My selected developing country is India. The Indian economy has persistently experienced increased growth rates and it has a conducive business environment that has attracted various investments. It is recognized as the most favored destination for international investors, and this was according to the report provided by Doing Business in India. The majority of foreigners have ventured into various businesses in India. Considering the per-capita- income, it was ranked 141st by nominal gross domestic product and 131 by GDP (PPP) in 2012. There was a reduction in the growth of the economy to around 5.0% for the 2012-2013 financial year compared with 6.2% in the prior financial year (Rbi.Org.In 1).
Gross Domestic Product
The GDP of India increased by 9.3% in the economic year 2011-2013. There was a marginal increase in GDP during the quarter through March 2013, in the former quarter (Ietfindia. In 1). The government anticipated a growth rate of 6.1% -6.7% for the financial year 2013 -2014, although RBI anticipated a similar growth rate to be at 5.7%. Additionally, India experienced a national budget deficit of 4.8% of the gross domestic product in the financial year 2012-2013. The main objective of the Indian government is to reduce the national deficit to the United States to the US $ 70 billion or 3.7% of gross domestic product by 2013-2014 (Rbi.Org.In 1).
Efficiency and innovation are the key factors aimed at boosting the growth of exports. There was an increase in exports from special economic zones (SEZ). The whole quantity of foreign direct investment (FDI) equity inflows during April – November 2011 was the United States $ 22,835 million
Per Capita Income
Its present value was projected to be Rs. 68,747 compared to Rs. 61,564 during 2011-2012. The per capita for India is used for measuring standards of living and it was expected to have increased by 11.7% to Rs.5729 per month in 2012-2113. By 2008, India was recognized as a fast-growing economy. There was a reduction in growth to 6.8% in 2008-2009 but then recovered to 7.4% in 2009-2010, while the increase in the national budget deficit increased from 5.9% to 6.5% during a similar period. The current account deficit for India increased to 4.1% of the gross domestic period during the Q2 financial year 2011 against 3.2% in the former quarter.
According to the state Labor Bureau, the rate of unemployment in the financial year 201-2011 stood at 9.8% nationwide. As of 2011, its national debt was 68.05% of the gross domestic product which is the maximum among the upcoming economies. On the other hand, the rate of inflation was high with 7.55% in August 2012, the total value for imports and exports was $ 606.7 billion, and it is presently the ninth-largest globally. During the financial year 2011 -2012, India’s international trade increased by an impressive 30.6% to reach $ 792.3 billion.
The exchange rate policy in India has changed for some time since the early 1990s. There was a change in India’s exchange rate policy after sovereignty from a par value system to a basket-peg and later on to a managed float exchange rate system (Rbi.Org.In 1). Following the breakdown of the Bretton Woods System in 1971, the rupee was interrelated with the pound sterling. To overcome the weaknesses related to a single currency peg and to make sure that the exchange rate is stable, since September 1975, the rupee was pegged to a basket of currencies until the 1990s. The Liberalized Exchange Rate Management System (LERMS) was established in March 1992 and it entailed the dual exchange rate system in a temporary period. Instead of the dual exchange rate system, a unified exchange rate system was used in March 1993 (Rbi.Org.In 1). The market-determined exchange rate that has been experienced in India since 1993 could be described as a satisfactory system that has been used over time (Rbi.Org.In 1).
A significant aspect of policy response in India to a variety of episodes of volatility has been the intervention of the market together with financial and administrative measures to deal with threats to monetary stability. Based on the exchange rate policy, it can be seen that the Indian rupee is moving together with economic fundamentals in the post-reform period. For India to attain stability in the market, it will have to be adaptable, innovative, and flexible with reference to the strategy for liquidity management as well as exchange rate management.
Indian Policies towards exchange Rates
For India to make sure there is an increase in the number of exports and it is among the key players of international trade, it announces a foreign trade policy after every five years. The FTP is reviewed annually to include changes that will be required to take care of the upcoming economic situations both domestically and internationally (Henry 1). The FTP operates on seven principles. They include encouraging local manufacturing so that the country can export more and import less; promoting the use of technology in the manufacture of exports so that it can remain competitive in the international market, and encouraging diversification of the market. Others include encouraging exports from the North-Eastern region given that it is well recognized in India’s economy and offering incentives for the manufacture of green goods.
Indian Policies on Monetary Systems
A monetary system refers to a group of mechanisms used to offer money in the economy of a given nation. It usually comprises of the central and commercial banks. It also entails ways used by the government to control the supply and exchange of money in the economy. One of the policies used by the Indian government on monetary systems is the monetary policy (Rbi.Org.In 1). It refers to the process by which the central bank controls the supply of money in the economy through regulating interest rates to ensure that there is price stability and attain high economic growth. Other aims of monetary policy as indicated by RBI are:
This makes sure there is a favorable environment for business that enables developmental projects to operate swiftly while ensuring there is price stability.
Controlled Expansion of Bank Credit
One of the significant roles of RBI is the controlled expansion of bank credit and money supply putting into consideration the seasonal requirement for credit without having any effect on the output (Rbi.Org.In 1).
Promotion of fixed investment
The major objective is to boost the level of production by restricting non-essential fixed investment.
Promotion of Exports and food Procurement operations
Monetary policy plays a major responsibility in promoting exports and enhancing trade. It makes sure the country produces enough products for export (Rbi.Org.In 1). The RBI of India makes sure it reduces rigidity by maintaining the operations of the monetary system. This is done using the following monetary policies:
Open Market Operations
It is a monetary policy tool that entails buying and selling of government securities from or to the bank and the public. The RBI put on the market government securities to reduce the amount of credit and purchases government securities to raise the flow of credit. It is aimed at making sure that the bank rate policy is effective and ensures that there is stability in the country’s security market (Rbi.Org.In 1).
