Undesirable situations that exist in the Macro-Economy, largely because one or more of the macroeconomic goals are not satisfactorily attained. The primary problems are unemployment, inflation, and stagnant growth. Macroeconomic theories are designed to explain why these problems emerge and to recommend corrective policies.
Macroeconomic problems arise when the Macro-Economy does not satisfactorily achieve the goals of full employment, stability, and economic growth. Unemployment results when the goal of full employment is not achieved. Inflation exists when the economy falls short of the stability goal. These problems are caused by too little or too much demand for gross production. Unemployment results from too little demand and inflation emerge with too much demand. Stagnant growth means the economy is not adequately attaining the economic growth goal. Each of these situations is problematic because society is less well off than it would be by reaching the goals
AIMS AND OBJECTIVES :
The project aims to understand the macroeconomic problems faced by the Indian economy and write a report on them
Objectives of the study are
- To understand how an economy works as a whole.
- To list down some of the macroeconomic problems faced by the Indian economy
- To learn in detail about some of the problems like poverty, unemployment etc.
- To discuss the problems in detail
- To find a possible suggestion for the problems
METHOD AND METHODOLOGY :
In this project, we are going to learn about the macroeconomic problems faced by the Indian economy
Primary data is data gathered for the first time by the researcher. It is the raw form of data and thoroughly studied and hence a helpful tool for secondary data. Here the method used for collection of primary data is by using reference of the website.
The referred websites in this project are used as a source of data for this project. Most of the content is collected from these websites. The authenticity of this information cannot be taken seriously and thus keeping that in mind most of that data might be true or fake.
DETAIL REPORT OF PROJECT :
Problems faced by Indian economy can be classified as follows:
Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 8-10%. This inflation has been a problem despite periods of economic slowdown. For example in late 2013, Indian inflation reached 11%, despite growth falling to 4.8%. This suggests that inflation is not just due to excess demand, but is also related to cost-push inflationary factors. For example, supply constraints in agriculture have caused rising food prices. This causes inflation and is also a major factor reducing living standards of the poor who are sensitive to food prices. The Central Bank of India has made reducing inflation a top priority and have been willing to raise interest rates, but cost-push inflation is more difficult to solve and it may cause a fall in growth as they try to reduce inflation.
- Poor educational standards
Although India has benefited from a high % of English speakers. (important for call center industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate. This limits economic development and a more skilled workforce.
- Poor Infrastructure
Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy.
- The balance of Payments deterioration.
Although India has built up large amounts of foreign currency reserves the high rates of economic growth have been at the cost of a persistent current account deficit. In late 2012, the current account reached a peak of 6% of GDP. Since then there has been an improvement in the current account. But, the Indian economy has seen imports grew faster than exports. This means India needs to attract capital flows to finance the deficit. Also, the large deficit caused the depreciation in the Rupee between 2012 and 2014. Whilst the deficit remains, there is always the fear of a further devaluation of the Rupee. There is a need to rebalance the economy and improve the competitiveness of exports.
- High levels of private debt
Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However, there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore, if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future
- Inequality has risen rather than decreased.
It is hoped that economic growth would help drag the Indian poor above the poverty line. However, so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s rural poor are yet to receive any tangible benefit from India’s economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3)
- Large Budget Deficit
India has one of the largest budget deficits in the developing world. Excluding subsidies, it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.
- Rigid labor Laws
As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labor laws.As discussed in our topic how many firms in india manufacture soaps and tooth paste
- Inefficient agriculture
Agriculture produces 17.4% of economic output but, over 51% of the workforce is employed in agriculture. This is the most inefficient sector of the economy and reform has proved slow.
- A slowdown in growth2013/14 has seen a slowdown in the rate of economic growth to 4-5%. Real GDP per capita growth is even lower. This is a cause for concern as India needs a high growth rate to see rising living standards, lower unemployment and encouraging investment. India has fallen behind China, which is a comparable developing economy
- Lack of technical knowledge in comparison to other countries.India has to depend on foreign countries for the supply of machinery, capital goods, and technical knowledge. She export raw-materials and imports manufactured goods. The import of capital goods involves heavy cost due to higher prices. India depends too much on import which makes her economy dependable on others and affects the terms of trade.
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