A combination of internal factors are converging to create the Indian economic miracle:
- Quality of National Institutions: A crucial factor is the strength of national institutions, particularly their ability to uphold the rule of law, protect property rights, and ensure efficient transactions and enforcement of policies. This fosters a stable environment for investment and international competition, driving economic growth.
- Small and Medium-Sized Enterprises (SMEs): The proportion of SMEs in the Indian economy is lower compared to EU countries. This suggests a potential for growth by fostering a more vibrant SME sector.
- Foreign Technology and Expertise: India's economic growth has been significantly influenced by its reliance on foreign technology, innovation, and expertise, particularly from the United States. This has been instrumental in upgrading its export-oriented and domestic manufacturing capabilities.
- Government Spending: Increased government spending, particularly in response to the COVID-19 pandemic, has played a role in supporting economic growth. However, the effectiveness of this spending depends on the competence of economic policymakers.
- Trade Opportunities for SMEs: The India-led G20 has created new trade opportunities for micro-, small-, and medium-sized enterprises (SMEs). This can contribute to economic growth by fostering a more diverse and dynamic business landscape.
- Reforms and Development Initiatives: India is actively pursuing reforms to improve governance and the ease of doing business. Additionally, initiatives like the Global Development Initiative (GDI) aim to support sustainable development and address challenges like poverty, food security, and climate change.
Challenges to Growth:
- Slow Reforms: Reforms to governance and the ease of doing business have been slow, creating headwinds for economic growth.
- High Youth Unemployment and Adult Illiteracy: High youth unemployment and adult illiteracy pose significant challenges to India's economic potential.
- Inequality: While inequality is not unique to India, the low female labor force participation rate (24% in 2022) is a concern.
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