Economy: India vs. World's Best - Views on News from Equitymaster

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Economy: India vs. World's Best

Nov 15, 2001

A considerable amount of time has been spent in comparing India's balance sheet and profit and loss account with those of other developing countries. Comparing apples to apples as one would say. Well, this surely has its advantages. Why do we say that? Getting where other developing nations are is surely not where we wish to ultimately reach i.e. we wish to go further, reach higher and ofcourse, become a developed nation. Therefore, comparing ourselves to other developing nations may make the task seem much easier than it actually is!

We have put together financial information on the leading developed countries. Alongside we have put the comparable numbers for the Indian economy. This should put our financial position in perspective and also make us aware of the task that lies ahead.

UnitEuro AreaUnited StatesJapanIndia
Populationmillion 303 276 127 1,007
GDP per CapitaUS $ 19,867 31,180 22,181 485
Sectors of Production
Agriculture and related% of GDP 2.7 1.4 1.7 24.0
Industry% of GDP 28.8 24.7 34.5 21.8
Services% of GDP 68.5 73.9 63.8 54.2
General Government
(Deficit)/Surplus% of GDP (0.7) 2.3 (8.6) (5.1)
Gross Debt% of GDP 70.3 57.3 130.4 60.0
Revenues (taxes)% of GDP 27.2 22.3 15.5 9.1
Exports of Goods% of GDP 14.8 7.8 9.7 9.2
Imports of Goods% of GDP 14.3 12.3 7.2 10.7
Current Account Balance% of GDP (0.7) (4.4) 2.5 (0.5)
Latest available figures (Year 2000); India - FY01

It is clear from the table that India today is decades away from reaching the status of a developed nation. While on the one hand we need to control population growth, on the other, numerous initiatives need to be taken to push the economy into a higher growth trajectory. Slower growth in population and faster growth in national income is the only way we can bridge this gap that exists between developed nations and India.

As far as the contributors to national income are concerned, India seems to be on the right track. The contribution of the primary sector (agriculture and related) has declined from a high of over 65% to only 24% currently. The services sector on the other hand has grown considerably and now accounts for over half the domestic output. However, for this trend to sustain, the government needs to speed up reforms to promote investment in industry.

While India compares well with developed countries in terms of Debt and trade related ratios, we score very poorly in terms of tax collections. Indeed, sluggish growth in tax revenues is one of the key problems facing the country today. Lower revenues for the government mean higher deficits given that the government persists on continuing with its expenditure plans (this in a developing country may be necessary provided money is being spent on developmental activities). Higher deficits have a destabilizing impact on the economy via their influence on interest rates and inflation.

India, as we all already know, has a long way to go. The numbers only underscore the fact. However, the heartening thing is that atleast in some areas (debt, trade and current account deficits) we compare well with the best!

  • In case you wish to compare apples to apples (India vs. China), please click here.

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