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Friday, July 15, 2011

India to Match Chinese Economic Growth by 2020! What AMUSING is the Idea! Despite China Opening up Great Walls has Succeded to sustain its Production system! Chines Growth is production Oriented NOT Like India, SERVICE and FII Sensex Oriented! Moreov



India to Match Chinese Economic Growth by 2020! What AMUSING is the Idea! Despite China Opening up Great Walls has Succeded to sustain its Production system! Chines Growth is production Oriented NOT Like India, SERVICE and FII Sensex Oriented! Moreover, More Populous than India, CHINA has USED MANPOWER while India Banks On EXCLUSION and ETHNIC Cleansing and Opens up all Floodgates of FREE MARKET KILLING Constitution, DEMOCRACY, Human and CIVIL Rights and the People!

Indian Holocaust My Father`s Life and Time - SIX HUNDRED EIGHTY FOUR

Palash Biswas

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India to Match Chinese Economic Growth by 2020! What AMUSING is the Idea! Despite China Opening up Great Walls has Succeded to sustain its Production system! Chines Growth is production Oriented NOT Like India, SERVICE and FII Sensex Oriented! Moreover, More Populous than India, CHINA has USED MANPOWER while India Banks On EXCLUSION and ETHNIC Cleansing and Opens up all Floodgates of FREE MARKET KILLING Constitution, DEMOCRACY, Human and CIVIL Rights and the People!

HIRUVANATHAPURAM: India would catch up with its neighbour China in terms of economic growth by the turn of this decade, noted economist Pranab Bardhan said on Friday.

Bardhan, a professor at the University of California, was delivering the third B.G. Kumar memorial lecture at the Centre for Development Studies here Friday evening.

"A potential advantage India has over China in speeding up its economic growth is the demographic shift in favour of young and able working population. This would put India in a higher growth trajectory and the country could catch up with the economic growth of China by 2020," said Bardhan.

He also said that the world' two most populous economies would garner a lion's share of the world output and income, surpassing the now developed countries such as the US and Japan.

According to the current estimates, the combined size of India's and China's economy by the year 2025 would be 36 percent, he said.

He noted that more than the global environment, it was the domestic policy changes and initiatives that helped China achieve a higher growth trajectory.

China had transferred itself from a Communist economy to a household income-based economy. This has helped the country achieve a sort of relative income equality, improve standard of education as well as healthcare. This has gone a long way in helping China achieve higher economic and social development, he added.

"Another feature that spurred the overall growth in China is the key role played by the township and village industries under the control of local officials who enjoyed much autonomy. India should take a leaf out of this Chinese lesson to evolve a system of reward and punishment for the performers and laggards among the Indian bureaucracy," said Bardhan.

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Policy Initiatives

In general, the breadth and depth of collaboration between India and the US across a number of policy initiatives has progressed well. However, there is significant opportunity to develop focused policy initiatives that accelerate the economic growth agenda for India, for example by increasing foreign direct investment(FDI), investment in innovation and research, collaboration in alternative energy technology and others.

India-US Chair Collaboration 
in Economic Growth-driving Policy

To act as a catalyst for this collaborative economic growth policy agenda, the Wadhwani Foundation has funded a Chair in India-US Policy at the Center for Strategic and International Studies - a leading policy "think tank" based in Washington DC.

The Foundation also plans to fund a companion policy program in India.


Economic Growth

What Does Economic Growth Mean?
An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation. 

For comparing one country's economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries.
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Investopedia explains Economic Growth
Economic growth is usually associated with technological changes. An example is the large growth in the U.S. economy during the introduction of the Internet and the technology that it brought to U.S. industry as a whole. The growth of an economy is thought of not only as an increase in productive capacity but also as an improvement in the quality of life to the people of that economy. 
Chidambaram pitches for high growth to compete with China
Amid debate over sacrificing growth to contain inflation, home minister P Chidambaram on Friday said 9% economic expansion was necessary to raise per capita income and also to compete with neighbours like China. "There used to be some arguments that we should not aspire for 9% growth, may 
be we should settle for lower growth say 7%...if we grow at 5% or 6% that would be unfortunate", he said at a book release function here.

"...we (should) accept the fact that while many other objectives are laudable, robust faster growth should be among the highest objective of any government", he stressed.

Making a case for high economic growth, Chidambaram, former finance minister, said China overtook India in terms of per capita income in 1990 and the difference could widen significantly in the years ahead.

"China overtook India in 1990 (in terms of per capita income). In 2003, China's per capita was twice of India. In 2040, China's per capita will be 3.5 times of India. While India's will be USD 24,000, China's will be USD 85000", he added.

These numbers have "security implications", he said, adding India will have to live with a neighbour which can "outspend" the country three or four times on military, navy, air force and nuclear warheads.

The Reserve Bank, in a bid to contain inflation, has raised its key policy rates ten times since March 2010 and also lowered the growth projection to 8% for the current fiscal from 8.5% in 2010-11.

The initiatives of the Reserve Bank are having implications for the industrial growth which slipped to nine-month low of 5.6% in May.

RBI has taken a conscious call to sacrifice growth to check the rate of price hike which is nearing the double-digit mark. The headline inflation was 9.44% in June.


SEZ as A Major Source of Economic Growth in India

Social Economic Zone widely known as SEZ has become a chief medium of economic development for India. The SEZ in India is not only objective for an economic growth but also to provide highly developed infrastructure with a superior financial package. Today SEZ have become a big centre of attraction for not only domestic but also for the foreign investment. SEZ in India increased its function from 1st November 2000 to 9th February, 2006, under provision of Foreign Trade Policy. SEZ in India is offered with a limitation or particular need of land that would be around 67680 hectors, which further divides into two specifications or area's:

1) Processing Area - here SEZ units comes up.

2) Non Processing Area - here supporting infrastructure is formed for the SEZ unit.

What actually interests the investors or the purchasers would be the aim or an idea behind the SEZ and to understand that we can refer to the Social Economic Zone Act, 2005, passed by the parliament on 23rd June 2005.

