FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH

Macroeconomic convergence, financial development and economic growth

Macroeconomic convergence, financial development and economic growth

Introduction

The economy of India today presented two very different faces: a large energy and increasing prosperity, especially since 2003, and another in which there substantial weaknesses, major development imperatives and, above all, poverty still extreme. It is understandable that the Government of New Delhi wants to highlight the country; it must examine the two realities. This paper looks at first, the causes, manifestations and main effects of rapid economic growth that has seen India from 2003. Second, it briefly analyzes the short-term economic risks, mainly related to increased vulnerability and insufficient financial job creation. Third, the analysis stops at the demands that the pattern development must comply from now on to keep medium and long term a growth rate equal to or greater than that of recent years. Fourth, states the task remains enormous, given the extreme underdevelopment of most of the country.

Discussion

India's economy has registered phenomenal growth since 2003. The average annual growth rate of GDP has been 8.1% between 2003-2004 and 2005-2006 (fiscal years from April to March). That rate has not only been much higher year period (5.4%) but has been the world's second largest, after China. That growth has relied on the strong growth of service sector, (which is half of GDP) and to a lesser extent, industry (27% of GDP), while the primary sector has shown great instability due to the strong dependence of agriculture, with respect to the number and geographical distribution of monsoon rains.

Causes, manifestations and results of financial development and economic growth

The main causes of this growth were the next three. First, the Private consumption has greatly increased as a result of the consolidation of and numerous middle class increased the proportion in the total population of working-age population and the rise of consumer credit. The middle class in India can be defined in many ways. One is the National Council of Applied Economic Research (NCAER), a prestigious think tank Delhi, whereby the number of households with an annual income between 200,000 and one million rupees (4000-23000 dollars) have risen from 4.5 million in 1995 to 16 million in 2005. In many people, the increase would have been 24 million to 87 million. The wealthier class (with annual incomes over one million rupees) have gone from 300,000 households (1.7 million) in 1995 to 1.5 million (8 million) in 2005.

Moreover, given the youth of India's population (the median age is 24 years compared to China 33 years to 39 years in Spain), the ratio of the working age population work (15-64 years) and the total population has increased from 59% in 1995 to 63% in 2005. For comparison, the figure has been stagnant at 69% in Spain during the last decade. Consumer credit has grown at an average annual rate of 40% in 2000-2005, and respective weight in total bank credit has more than doubled. The second leading cause of high GDP growth has been increasing investment, ...