What’s India’s secret to growth? For one, India has been placing substantial emphasis on developing it’s retail, insurance, and aviation sectors and also promoting it’s microfinance sector in attempt to gain foreign investment. Why retail, insurance, and aviation? These sectors have proven more resilient to economic shocks than have other sectors such as agriculture.
However, India’s move towards retail, insurance, and aviation has come with a price: millions of dollars in lost business due to union workers going on strike. This is a clear example of the “losers” who suffer from the distributional consequences of relocating capital from one sector to another. This move also exemplifies the problem with factor mobility, which is the assumption that workers can easily move from one sector to another.
And that’s not all India is doing to get back on it’s feet. India’s finance minister announced increased taxes on the wealthy, as well as an additional surcharge on large domestic businesses.
Although India is projected to reach it’s target of reducing it’s deficit and increasing growth, it definitely comes with a price for many in the domestic sphere, creating winners and losers in the process.
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ReplyDeleteIndia’s current goal of increasing its economic diversification is reminiscent of many top down economic planning. Why doesn't India let the market forces choose the sectors that have a comparative advantage in India? Does the Indian government posses secret information regarding sectors that offer a comparative advantage over others that don’t? Regarding the increase in taxes for the larger corporations and wealthy. Wouldn't this type of policy hurt future private investment in India by wealthy individuals and curb future company expansions? I don’t believe these types of policies will have a positive impact if any in India’s future growth rate for 2013-2014.
ReplyDeleteThis is such a great example of winners and losers within a shifting economy. Though, indeed India is growing, especially the retail and insurance areas, for example, there are losers. The agriculture sector is losing out, while the micro finance industry is growing. It is just interesting how in the short run, there are obvious losers when a developing country begins to change its economy, however, I think for India in the long run, these changes will be overall beneficial.
ReplyDeleteI agree with you, Caroline, that in the long-run these changes may be beneficial to the Indian economy and its growth. However, I wonder if Kuznet's Curve can be applied to this situation. I think that right now India would be in the process of industrialization and moving away from pre-industrialization. Once the Indian economy moves to the service economy what is going to happen with these workers? Would India have to start outsourcing?
ReplyDeleteInteresting post.
ReplyDeleteIndeed, retail insurance and aviation does seem to be an odd mix.
I understand the micro finance for India - That fits like a glove.
Insurance... apparently India must have a comparative advantage in financial services... and aviation...??
Are we talking outsourcing support to the US or something else?
Did your research say anything more ( beyond the economic shock idea ) about why they are choosing retail, insurance and aviation?
I would love to see more detail on each sector and why they think they are good choices.
What aspect of aviation, insurance and retail is India going to focus on?
Again, perhaps the insurance has an outsourcing aspect to it..?
Everyone knows that India does well at providing outsourcing services to the US.
That would make since. Some numbers and detail on why India has made these choices would be helpful.
Also, I it would be nice to see numbers / facts /info establishing their comparative advantage in those sectors.
Do you have any links to additional sources?
Thanks!
Rick
Rick,
ReplyDeleteI am not exactly sure why India has chosen aviation as a sector to focus on. However, if I remember correctly, in class we discussed that aviation was a type of industry that a developing economy might want to pursue in order to boost their economy . This is because the the amount of work that is needed to sustain a stable aviation sector. Aviation industries are reliant on other industries to make metal, provide labor, and textile industries to make the uniforms for workers, for example. This creates demand for other sectors' products, thus boosting the economy. I did also find an article that explained that in more detail:
"Global economic growth is a key driver of growth in air traffic demand. However, while air traffic demand has increased as economies have grown, air transportation itself can be a key cause and facilitator of economic growth. Not only is the aviation industry a major industry in its own right, employing large numbers of highly skilled workers, but more importantly it is an essential input into the rapidly growing global economy. Greater connections to the global air transport network can boost the productivity and growth of economies by providing better access to markets, enhancing links within and between businesses and providing greater access to resources and to international capital markets."
Here is the URL to that article if you are interested:
http://www.iata.org/SiteCollectionDocuments/890700_Aviation_Economic_Benefits_Summary_Report.pdf
Bridget