The main goals are listed below:

• Generating of additional economic revenue

• Promoting export of goods & services

• Promotion of investment from domestic and foreign resources

• Generating the employment

• Development of infrastructure amenities

With these simplified goals becomes common to receive numerous application for the SEZ needed area. It would be interesting to know that there were 531 formal applications received by the government till date to which there has been approval granted to 174 applications only.

Social Economic Zones in India follows certain easy rules which are listed below:

• A simple process to develop, maintain and operate the SEZ in India and for setting the unit and performing business in the SEZ in India.

• To follow a single clearance window to set up SEZ in India

• Clearance window for the State Government and Central Government

• Simplified compliance process and documentation laying more of the emphases of self certifications

With entire processes it becomes equally essential that we are aware about the merits of the SEZ in India.

With a clear mission of bringing world class qualities to all segments of Real Estate development and real estate investments in India, Conscient is coming up with several Residential Complexes, IT Parks, Commercial Complexes, Commercial real estate in India, Special Economic Zones or SEZ in India and Premium Vacation Homes in thecountry.



Read more: http://www.articlesbase.com/real-estate-articles/sez-as-a-major-source-of-economic-growth-in-india-914276.html#ixzz1SCSLoSzg 
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Economic Policies

The governments of all countries are expected to promote the economic growth and economic welfare to improve the standard of living of the citizens. Governments are also expected to maintain law and order and ensure security of the country. Economic growth is generally measured in terms of GDP � Gross Domestic Product. GDP is the total value of goods and services produced in a country. An increasing GDP indicates increasing economic activity, which in turn generates more income. When employment and income of the citizens increases, their standard of living also increases.

The policies that governments pursue to encourage economic growth and welfare are called economic policies. These policies can be broadly classified into:

  • Fiscal Policy
  • Monetary Policy

Fiscal Policy

This policy seeks to promote the economic growth and to offset fluctuations in employment and income through proactive management of public expenditure, investments, taxation, and borrowings. The sources of funds of the government are tax receipts and borrowings. The major expenditures of the government are salary and administrative expenses on maintaining the government machinery for tax collection, law and order, and defence of the country.

Payment of interest and repayments of the existing borrowings are major outflows incase of governments, that have been spending more than their taxincome or running deficit budgets. Progressive governments, therefore, try to limit the preceding outflows and invest the surplus in augmenting infrastructure and other facilitators of economic growth.

The governments also try to directly influence the growth of certain regions, industries, or vulnerable sections of citizens by providing incentives in the form of tax concessions and subsidies. In addition, governments also enlarge the welfare initiatives like health care and education.

Governments draft relevant policies and implement them through various ministries. However, these policies are coordinated by the Finance ministry, which is responsible for raising resources and allocating the required resources to the various ministries. The policies formulated by various ministries and coordinated by the Finance ministry through the budgeting process are called Fiscal policies.

Monetary Policy

Prices of goods and services are influenced primarily by factors of demand and supply. These keep fluctuating on a constant basis. The changes in price level are measured by the government by average prices of a basket of goods and services both at the wholesale level and individual consumer level. Price indicators are known as Wholesale Price Index and Consumer Price Index.

Wild fluctuations in prices can be very disruptive as it will affect the fortunes of industries and, therefore, impact the life of those engaged by the industries. It is the responsibility of the government to ensure reasonable stability of prices.

Similarly, ensuring stability of exchange rate of the country vis-�-vis the international currencies such as US dollar and Euro is also essential to ensure orderly growth of industries. Fluctuations in exchange rates can cause fluctuation in the general price level, which in turn could destabilize the economy. Hence, an important goal of the government is to ensure reasonable stability of exchange rate of the currency of the country.

The policies pursued for managing liquidity, interest rates, and prices are together known as the Monetary policy. This policy is shaped and administered by the Reserve Bank of India [RBI]

RBI announces policy stance every 6 months. The policy statements of RBI cover more than liquidity and interest management. It covers all functions of RBI, such as, monetary management, regulation of banking system, exchange rate management, and their role as bankers to the government, namely, managing the finances and borrowing programmes of the government.

  1. Objectives of Monetary Policy
  2. Instruments of Monetary Policy
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BBL: Can Services Exports Lead Economic Growth?

Sponsor: Poverty Reduction and Economic Management Network

Presenters / Authors:

  • Saurabh Mishra, Consultant, PREM South Asia, World Bank
  • Susanna Lundstrom, Consultant, PREM South Asia, World Bank
  • Rahul Anand, Economist, Asia Pacific Department, International Monetary Fund

Chair: Sebastian Saez, Senior Economist, International Trade Department, World Bank

Discussants:

  • Kalpana Kochhar, Chief Economist for the South Asia Region
  • Arti Grover, Consultant, International Trade Department, World Bank

Description: This BBL will present a paper that examines whether more sophisticated services exports can be a good predictor of economic growth.  The authors of this paper created an index of "Service Exports Sophistication" and used it in a standard growth regression framework to examine if service exports sophistication is associated with growth. Results show that after controlling for initial income per capita, skills, financial development, polity and country, time invariant factors, export "quality" in services is indeed a predictor of growth performance. The results hold even after controlling for the size of domestic service sector or goods sophistication.  Countries, especially middle and lower-income countries, could benefit by adopting policies which increase the value addition in service exports, improve services productivity and promote export performance.

Presenters' Bios:

  • Rahul Anand is an economist at the International Monetary Fund, working in the Asia Pacific Department. He works on Sri Lanka and India. Rahul has received his PhD from Cornell University and Masters from Harvard University. His current research includes developing DSGE models with macro-financial linkages for the emerging markets; developing models for inflation forecasting in Sri Lanka; and determining the effectiveness of monetary transmission mechanism in India. His research on the monetary policy is supported by the research grants from the International Growth Center (IGC).  Prior to joining the fund, Rahul was a member of Indian Administrative Service. He has worked for nine years, holding senior administrative positions, designing, implementing, and monitoring various developmental programs/schemes of the Government of India.

