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Barriers to India’s Economic Development

The major problems that hinder its economic development program in India

India is a country which is located at South Asia. It has achieved its independence on 15th August 1947 and it practices the federal republic government type (The World Factbook, 2013). It has 3287800 of territory and it ranked as 7th largest country by area in the world with population over 1.2 billion people. New Delhi is the capital while the Indian Rupee (INR) is used as their currency in India. In 2012, the GDP at purchasing power parity exchange rates in India reached an amount of $4.761 trillion which increased with $0.182 trillion from 2011 (Index mundi, 2013). Besides that, India has an economic freedom with the score of 55.7 which make it ranked at 120th freest economy in 2014 (2014 Index, 2014).

First and foremost, the main problem that hinders its economic development program in India is corruption. According to the BBC News India (2011), the corruption index of India is 3.1 in 2010 and it stands at 95th position in the world. This statistic shows that India is considered highly corrupted. Corruption has resulted from the overabundance of regulation, excessive taxes and problematical licensing system in India. Firms are legally responsible to pay the high rate of taxes and there would be a loss of profit under Minimum Alternative Tax (MAT) system. It is adversely affecting the economic development in India through the reduction of Foreign Direct Investment (FDI) and loss of credibility (South Asia Masala, 2012). High level of corruption is significantly reducing the productivity and then discourages the net capital inflow from abroad.

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Besides that, inflation also has a significant impact on Indian economy. According to the Inflation.Eu (n.d.), inflation in India reached a high percentage of 11.17% in 2012 which is increased of 4.68% from 2011. The inflationary pressure in India is caused by several reasons such as the deregulation of administered prices, supply shock, increase of indirect taxes and the increase in population which leads to increase in demand (Choudhury, n.d.). Since the prices in India are rising faster than foreign countries, its commodities prices are relatively higher than foreign countries. It is difficult for Indian to sell their goods and services abroad, and therefore the export of India is decreased. Moreover, the companies wary to invest in the new project due to the economy uncertainty that resulted by the inconsistent of prices. In this situation, the economies become more unequal where the poor who tend to hold a large proportion of their saving in the form of cash has the worst impact of the inflation (Ames, Brown, Devarajan, & Izquierdo, 2001).

Poor education standards also one of the barriers that hinder the economic development programme in India. As per Census of India statistics report (n.d.), the literacy rate in India has raised to 74.04% in 2011 as the population increased compared to 64.83% in 2001. It shows that there is a high level of literacy among population even though India has benefited a high percentage of English speakers. The high level of literacy was worse especially in rural area and amongst women. Besides that, the insufficient in schools and lack proper training for school teachers are among the reasons for the poor showing of education in India. Therefore, this limits the economic development in India. This situation is because the high level of literacy rates able to limit the more skilled workforce.

Last but not least, poverty is a grave problem in India since around 77% of Indians live in slum which has the limited of electricity supply, clean water, food and educational opportunities (The World bank, 2011). There is about 41.6% of India’s population living below the new international poverty line which their purchasing power parity is only $1.25 per day. In addition, the distribution of wealth in India is inequity where the top 10% of income groups earning 33% of the income. Yet, 25% of the India’s population earns only $0.40 per day which is less than the government-specified poverty threshold (Shaikh, 2010). In addition, the poverty leads to food crisis in India which resulted by the overpopulation. Therefore, a huge amount of food grain is needed to feed the large population, so that the food producers to boost the productivity. However, the inflation of important agricultural commodities makes worse to the producer who faced financial problem (Guru, 2008).

In conclusion, there are several factors that influence the economic development program in India including corruption, inflation, poor education standards and poverty. As the problems cannot be resolved in the short term, the long-term economic development in India is bound to be hampered. Thus, India should continue to develop the economic reforms especially opening up more markets to attract the foreign capital, reforms the economic structure, and cultivate new growth points to solve the economic problems. Besides that, government play crucial role to maintain sustainable growth and improve the well-being of society. So, the government should be taking some action such as enforce the law system and make some change in the policy to increase the efficiency and productivity.


Ames, B., Brown, W., Devarajan, S., & Izquierdo, A. (2001). Macroeconomic policy and poverty reduction. Retrieved from: http://www.imf.org/external/pubs/ft/ exrp/macropol/eng/

BBC News India. 2011. India transparency international corruption index blow.Retrieved form http://www.bbc.com/news/world-asia-india-15979646

Census of India statistics report. (n.d.). Government of India. 2011. Literacy and Level of Education. Retrieved form http://censusindia.gov.in/Census_ And_You/literacy_and_level_of_education.aspx

Central Intelligence Agency. (2013). The World Factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

Choudhury, M. (n.d.). Inflation in India. Retrieved from http://economydecoded.com/2013/01/inflation-in-india.html

Guru, S. (2008). Food crisis in India: causes and its effect. Retrieved fromhttp://www.indiastudychannel.com/resources/45012-Food-Crisis-India-causes- its-effect.aspx

Index Mundi. (2013). India Capital. Retrieved from http://www.indexmundi.com/india/capital.html

Inflation.eu. (n.d.). Historic inflation India: CPI inflation. Retrieved from http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation- india.aspx

Shaikh, S. (2010). Business environment. Retrieved from http://books.google.com.my/

South Asia Masala. (2012). India: corruption affecting investment and economic growth. Retrieved from http://asiapacific.anu.edu.au/blogs/southasiamasala/ 2012/12/13/india-corruption-affecting-investment-and-economic-growth

The World Bank. (2011). India: Achievements and challenges in reducing poverty. Retrieved from http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ EXTPOVERTY/EXTPA/0,,contentMDK:20208959~menuPK:435735~pageK: 148956~piPK:216618~theSitePK:430367,00.html

2014 Index of Economies Freedom. (2014). India. Retrieved from http://www.heritage.org/index/country/india


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