role of government in economic growth

8/3/2019 Role of Government in Economic Growth

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ROLE OF GOVERNMENTIN ECONOMIC GROWTH

Made by-ROHIT MITTALAIJAZ UL HAQABHAY BAJWAVIVEKSHUBHAMKHALID


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What is Economic Growth?

Economic growth is simply a measureof the increase in productivity of aneconomy.

Economic growth is usually measuredin terms of gross domestic product(GDP ); the volume of goods andservices produced.Economic growth says nothing aboutthe quality of life of people or theimprovements in productivity.


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In general, Economic Growth means percentage

increase in GDP or GNP on year to year basis. But

in the real sense, economic growth means a

sustained increase in per capita national output ornet national product over a long period of time. This

means that the rate of increase in total output must

be greater than the rate of population growth.


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Advantages of EconomicGrowth

Higher LivingStandards. Employment effects. Fiscal Dividend.

The InvestmentAccelerator Effect. Growth and Business


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Disadvantages of Economic

Growth Inflation risk :

Environmentalconcerns


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The Three Roles of theGovernment:

We can divide the roles of the government inEconomic Growth into three broadcategories:

Government as a provider of Institutions - inthe widest possible sense, including order andsecurity. (Establishing the rules of thegame/providing an even playing field) Government as a provider of IncomeDistribution- by aiming for equitabledistribution of income.Government as a promoter of Economic

Growth (Promoting happiness/Increasing thesize of the pie).


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Role of Government in theEconomic Growth:-

Government has large responsibilities over theireconomies. Various factors that are driving Economicgrowth in India are:

Firstly, it is domestic consumption. The annual growth inreal consumption expenditure over the past four yearshas been, on average, 6.3 percent. With easy liquidityconditions, rising demand for personal loans, andadequate capacity in the manufacturing sector, there hasbeen a consumption boom.

Secondly, rise of investment. The consumption boom thatstarted at the beginning of this decade has triggered aninvestment boom. Real investment has grown at a robustrate since 2002 03, averaging 17 percent a year in thepast four years.The current investment rate, as a

proportion of GDP, is 35.1 percent, and it is expected toincrease in the medium term.


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Thirdly, increase in employment. Wehave, therefore, more personsemployed and contributing to thenational output. Paradoxically, we alsohave, in absolute number, morepersons unemployed.

Fourthly, increase in productivity ofboth capital and labour. India seems tohave large amount of productivitygrowth from relatively modest reforms.


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Govt.s Role In Different EconomicSystems

CAPITALIST ECONOMY- To restore and developfree market mechanism where ever it is possible toensure workable competitive conditionSOCIALIST ECONOMY The govt. exercises

comprehensive control on almost all economicactivities. All economic activities are centrallyplanned, controlled and regulated by the state.MIXED ECONOMY: It combines the features of

both free enterprise and socialist economicsystems. The govt. prevent by law the entry ofprivate capital into the industries reserved for thepublic sector. The promotion, control andmanagement of the public sector industries is soleresponsibility of the state.


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After the liberalization era of the Indian economy, the growthstory of the Indian GDP was driven by the following sectorsof Indian industry:

InformationTechnologyInformationTechnology EnabledServicesTelecommunicationElectronics andhardwareAutomobiles

Pharmaceuticals andbiotechnologyFertilizers andchemical

Consumer durablesRetailTextilesInfrastructureConstructionAirlinesHospitalityPowerOil and natural gas


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The Indian situation Second largest population in theworld.Very successful service sector,

but a poorly performing industrialsector.Nation of English speakersGeographic economic disparityDemocratic government &

traditions


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The traditional growth pattern The traditional economic growthrecipe relies heavily upon industrialsector expansionIndustrial growth can lift a largeproportion of a countrys populationout of povertyIndustry brings in capital and

encourages infrastructuraldevelopmentExport-driven growth is useful fordeveloping countriesYet India is lacking industrial growth


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Indias greatest obstacle to growthis its poor industrial sector

We believe that Indias servicesector growth cannot substitutefor industrial growth indefinitelyIndias large (and quickly growing)population needs abundant

industrial jobs to raise livingstandardsService sector jobs requiring

extensive education affect very


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Economic Growth in IndiaThe overall growth of gross domesticproduct (GDP) at factor cost at constantprices, as per Advance Estimates was 8.5% in 2010-11 , representing an increase

from the revised growth of 8 % during2009-10 .The index of industrial production (IIP)rose to 8.8 % in June 2011 , year-on-year.

The eight core infrastructure industriesgrew by 5.2 % in June 2011 as comparedto the growth of 4.4 % in June 2010 .Exports in terms of US dollar, increased

by 46.4 % during June 2011.