  • Arti Grover is currently a consultant in the International Trade Department of the World Bank, working mainly on trade in services. In this role, she has researched on the determinants of services exports from developing countries in general and in particular from India, Philippines, Malaysia, Chile, Brazil and Egypt.   Prior to joining the Bank in September 2009, she was a Fulbright fellow in the International Economics Section of Princeton University. Her research and publications have mainly focused on issues related to offshoring and specifically services outsourcing. She holds a PhD in Economics from Delhi School of Economics.

  • Kalpana Kochhar is currently the Chief Economist for the South Asia Region.  Prior to joining the World Bank in December 2010, she held the position of Deputy Director in the Asia and Pacific Department since August 2008 leading the IMF's work on Japan, India, Sri Lanka, Maldives, Bhutan, Nepal. Prior to taking this position, she spent time in the IMF's Research Department, and in the Asia and Pacific Department leading the IMF's work on India, Australia, New Zealand, Singapore, and Malaysia. She has also worked on China, Korea and the Philippines. During her Fund career, she has also worked in the Policy Development and Review department (now known as the Strategy and Policy Review Department) and in the Fiscal Affairs department.   Ms. Kochhar's research interests and publications have mainly focused on studies of Asian economies, including India and China. Most recently, her research has focused on issues related to India's growth, financial and fiscal policies. She holds a Ph.D. and an M.A. in Economics from Brown University and an M.A. in Economics from Delhi School of Economics in India. She has a B.A in Economics from Madras University in India.

  • Susanna Lundstrom is currently a consultant at the World Bank in PREM South Asia where she is mainly working on country growth studies. Before that she was a Senior Economist at the World Bank first in PREM Poverty Reduction group and later in the PREM Economic Policy and Debt Department, where she focuses on country-specific economic analysis with particular attention to inclusive growth. She has previously worked at Sida as a Senior Economic Growth Advisor and Evaluator of General Budget Support. Prior to this, she graduated with a PhD degree from Gothenburg University in 2003, where she also worked as Research Fellow. Her research has been focused on the interaction between economic liberalization, political freedom and economic growth.

  • Saurabh Mishra is a Consultant at the World Bank in Poverty Reduction Economic Management (PREM) South Asia. He works on Sri Lanka and India. Saurabh has a Masters and Bachelors in International Economics and Finance from the University of California, Santa Cruz. His current area of research is Economic Growth, Trade and policies promoting inclusive growth.


Contact: Cynthia Abidin-Saurman, 202-458-2740, cabidin@worldbank.org

 
For Information: Cynthia Abidin-Saurman
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The Institute of Economic Growth 
 Continuing Commitment to Excellence

The Institute of Economic Growth (IEG) is an autonomous, multidisciplinary Centre for advanced research and training. Widely recognized as a Centre of excellence, it is one of India 's leading academic institutions in the fields of economic and social development. Established in 1958, its faculty of about 30 social scientists (economists, demographers and sociologists) and a large body of supporting research staff focus on emerging and often cutting-edge areas of social and policy concern. Many past and current faculty members are internationally renowned and award-winning scholars.

IEG's research falls into nine broad themes: Agriculture and rural development, environment and resource economics; globalization and trade; industry, labour and welfare; macro-economic policy and modeling; population and development; health policy; and social change and social structure. In addition, the Institute organizes regular training programmes for the trainee officers of the Indian Economic Service and occasional courses for officers of the Indian Statistical Service, NABARD, and university teachers. The Institute's faculty members also supervise doctoral students from India and abroad, provide regular policy inputs, and engage with government, civil society and international organisations. Over the years IEG has hosted many renowned international scholars, including Nobel Laureates Elinor Ostrom and Amartya Sen, and others such as Ronald Dore, Yujiro Hayami, Jan Breman and Nicolas Stern.

Founded in 1958 by the eminent economist V.K.R.V. Rao, IEG's faculty, Board of Directors and Trustees have included a wide range of distinguished intellectuals and policy makers, including V.T. Krishnamachari, C.D. Deshmukh, P.N. Dhar, A.M. Khusro, Dharm Narain, C. Rangarajan, C.H. Hanumantha Rao, Nitin Desai, T.N. Madan, P.C. Joshi and Bimal Jalan. Several former faculty members have served as members of the Planning Commission or on the Prime Minister's Panel of Economic Advisors. Prime Minister Manmohan Singh has had a long association with the Institute, initially as Chairman of the Board (1972-1982) and since 1992 as President of the IEG Society.  Mr. Nitin Desai is the Chairman and Prof. Bina Agarwal is the Director of the Institute.

 http://www.iegindia.org/

Government, World Bank to sign pact on rural jobs

The government will enter into an agreement with the World Bank here on July 18 for securing a soft loan worth $1 billion to fund the National Rural Livelihoods Project (NRLP), the ministry Of rural development said on Friday.

According to a statement, the funds would be distributed among the states on the basis of the size of their rural below poverty line (BPL) population.

"The investment in one of the world's largest poverty reduction initiatives will help in setting up an institutional platform by mobilizing rural poor, particularly women, into robust grassroots institutions," the statement.

The ministry said that the project will assist in bring professional practice in the overall programme by providing quality technical assistance.

"Rural development programme will invest intensively to support implementation of the NRLM in 100 districts and 400 blocks of 12 high poverty states, accounting for 85 percent of the rural poor in the country," the ministry said.

The NRLM project, under which the programme would be run, aims to create rural jobs and strengthen institutional platforms like education and medical services.
6 Jul, 2011, 05.46PM IST, Devika BanerjiDevika Banerji,ET Bureau

WB to give $1 bn for rural livelihood programme

NEW DELHI: The World Bank has approved $1 billion credit for National Rural Livelihoods Project ( NRLP )), which it said will aim at strengthening the implementation of the newly launched National Rural Livelihoods Mission (NRLM).

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NRLM is one of the world's largest poverty reduction initiatives costing approximately $ 7.7 billion, aiming to reach 350 million people.


