to just 22% in 2020, according to the Global Gender Gap Report 2021. The lack of economic participation by women limits the overall income distribution and the country’s inclusive growth .
- Government Spending on Social Sectors:** India’s government has struggled to allocate sufficient funds for critical social sectors like health and education. Between 2014-2020, the budgetary allocation for healthcare remained between 1.2% and 1.4% of GDP. This underinvestment leads to rising out-of-pocket health expenses, pushing millions into poverty annually. Oxfam reports that around 63 million people fall into poverty every year due to healthcare costs .
- Lower Shafacturing in GDP: The Indian manufacturing sector, unlike China’s, has not seen a significant rise. Manufacturing jobs are often low-paying and offer limited social mobility. This stagnation in the manufacturing sector limits upward mobility for a large portion of the population .
- Large Informal Eco A significant portion of India’s workforce operates in the informal sector, which lacks social security, legal protection, and decent wages. This exacerbates income inequality as workers in this sector are more vulnerable to exploitation .
Addressing these challenges requprehensive approach: increasing government investment in health and education, improving tax policies, encouraging female workforce participation, and expanding formal sector employment.
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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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