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The Economic Scenario India has been ranked at the second place inglobal foreign direct investments (FDI) in2010 and is expected to remain among thetop five attractive destinations forinternational investors during 2010-12,according to a report by UNCTAD.India's FDI gathered momentum with theinflows growing by 310 % in June 2011 totouch US$ 5.65 billion. It is the highestmonthly inflow during the last 11 years. Thetotal FDI stood at US$ 16.83 billion duringJanuary-June 2011.NRI inflows in the first quarter of 2011-12 haswitnessed a rise of 38 per cent as comparedto the same period in 2010-11. NRIs invested

US$ 1.54 billion in various NRI depositschemes during April-June 2011.


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Private equity (PE) investments in India stood atUS$ 6.14 billion in value terms, while the numberof deals increased by 33 per cent to 195, duringJanuary-June 2011.The rise in the value of thedeals so far (June 2011) recorded a growth of 52per cent, as compared to US$ 4.04 billion raisedduring 2010.India's foreign exchange (Forex) reserves haveincreased by US$ 1.6 billion to register US$ 318billion during the week ended August 19, 2011,according to data released by the RBI.

The Government has approved fund raising worthRs 60,950 crore (US$ 13.24 billion) by companiesthrough external commercial borrowings (ECB) orforeign currency convertible bonds (FCCB) for

infrastructure projects in the financial years 2009-2011.


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The role of decentralization Decentralization led to Indias statesbeing more in control of their growthpathsSome states had inherent qualitiesthat enabled them to take advantageof the liberalization reforms and boosttheir service sectors-

i. Quality of infrastructureii. Amount of investmentiii. Education leveliv. Financial sector strength


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n a s pa way ogrowth Dual-track growth: industrial growth in the

inland states alongside continued service-sector expansionProper regulations and labor laws relating to

manufacturingi. Encourage industrial firms to achieve

economies of scaleii. Gradually wean India off of import-

substituting policies to force domesticindustry to become competitive in the

international marketplaceInvesting in education, especially in primaryand secondary education for the generalpublicInvesting in public infrastructureFocus on aiding industry


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The Planning Commission was set up in March, 1950 by a

Resolution of the Government of India.

The economy of India is based on planning through its five-

year plans , developed, executed and monitored by thePlanning Commission . With the Prime Minister as the ex

officia Chairman, the commission has a nominated Deputy

Chairman, who has rank of a Cabinet minister. Montek Singh

Ahluvaliya is currently the Deputy Chairman of theCommission. The tenth plan completed its term in March

2007 and the eleventh plan is currently underway.


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ELEVENTH PLAN (2007-2012)

The eleventh plan has the following objectives:

1. Income & Poverty

Accelerate GDP growth from 8% to 10% and then maintain at10% in the 12th Plan in order to double per capita income by2016-17Increase agricultural GDP growth rate to 4% per year to ensurea broader spread of benefitsCreate 70 million new work opportunities.Reduce educated unemployment to below 5%.Raise real wage rate of unskilled workers by 20 percent.Reduce the headcount ratio of consumption poverty by 10percentage points.


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2. Education

Reduce dropout rates of children from elementary schoolfrom 52.2% in 2003-04 to 20% by 2011-12Develop minimum standards of educational attainment in

elementary school, and by regular testing monitoreffectiveness of education to ensure qualityIncrease literacy rate for persons of age 7 years or aboveto 85%

Lower gender gap in literacy to 10 percentage pointsIncrease the percentage of each cohort going to highereducation from the present 10% to 15% by the end of theplan


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3. Health

Reduce infant mortality rate to 28 andmaternal mortality ratio to 1 per 1000 livebirthsReduce Total Fertility Rate to 2.1Provide clean drinking water for all by2009 and ensure that there are no slip-backsReduce malnutrition among children of age

group 0-3 to half its present levelReduce anemia among women and girls by

50% by the end of the plan


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4. Women and Children

Raise the sex ratio for age group 0-6 to935 by 2011-12 and to 950 by 2016-17Ensure that at least 33 percent of thedirect and indirect beneficiaries of allgovernment schemes are women andgirl childrenEnsure that all children enjoy a safechildhood, without any compulsion to

work


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5. Environment

Increase forest and tree cover by 5 percentagepoints.

Attain WHO standards of air quality in all major

cities by 2011-12.

Treat all urban waste water by 2011-12 to clean

river waters.Increase energy efficiency by 20 percentage

points by 2016-17.


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SUMMARY Indian growth stems primarily from its servicesectorCapital has had relatively small role in Indiangrowth

The British left strong institutions, but theirlegacy inspired harmful regulations andpoliciesIndian growth increased in the 80s, before the

neoliberal reforms of the 90sThe key to improving the Indian growth rate,and to minimizing economic disparity, isindustrial reform

Corruption levels are actually better thanh f i

role of government in economic growth

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