The World Bank will help the Indian government create institutional platform by mobilising rural poor, particularly women, into robust grassroots institutions of their own where, with the strength of the group behind them, they will be able to access government welfare schemes and increase transparency and accountability in government systems.


The Bank has decided to invest in India's ambitious poverty alleviation progarmme based on successful models of NRLM in some states that have been successful in reducing poverty and increasing asset base of the rural population.


"The success of NRLM, which is expected to serve as a backbone for pulling together all other poverty reduction efforts under one umbrella, will help India move closer to some of the key MDGs (millennium development goals) in the near future," said Venu Rajamony, Joint Secretary in the Department of Economic Affairs, Union Finance Ministry.


The World Bank said the National Rural Livelihoods Project (NRLP), approved on Tuesday, would help the program scale up the successes of past livelihoods initiatives to other lagging regions of the country.



15 Jul, 2011, 08.28PM IST,ET Now

Emerging markets going to be attractive in coming months: BNP Paribas

In an interview with ET Now, William De Vijlder, CIO, BNP Paribas, talks about the markets and economy. Excerpts:


ET Now: Which themes, stocks or sectors look attractive to you to play the India story?


William De Vijlder: Against the background of the softer growth period that we are in and which we will continue to be in, we opt more for a defensive stance in terms of sectors. So it means that we prefer to go for pharmaceuticals, media and on the banking side, we look for the private banks because we like their business model and valuation. And in comparison to the public banks, the longer-term story that we continue to be very positive on is the rising middle class and what that means for the consumption. However, at this juncture, the focus is clearly more on defensive stance.


ET Now: Many believe that EPS growth in emerging markets will slow to about 18% in 2011 and 13% in 2012 from 38% last year. Would you subscribe to this view?


William De Vijlder: We will have a slowdown across the board in terms of EPS growth and that is both on the developed and on the emerging markets side. So the figure which you are mentioning seems pretty realistic to me. The thing is that we have to keep a healthy doze of scepticism when one is looking at these figures because at the end of the day, they tend to be revised up or down quite a bit. The question is going into the remainder of the year, is there a risk that there would be some disappointment? Yes or no. For the time being, there is more bit of a risk on this appointment. The US reporting season is going to be very important because it will set the scene for the rest of the world as well.

Bullish on pharma and media sectors: BNP Paribas

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The important element of course is that structurally speaking, we have this sustained and broader high growth. You add to that an average rate of inflation and you have hypothesis of kind of stable margins that is a bit narrower and then you come up to these 13% number. But I do want to emphasise the fact that these kinds of figures tend to be revised quite a lot and as an investor, the key element that you need to focus on is when you are monitoring the data flow is an evidence of acceleration or slowing down.


Coming back to the attraction of emerging markets, the important thing is that the sweet spot from an investment perspective is that when you are beyond the interest rate tightening phase and you are still having enough growth, that is a really interesting spot to be in. So you will not have that worry of falling off a cliff; but at the same time, you do not have the worry that there is going to be more hikes and that is again why emerging markets are going to be attractive in the coming months and it also means that the attention towards the expected EPS growth is going to be more thematic in 2012 whereas now the thematic is the valuation plus the interest rate cycle.

http://economictimes.indiatimes.com/opinion/interviews/emerging-markets-going-to-be-attractive-in-coming-months-bnp-paribas/articleshow/9234879.cms

13 Jul, 2011, 04.58PM IST,ET Now

Expect Sensex to touch 22,000 levels in a year: Toral Munshi, Credit Suisse Wealth

In an interview with ET Now, Toral Munshi , Head Research, Credit Suisse Wealth , gives her market perspective. Excerpts:

Your targets for the Sensex and the underlying assumptions that you have taken into mind while placing those targets out?

We expect the market to be trading at around 22,000 levels within a year's time. This is based on an assumption over 15% earnings growth on Sensex companies. We are also assuming that the PE would remain at the long-term historic average of about 15 times. In the shorter term, we expect the markets to continue to consolidate in the 17,500 to 20,000 range, but clearly the RBI pause in interest rate hike would be the key driver to take the markets to higher levels, more towards the last quarter of the current year.

There have been a fair amount of downward revisions in the GDP numbers as well from various economists. What is the outlook at Credit Suisse?

We are estimating GDP to grow at about 8.5% for the current fiscal and about 8.7% for FY13. We do expect that agriculture should be in a positive territory for this growth target to be achieved. So the primary assumption here is that we are headed for a normal monsoon. Of course this premise has to be revisited after July-August when we have a more clearer idea on how the monsoon this year is panning out, but assuming an agricultural growth that is in line with trend and an industrial production uptick in the second half, we do expect that we will end the year closer towards the 8.5% mark.

What is your view on construction and in real estate?

On a structural basis, we continue to remain negative on real estate. We do not advise longer-term core exposure to real estate for clients on the equity side. Direct real estate investment does provide much better return options. On construction pack again, the industry is going through a structural change where competition has increased significantly, balance sheets are stretched and as long as we are in a high interest rate environment, these companies are unlikely to report very strong earnings growth. There have been execution challenges as well. So the first round of re-rating could probably happen when this execution improves. The key triggers for the sector need to necessarily come from a change in the interest rate cycle, but we are slightly far away from that. We would at the time being avoid getting into the construction pack. Though valuations are looking slightly attractive, it is only an investment ideal for investors who are patient and have slightly longer-term horizons.

What are the sectors that you are overweight and bullish on because your reports suggest that FMCG and pharma look richly valued at the current levels. Would you look to book profits even if we are longer term investor, would you look to book profits there?