Cash Reserve Ratio
It refers to a certain amount of money that commercial banks are expected to keep with the central bank in form of balances. This is because a high cash reserve ratio reduces liquidity in the system. The RBI has the mandate to change the cash reserve ratio between 15 and 3% (Rbi.Org.In 1).
It is the interest rate charged by the RBI on banks when giving out loans. Loans can be offered in various ways for instance, through direct lending, or purchasing money markets like treasury bills. A rise in the bank rate results in an increase in the cost of borrowing by commercial hence lessening credit volume to banks and reducing the supply of money. A rise in the bank rate indicates that the monetary policy of RBI has been tightened.
Indian Foreign Policy
Foreign policy refers to the sum of aims, interests, and ethics that a country has while it interacts with one another. Various factors for instance natural features, history, culture, and financial system influence the foreign policy of India. It is recognized as the second most popular country and the global most popular democracy. It is also recognized as a regional and probable worldwide power. India’s increasing foreign influence gives it a more significant change in worldwide affairs (Rajkoomar 1). It has played a significant role in various foreign organizations for instance the United Nations and the Non-Aligned Movement. Indian Foreign policy has undergone various changes in the previous decade. The major content, policy approach, and executive mechanisms of India’s foreign policy have tried to be in line with the national agenda of growth and development (Henry 1). The foreign policy of India has dealt with various issues for instance change in climate, food security, and terrorism. The present focal point of international policy is the economic agenda.
India’s foreign policy has changes depending on the situation. It has been changing and flexible enough to accept new challenges. For instance, in 1962, China, India`s neighbor with whom they had interacted for centimes in terms of culture and trade, launched an attack against India. The then prime minister Jawaharlal Nehru sent an SOS to president J.F. Kennedy of the United States, and the U.S. came to India`s help (Rajkoomar 1). In a separate incident when Pakistan came up with the Kashmir dispute in the United Nations Organizations (U.N.O), America always supported Kashmir, while the U.S.S.R was behind India in the U.N.O by vetoing the Kashmir resolutions.
In the course of the Bangladesh war in 1971, America had deployed its Seventh Fleet to the Indian Ocean to support Pakistan. The Americans launched a devastating attack from the sea against Indian forces. However, India was quick to negotiate a 20-year friendship and cooperation treaty with the U.S.S.R. America`s Seventh Fleet was scared by India’s moves, leading to their withdrawal from the Indian Ocean.
Similarly, India has backed Nepal`s efforts in its transition to democracy. Furthermore, India backed the reinstatement of the democratic system in Bangladesh (Rajkoomar 1). Furthermore, India has been a close ally of Afghanistan in its development and reconstruction efforts. In addition, India continues to maintain close bilateral ties with its Asian neighbors (Rajkoomar 1). It has worked toward the restructuring of SAARC to make it a result-driven organization that is effective in promoting regional integration. In 2008, India further consolidated its bilateral ties with China, and in September of the same year, China opened a new consulate in the Indian city of Kolkata. In early 2008, India had opened its consulate in the Chinese city of Guangzhou.
One of the major landmarks in India`s foreign policy came in October 2008 when India and the United States signed the Civil Nuclear Agreement. This agreement brought to an end nearly 30 years of technology denial in the area of nuclear. After the signing of this bilateral nuclear agreement, India has entered into several agreements for civil nuclear cooperation with Russia, France, and Kazakhstan. It is during this time that India`s traditional strategic ties and friendship with Russia were consolidated.
It plans to build a strong cultural and historical relationship with the Central Asian countries, and to closely involve itself with this region by making sure that cooperation with Central Asia gets higher diversification and substance (Henry 1). India has maintained its relationship with the EU, and with other countries in Europe in various fields like nuclear and space, defense and security, investment and trade, change in climate, and science and technology among others. Currently, the biggest commerce partner for India is the EU. Additionally, it has persistently maintained its relationship with African countries. India’s attempts to improve and maintain its relationship with countries of the Latin American and Caribbean region lead to positive results in the present year (Henry 1). The current cooperation of India with other countries in West Asia and the Gulf region is an indicator of contemporary nature and comprises the peaceful uses of the exterior space.
There was an increase in the economical and technical cooperation of India in 2009. It was ready to play a vital role in the presently formed formal like IRC (India-Russia-China), IBSA (India-Brazil-South Africa), and BRIe (Brazil-Russia-India-China). India is working hard to make the United Nations stronger. India would like to see its international institutions reflecting the new realities of the global order, putting into consideration the aspirations of developing countries (Rajkoomar 1). Additionally, the foreign policy of 2008-2009 faced new intimidation to the security of India including unsettled security conditions of India and border terrorism. Thus, in unique situations, India has always supported its foreign policy of peaceful co-existence (Henry 1). It was very significant because it assisted India to protect its independence, improving its association with other countries, and judging global developments on merit.
In conclusion, the Indian economy is experiencing increased growth and its economy is expected to improve in the coming years. The monetary system has also been of great significance because it has helped the Indian economy to maintain stable prices; improving the economy.
Rajkoomar, Manish. An Essay on the Foreign Policy of India | Articles | Eng. Publishyourarticles.net, 2014. Web. 1 Apr 2014. <http://www.publishyourarticles.net/eng/articles/an-essay-on-the-foreign-policy-of-india.html>.
Ietfindia.In. IETF 2013: India’s Economy. Ietfindia.in, 2014. Web. 2 Apr 2014. <http://www.ietfindia.in/indias_economy.aspx>.
Henry, Laurence. India’s International Trade Policy. 2008. E-book.
Rbi.Org.In. Reserve Bank of India. Rbi.org.in, 2014. Web. 1 Apr 2014. <http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252>.