Introduction to Economics                                 Lesson 08 / 08



With an area of 3,287,590 India is the seventh largest country in the world.  Its population of approximately 1.132 million is, after China, the world’s second largest.  It is presently one of the 4 large, rapidly developing economies, often referred to collectively as BRIC; Brazil, Russia, India and China. 

In terms of modern development, India is often referred to and seen as number two, compared to China’s ranking of number one. Although on most economic criteria China presently ranks ahead, a significant number of economists predict that in the medium term, possibly by 2050, India is likely to surpass it.

India is a federal republic comprising 28 states and 7 territories.  Depending on the measure used, calculation of the size of the present Indian economy ranges from as high as the world’s fourth largest, to as low as the twelfth.  Its annual rate of growth however is approximately 9%, second to China at approximately 11%, but at least three times that of the USA and most other major developed nations.

India is sometimes referred to as a sub-continent.  As such it is a place of considerable diversity.  It contains within it four significant language groups, 2 major and 2 minor, and a variety of races, religions and cultures.  [The 2 major language groups are Indo-Aryan, largely in the north and spoken by about 80%, and Dravidian in the south, spoken by about 18%]. To be an Indian is not so much a matter of a shared ethnicity, language or race, but rather of a shared civilization, similar to one being a European or an African.

Estimates of the number of languages spoken in India vary widely. Depending on the criteria used the number ranges between 100-400.  Significantly, unlike China, the different languages are written in a variety of scripts. The Constitution lists 18 official languages.  Perhaps half the population speaks Hindi, the official national language, as a primary language, although such primary speakers are largely concentrated in the north of the country.  English is widely used throughout India. In 1956 a reorganization of the states took place in order for them to incorporate, within their respective borders, the various languages, but this has been only partially successful.

The religion of approximately 80% of the population is Hindu and 13% Muslim.  Traditionally it has been a rural country but in recent time considerable urbanization has occurred.  Although incomes generally have increased significantly in recent times, approximately 27% of the population still survives on less than US$ 1 a day.



The Indian Constitution specifically requires that the country be both socialist and democratic.  Following independence in 1947, socialism was emphasized for several decades and the economy was heavily regulated.  This tended to discourage and inhibit economic activity and business.  However, in recent times since the early1990s, socialism and regulation have, if not abandoned, been significantly reduced.  In a similar but less dramatic fashion to China, India has opened itself to the world.  At the same time the economic development of India has increased at an astounding rate.


Presently there exists a number of positive factors that suggest that the economic development of India is likely to continue apace and that bode well for its future.  They include the following;

  • The population is growing at a fast rate and likely to exceed China’s by 2030.  Present population density is 336 per, 33rd highest in the world after Japan.  Unlike China, Japan, and most Western developed countries, average age is becoming younger.
  • Widespread acceptance, knowledge and use of English at a fluent level, and a heritage of Anglo-Saxon common law, facilitating interaction with the West and with other English speaking countries.
  • Fundamental existing inadequacies in infrastructure, such as in transport and communications, sewage and utilities are being targeted, particularly by government, for improvement.
  • A rapidly expanding middle class, estimated to comprise now about 30% of the population, being both a consequence and a cause of economic development.
  • A burgeoning manufacturing sector, presently accounting for about 30% of the national economy, and providing major opportunities for overseas suppliers.
  • Worldwide demand for its service sector based on an abundance of relatively cheap, well educated and English speaking labour, in areas such as information technology, computer software, medical tourism and offshore call centers.
  • An abundance of agricultural land, [about 54% of total area compared to China about 15%], and of natural resources.
  • A booming corporate sector, with a number of companies, such as Tata and Infosys, becoming major players on the world stage.
  • Large scale foreign investment into India expanding rapidly.  In 2007 it totaled almost US$ 20 billion, more than a third more than was invested in China.



There are a number of potential pitfalls that could preclude or obstruct India’s future development, including the following;

  • A failure to resolve the problem of caste, including that of the approximate 160 million so-called Untouchables, or to achieve a satisfactory national language acceptable to all.
  • As is now occurring, a rapid surge in inflation, causing widespread distress, particularly to the more than 300 million poor.
  • The outbreak of a major war, possibly involving nuclear weapons, either with Pakistan over Kashmir, or less likely, with China over the Himalayan frontier.
  • The growth of break-up or secessionist movements amongst dissatisfied and truculent ethnic or religious groups
  • An upsurge in radical Hinduism causing unrest among non-Hindus.


                 David Sharp                    

                 9 June 2008




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