Clearly the defensives have given exceedingly good performance this year and are now trading at almost historic high valuations. So one needs to be cautious in terms of fresh exposure to the defensive sectors, especially on the consumer side. On pharma, you still have a little bit leeway to get reasonable returns if you are timing the entry right. We are advising clients to now go slow on adding to the consumption portfolio. There are a lot of other sectors especially the interest rate sensitives which have already factored in the pain that is to come in the numbers in the coming few quarters and we would be looking at adding to those over the next quarter as valuations here are now looking to be much more attractive. From a one year time-frame perspective, the return expectation on the defensives should largely be in line with earnings growth whereas for some of the interest rate sensitives could outperform the market given that we have already seen a significant correction and valuation close to bottom levels.

What kind of risks are you seeing for Indian equities? Is it there some political concerns or do you think crude oil prices are a bigger risk right now?

Crude continues to remain one of the primary concerns. Given the situation globally, you could see crude prices rising for short periods of time again. We would see that as a primary concern for the Indian markets, but that has always been the case. The political situation has been more or less been there for a couple of months and is fairly now priced into equity markets, barring some unforeseen events which could kind of lead to an uncertainty. We do not think that the political risk would lead to a derating of Indian markets in a big way.

In your recent report you have mentioned that fiscal inflationary conditions will ease going forward your comments on the same?

We are expecting the Reserve Bank to hike for at least two more times so we are talking about close to 50 bps further hike given the kind of the deceleration that you have seen in the macro data points lately. We do believe that towards the last quarter of this year if the data continues to show this kind of deceleration, we would come towards the end of the rate hike cycle towards the end of 2011.

One particular aspect has been the FDI and retail, do you think that FDI and retail and insurance and more government reforms going forward will actually boost investor sentiment?

Investor sentiment boost should happen more because the government is finally taking some action on some of the areas that they have been talking about for a very long time. So clearly there will be a positive sentiment impact, though in the immediate term there will be no numerical impact on how the companies do. Of course in the longer run you will have value unlocking that would come from some of the insurance subsidiaries that a lot of companies own and that would have more numerical impact, but that is a more longer-term impact. I think the immediate impact is going to be more sentimental rather than actual.

There have been talks of potential downgrades of US debt and Italy as well as Greece debt concerns are already looming over the market. What does this mean for the emerging market lot, especially India?

Emerging markets are pretty much well positioned if you look at the debt to GDP ratio. For the last decade it has consistently gone up in the developed markets and has actually started to come down in the emerging market. So most emerging markets are sitting in a much more comfortable situation and the global debt issues are now probably making investors cognisant of the fact that emerging markets which were either to considered unsafe investments could actually be much better investment option given the kind of growth that they have and much better balance sheet position than the rest of the world.


http://economictimes.indiatimes.com/opinion/interviews/expect-sensex-to-touch-22000-levels-in-a-year-toral-munshi-credit-suisse-wealth/articleshow/9211256.cms

13 Jul, 2011, 06.45PM IST,ET Now

UID will provide great business opportunities to IT cos: Sandip Kumar Agarwal, Antique Stock Broking


In an interview with ET Now , Sandip Kumar Agarwal , IT Analyst, Antique Stock Broking, speaks about the Infosys Q1 earnings and how will they augur for the IT space. Excerpts:


What would be your view on Infosys as a stock at the current levels and how does it augur for other IT majors in terms of their earnings to be reported?


If you see Infosys results, the most important things to note in the results were two. One was the onsite growth in the business, which was around 6.7%, while offsite was just 2.8%. Now in this business what generally happens is the project when it starts coming in, always it starts with onsite because most of the time you have to define the requirement and you have to start executing the project onsite, that is how it comes. So first of all onsite growth of 6.7% is a very positive sign. If you see the operating metric basically which are the main triggers to the margin expansion and everything, first of all if you see utilisation levels have shown improvement. We were expecting it to happen in this quarter.

TCS to lead IT sector earning this quarter: Antique Fin

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So we were not that bearish on utilisation level in last quarter when the management came with a 400 basis point margin decline guidance and they have themselves cut it down now say 250 basis point. We believe that utilisation will improve further. One more important thing to notice is till now they are only adding laterals. So now from this quarter that is joining date for fresher is always from July. So you will see the impact of wage rationalisation going forward, so that is one trigger which will come into and that will reduce the employee cost first of all.


Secondly utilisation levels are different going to improve and thirdly the onsite execution, which they have done which has resulted in approximately Rs 45-50 crores of incremental subcontracting costm that will start getting off. All these three things will enable the margins to improve. We strongly believe that the company will exit the full year at max at 80-90 basis point margin decline versus FY11. Also in the next quarter itself, we believe that management will further cut down the margin decline guidance from 250 to at least 180 basis point, that is what my view is.


This industry is like that, you have to add capacity and the capacity actually gets build after a lag. So that is the benefit which TCS was getting for last three quarters and they will continue to get in this quarter and then probably they will have to again add a lot of capacity which will have again one quarter lag. So what I am trying to say is that this quarter again you will see an industry leading growth from TCS of let's say 6.5-7%, that is what we are assuming an EPS of Rs 12.80. So it will be a good set of number.

http://economictimes.indiatimes.com/opinion/interviews/uid-will-provide-great-business-opportunities-to-it-cos-sandip-kumar-agarwal-antique-stock-broking/articleshow/9210152.cms

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Date: 10 Dec 2010
Prospects for Economic Growth and the Policy Imperatives for India
(Address by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India at the inaugural plenary of the National Conference on Leadership at the CII-Suresh Neotia Centre of Excellence for Leadership, Salt Lake, Kolkata on December 10, 2010)

Mr Harshvardhan Neotia, Chairman, CII- Suresh Neotia Centre of Excellence for Leadership, distinguished guests, ladies and gentlemen, let me begin by thanking the organisers for inviting me to deliver this address on a theme which is both topical and of considerable relevance. My objective is to give a realistic assessment of the prospects of India's economic growth, and the policy imperatives to achieve what is within our reach, while also ensuring that we do not fall off the cliff in an attempt to cross the valley. Our success will depend on grooming innovative and focussed leadership at every level of the society.

