What Type of Economy Is India?

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India has a mixed economy. Half of India's workers rely on agriculture, the signature of a traditional economy. One-third of its workers are employed by the services industry, which contributes two-thirds of India's output. The productivity of this segment is made possible by India's shift toward a market economy. Since the 1990s, India has deregulated several industries. It's privatized many state-owned enterprises, and opened doors to foreign direct investment.

India's Strengths

India is an attractive country for outsourcing and a cheap source of imports. Its economy has these five comparative advantages. The cost of living is lower than in the United States. Its gross domestic product per capita is $7,200, half that of China or Brazil.  This is an advantage because Indian workers don't need as much income since everything costs less. India has many well-educated technology workers. English is one of India’s official subsidiary languages. Many Indians speak it. This, combined with the high level of education and the wage differential, attracts U.S. technology and call centers to India. It's hard to quantify how many jobs have been lost to outsourcing, and estimates range from 104,000 to 700,000.

India’s 1.3 billion people come from a wide range of economic and cultural backgrounds. This diversity can be a strength or a challenge. Socioeconomic status is largely determined by geography. India’s three main regions each have distinct class and education divisions. Many people leave the rural areas to live in the cities. Most of them are young and educated. They seek a higher quality of life. The level of urbanization reached 34% in 2018. The profitable Indian film industry is called "Bollywood." It's a portmanteau of Bombay, now called Mumbai, and Hollywood. Bollywood makes more than twice the number of movies Hollywood makes.

These comparative advantages mean great opportunities for American business. Foreign direct investment in Indian companies could be very profitable. The Indian middle class is almost 250 million people, bigger than the U.S. middle class. It will continue to drive India's consumer spending and economic growth. In addition to FDI, India has seen more than 100 initial public offerings in the last 18 months.

India's Challenges

<!--[if !supportLists]-->1.       1. Prime Minister Modi is a Hindu nationalist leader. Many blame him for the violence against Muslims while he was governor of India's Western region of Gujarat.

 2. Modi is up against India's bloated government bureaucracy. That makes the execution of any fiscal or monetary policy difficult. In August 2015, he was blocked from passing a bill to acquire land to promote infrastructure.

3. U.S. monetary policy has hurt India’s economy. For example, when the Federal Reserve began its quantitative easing program, the value of India's rupee fell. The resulting inflation forced India's central bank to raise its interest rates. This action slowed India's economic growth, eventually resulting in what some called mild stagflation in 2013.30 It had 10.9% inflation for the year and a growth rate of 6.4% Slow growth came from contractionary monetary policy to stem inflation. By 2017, inflation had slowed to 3.6%. 

4.nvestors backed off from India and other emerging markets when the U.S. Federal Reserve began tapering its quantitative easing program. When the dollar rose surged in 2014, it forced the value of the rupee and other emerging market currencies down.

 5. Climate change threatens India's attempts to improve its citizens' standard of living. More than 600 million Indians face acute water shortages. Bangalore and New Delhi are two of the 21 cities that could deplete their groundwater in 2020. In July 2019, the city of Chennai ran out of groundwater. Over 200,000 people die from contaminated water. By 2030, 40% of the population will have no access to drinking water.

 6. Most of India's rainwater falls during the four-month monsoon season. It isn't captured efficiently. Climate change will increase flooding from these monsoons. The Indus River depends on water from the Hindu Kush-Himalaya glaciers. If nothing is done to reduce greenhouse gases, studies estimate that anywhere from 35 to 94% will melt by 2100.

7. Sea level rise threatens India's 4,660 miles of coastline. It threatens megalopolises like Mumbai, Chennai, and Kolkata, which are home to over 48 million people. Many of these cities are built on landfill. In Mumbai, seawater spills onto the main ocean side promenade d

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