2. There are several successful business leaders in the audience and on the dais today at this 'Second National Conference on Leadership'. The CII believes that in order to succeed in India's mission to achieve sustained growth and competitiveness, the quality of leadership and human resource management plays a very significant role and is one of the key requirements for achieving business excellence. The CII-Suresh Neotia Centre of Excellence for Leadership is facilitating in a big way the growth objectives through the development of leadership and through these deliberations on what policy imperatives are necessary to grow at a rapid pace. I am sure the institute would soon turn into a premier institution of global fame to develop business leaders not just in India but for other emerging markets also.

3. My talk today would be in two parts. In the first, I would focus on (1) the upsurge in economic growth since the 1980s and further acceleration during 2003-04 to 2007-08, (2) the impact of the crisis and the V-shaped recovery that followed, (3) the near term growth prospects and challenges for India in a world facing multi-speed recovery and (4) long-term growth prospects for India. Part II would contend that in spite of growth success and remarkable near term growth prospects, growth sustainability in India would critically hinge on the following three things: (1) our ability to make the growth process more inclusive, (2) improved governance, and (3) developing leadership in all walk of life. There is some slack in all these aspects, as a result of which India is not harnessing its full long-term growth potential. However, opportunities exist for India to step up its high growth rate still higher.

'I'

The transformation to the high growth phase

4. The high growth phase for the Indian economy started from 1980-81 when the economy clearly broke through what was known as the "Hindu Rate of Growth" of 3.5% that represented a low-level equilibrium trap for the Indian economy. Average real GDP growth rate for the Indian economy improved to 5.6% in the 1980s and was distinctly higher than the averages of 3.6% for the 1950s, 4.0% for the 1960s and 2.9% for the 1970s.

5. What caused this structural shift? In my view, four factors were particularly important. First, the high growth of 1980s was helped by industrial de-licensing and trade liberalization. There was a clear improvement in the growth rates of mining, registered manufacturing and electricity during this period. Second, high fiscal deficits fuelled faster growth, but fiscal deterioration spilled over to twin gaps and on the back of the Gulf crisis, precipitated the balance of payments crisis of the 1991. Gross fiscal deficit (GFD) averaged 6.7% of GDP in the 1980s, compared with just 3.8% in the 1970s. This also resulted in increased monetization of the deficit with net RBI credit to the Centre increasing to 2.1% of the GDP from just 1% in the 1970s thus impinging on the monetary policy efficacy. Third, the saving and investment rates in the economy picked up since the second half of 1970s, laying the foundation for the higher growth in the 1980s. Gross domestic saving rate had improved to 21.2% in 1978-79 from 15.7% in 1974-75, led by improvement in household's financial rate that increased to 6% from 3% over the same period. Correspondingly, the gross investment rate improved to 21.3% from 16.5%. However, saving rate and investment rates stagnated in the 1980s till 1986-87, especially as public sector savings deteriorated after 1982-83. Fourth, structural transformation gathered pace during that decade, with services like trade, hotels and restaurants, transport, communications moving up to a 6% p.a. growth trajectory, real estate surpassing 7% growth and banking and insurance growing at an astounding 10.6%. As a result, in a clear break from the past, non-agricultural sector that was generally growing in 4-5.5% range, recorded a 7.1% growth in the latter half the 1980s.

6. The high growth phase that started in the 1980s has now lasted for three decades, with the pace of the 1980s being maintained in the 1990s before it accelerated further in the next decade. The average growth rate in the 1990s at 5.7% was statistically not different from that in the 1980s, but qualitatively it was better because efforts were made to reign in fiscal gaps. The GFD/GDP ratio averaged lower at 5.9% in the 1990s. The current account of the balance of payment also showed a remarkable improvement and the period was marked by India starting to reap the gains from globalization. Yet, the industrial growth disappointed during this period and averaged 5.7% in this period; lower than the 6.4% recorded in the preceding decade, as the mining, registered manufacturing and electricity growth decelerated. The growth in the 1990s was mainly driven by the services sector that grew at 7.1% p.a., with impressive activity in most services segments with the exception of storage.

7. Growth trajectory shifted still higher in the decade 2000-01 to 2009-10. Real GDP growth averaged 7.3% catapulting the Indian economy to the status of the second fastest growing economy amongst the G-20 members. Industrial growth recovered and averaged 6.8% during this decade. Registered manufacturing grew at 8.7%, though electricity decelerated. Services sector posted a growth of 8.0%, with communication sector stealing the show with an annual average growth of 25.3%, banking and insurance growing at 10.8%, construction at 9.2% and hotels and restaurants at 9.1%. High services growth has further changed the structure of the economy. Including construction, the services sector now accounting for almost 65% of the GDP, compared with just about 34% at the start of the planning era. The share of industry has about doubled to 20% from 11% over these six decades, while share of agriculture and allied activities has fallen to about 15% from 55%.

The impact of the crisis & the V-shaped recovery

8. For three years 2005-06 to 2007-08, the Indian economy grew at an astonishing pace of 9.5% before the global financial crisis caused a global downturn. It could not and did not leave India alone or decoupled. Notwithstanding the coupling and decoupling theorists, it was obvious that with India had substantially globalized. Its trade in goods and services accounted for 48% of its GDP and the economy substantially depended on large capital inflows to sustain its high growth the spillover from the global financial crisis was inevitable.

9. Inherent resilience arising from India's large domestic demand, a stable financial system, high domestic saving rate, prudent monetary policy and fiscal improvement that followed the FRBM Act, 2003 along with the unprecedented counter-cyclical fiscal and monetary policies helped India cope with the global crisis better than most others. The economy decelerated over the next two years but still grew at 6.7% in 2008-09 and 7.4% in 2009-10. This was in spite the fact that that a cyclical correction in industrial growth had already begun at the start of 2008-09 even before the Lehman struck the financial markets.

10. Monetary policy reaction was nimble and sizeable during this period. The repo rate was lowered by 425 bps to 4.75% from 9%. The reverse repo rate was cut by 275 bps to 3.25% from 6%. The CRR was slashed by 400 bps to 5% from 9%. SLR was lowered to 24% from 25% for the first time in 11-years. Large liquidity was imparted through MSS unwinding, open market operations, standing facilities and some unconventional liquidity support measures. All this action was taken within a space of 7-months. The moves were coordinated with those in fiscal space that included large tax cuts and an expenditure stimulus. This portrayed a rare exemplary monetary-fiscal coordination that enabled the economy not only to limit the downturn, but also assay a V-shaped recovery.

11. Industrial growth bounced back since June 2009 and had moved back to a double-digit trajectory by August 2010. The recovery soon spilled over to the services sector, though the economy faced a newer shock from the monsoon failure. The resilience of the Indian economy was still evident as higher rural incomes and greater diversification in rural activity helped agriculture to record a positive 1.2% growth in a year of one of the severest droughts. On back of breezy industrial growth and resumed services sector buoyancy, the output gap had completely closed by Q4 of 2009-10, thus completing the V-shaped recovery.

The near term growth prospects and the challenges

12. India has now posted an 8.9% growth in each of the first two quarters of the current fiscal year. Purely on the statistical estimates of potential growth, this may appear to be the case of growth surpassing the potential. However, it is important to understand that the growth trajectory has been pushed high on a low base. With these favourable base effects waning away, it may in the short-run be difficult to step up growth without overheating the economy. The near term growth prospects remain very encouraging even if we see slight adjustment in growth numbers ahead arising from unfavourable base effects.  We are beginning to see capacity pressures emerge in select industries. It is important to manage both demand and supply conditions and see investment response kick in while maintaining price stability.

13. Adjusted for base effects, at the moment the economy neither appears to be overheated, nor appear to face a slack. The inflation is above comfortable level but is trending down. The risks to growth remain on either side. On the one hand, the new spell of quantitative easing by some advanced economies has increased the uncertainty about future output and inflation gaps and is risking new short term asset price bubbles. On the other hand, the central banks in the advanced economies are trying to boost short term inflation expectations, but are risking un-anchoring of long-term inflation expectations. We need to be watchful in this uncertain environment and if needed, take speedy corrective responses ahead. However, the direction of change and the relative weights in reaction function that it may be required ahead remains unclear at the moment. The level of capital flows in recent period has been in line with our absorptive capacity, but the potential volatility has to be borne in mind by policy-makers as well as private agents in planning their risk management. It is not without significance that in a world where global imbalances and currency battles have again come to fore, India has managed the impossible trinity without any significant interventions and capital controls. This in many ways reflects a new maturity level for the Indian economy that augurs well for its growth prospects.

The long-term growth prospects

14. India's long-term growth prospects remain encouraging but with a larger uncertainty band ahead. With capital stock growing at about 8-9% p.a, working force growing at about 1.9% p.a. and total factor productivity growth exceeding 3% p.a., India can grow at 8% or more. Conventional time series methods based on past data suggest a potential growth rate of 7.5-8% for the Indian economy. However, the issue is how India can move to a 10% growth trajectory ahead. We may think it is difficult to do so in the short-term but we must also realize that for the long-term sustenance of the society, we need to grow by 10% for the next 20 years. The issue is not whether we can or cannot, but what we all must collectively do to ensure that it happens. We also have to see that this growth is inclusive and job-oriented otherwise it will not be sustainable. Only then would we be able to meet the rising aspirations of the newer generation. We are at an ever greater risk of social cohesion collapsing should the growth fall from here. Herein lay the challenges for our leadership in various walks of life. Herein lay the policy imperatives that are needed to deliver this tough goal.

15. India has demographic dividends to support its growth ambitions. The share of working age population of 20-59 years may rise from 49% in 2000 to 55% in 2025 and stay still high at 53% by 2050. India's old age dependency may be just 12% in 2025. This is in stark contrast to the ageing populations in many OECD countries, where dependency ratios are rising fast. In Japan the dependency ratio is set to rise from about 30% in 2005 to over 70% by 2050. Old age dependency ratios in EU countries are also rising fast. They are projected to go up from about 26% now to about 53% by 2050.

16. India's growth story also has potential to benefit from rapid urbanization. The share of urban population in total is also rising rather rapidly. It was below 20% in 1971, but has climbed to 29% by 2001 and is projected to rise to 37% by 2016. However, both demographic dividends and the urbanization can be a great promise or a potential nightmare for the future depending upon what we do. For example, over 20 million Indians can potentially join workforce every year, but we are creating job opportunities at a rate of roughly 7 million annually over the last three decades of high growth. We need to step up our focus on how to reap the best from the demographic dividends and rapid urbanization. This would require increased resource allocation and resource generation in activities like education, health, urban and rural infrastructure. It would require efforts to bridge energy demand-supply gaps, new investments in renewable energy and stepping up mineral exploration. We need to do more to remove factors that might constraint future growth.

'II'

What policy imperatives are needed to push the potential or macro-economically sustainable growth rate up? As I had mentioned, I would discuss three sets of policy imperatives.

Making growth process more inclusive

17. India has been a remarkable growth story for the last decade all right. However, the growth process has not been very inclusive. There are several indicators that would leave us uncomfortable with the current growth process. According to the United Nation's Development Program (UNDP)'s Human Development Index (HDI), 2010, India was placed at a rank of 119 amongst 169 countries, which is clearly not in sync with India's economic strength. Almost all our competing emerging market economies including Malaysia, Russia China, Sri Lanka, Thailand, Philippines, Indonesia and Vietnam have better HDI rankings than us. India's relative position has not improved very much over the years, with a rank of 77 amongst 95 countries in 1980 and a rank of 95 amongst 118 countries in 1990. This may not be surprising once we consider that we spend only less than 3.5% of GDP on education, ranking 117th amongst 142 countries and comparing poorly with countries like Lesotho and Cuba that spend 14% of their GDP on education and Botswana that spends 10%. We spend just 1% of our GDP on public health services and rank a dismal 181 amongst 188 countries ranked in terms of HDI indicators. Small countries like Kiribati and Marshall islands spend 14% of GDP on this and Cuba spends 9%. Most OECD countries spend 6-9% of their GDP on public health services.

18. Rapid growth has made a dent on poverty, but perhaps not enough. Over a quarter of our population still lives below the poverty line. Based on National Sample Survey (NSS)'s 61st Round, the poverty ratio was 27.5% in 2004-05, with 28.3% in case of rural areas and 25.7% in case of urban areas. However, these ratios compare well with those in 1993-94 which were 36.0% at All-India level, 37.3% in case of rural areas and 36% in case of urban areas. 42% of India's population earns less than US$1.25 per day on PPP basis. According to some estimates, more than half of country's wealth is shared by only 10% of the population. However, India's income Gini coefficient is 36.8%, which compares favourably than most emerging markets. As per the latest round of NSS, the unemployment rate in 2007-08 was 8% on the current daily activity status. India's health and education statistics are disappointing even by the developing country status.

19. An inclusive growth process goes far behind income redistribution. It embraces a long-term growth framework with a view to ensure that segments of population do not get excluded from the growth dividends. The process goes far beyond poverty reduction strategy and to my mind is build on four pillars – (1) empowerment of the poor through provision of health, education and skill formation, (2) financial inclusion by improving the reach of institutional finance to the poor and (3) entitlement to food and nutrition and (4) asset creation, especially housing with water, electricity and sanitation so that poor gets shelter and is able to work therein or around and generate steady source of income to live a sustainable his livelihood.

20. I see financial inclusion holding the key to more inclusive growth. India's remarkable growth story cannot be sustained in absence of rapid strides in financial inclusion. The targets under priority sector lending, the banks' linkage to the Self Help Groups (SHGs), the introduction of Kissan Credit Cards (KCC), the regulatory nod to the Business Facilitators (BC)/ Business Correspondent (BC) model, the introduction of the no-frill accounts have been some of the several steps facilitated by the Reserve Bank to promote financial inclusion.

21. However, a lot more needs to be done. As many as 145 million households or about 43% of India's population still do not have access to banking. Regional disparities further compound the problem. The Report of the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan) states that about 95% of the farmer households in the North-East do not have access to formal finance. At an All-India level 49% the farmer households are indebted, though the level of their indebtedness to the formal sources is less at 27%. About 10% of the population has life insurance coverage. Over 90% of the villages still do not have bank branches. Banks are today working with micro-finance institutions in many parts of the country in their quest to reach out to those who have been excluded. However, the challenge remains gigantic and would need to be provided by the mainstream lending institutions.

22. Capital formation in agriculture has started to pick up again, though the mainstream lending institutions could do more to support this process. The gross capital formation in agriculture and allied activities has increased to Rs1,38,597 crore in 2008-09 from Rs78,848 crore in constant (2004-05) prices. This is 76% increase that betters the 51% increase in case of all industries. However, we still have missing growth in relation to the potential that the agriculture sector holds. India's yields compare poorly in relation to world standards. India's yield of foodgrains has improved only marginally over last 10 years to 1798 kgs/ hectare in 2009-10 from 1704 kgs/hectare in 1999-2000 and compares poorly with global average of 4168 kgs/ hectare. The yield of paddy in Egypt is as high as 9731 kgs/ hectare and the yield of wheat in UK is 8281 kgs/ hectare. While the yields have a lot to endowments, they are also a function of our technology, investments and institutional arrangements. Not all the yield gap is explained by different initial endowments. One needs a better understanding of the reasons why foodgrains yield in U.P is 56% of that of Punjab or in case of Bihar it is just 42%. In Maharashtra it is just 24% that of Punjab. Agri business leadership need to partner state interventions in stepping up productivity keeping in view regional conditions. Only then can we generate the supply response to push agricultural growth up.

Improved Governance leading to better delivery model

23. Over the last decade, growth theorists and development experts have realized that governance goes a long way in explaining growth. Good governance refers to good order and workable arrangements that cover a wide array of institutional arrangements including regulatory and legal framework which are a must to ensure a cost-effective delivery model for the entire range of products and services. In India, we have created many institutions in this direction over the last two decades. However, we do not still compare well in terms of governance indicators. In terms of the World Bank governance indicators developed by Kaufman, Kraay and Mastruzzi, India ranked at about 46th percentile in 2009 based on a range of indicators that are considered, implying that more than half of the 210 countries studied score better on governance. Our governance deficit can be reduced through faster decision-making and speedier implementation of all types of projects we engage in; be it safety nets, social infrastructure, road, other transportation or power or telecom projects.

24. Striking a fruitful public-private partnership holds the key to improved governance. On the one hand, the enabling environment for the business needs to improve further. On the other, the business leadership needs to focus more closely on investment project deliveries and bridge the wide chasm between planned investment and actual capital formation at the grass-root level.  According to the World Bank database for 2009, it takes on an average 30 days to complete the procedures to legally start operating the business in India that puts it at a rank of 113 amongst 182 nations. In 29 countries it takes a week or less to start a business. New Zealand tops the chart as you can do so in just 1 day. In Australia it takes 2 days and in Singapore 3 days. Similarly, it takes in India 271 hours to prepare and pay taxes, ranking 114 amongst 182 nations. India scores even worse in bankruptcy resolution. On an average it takes 7 years in India to resolve insolvency through settlement of distressed assets through courts. On this score, India ranks 155 amongst 156 nations in the World Bank database, ahead only of Mauritania whereas in troubled Ireland it takes only 0.4 years and in 54 other countries it takes 2-years or less.

25. If each one of us, whether in public or private sector or as an individual works to capacity, the governance and delivery mechanisms would all improve. We have started to create marvel infrastructure, but it sometimes takes us more than a decade to complete an infrastructure project. There is no dearth of finance to fund infrastructure and experts from the infrastructure finance industry tells me that no commercially viable project that has the requisite clearances and the input availability is suffering because of lack of debt finance. There is no dearth of initiatives undertaken to step up infrastructure investments. The Viability Gap Funding (VGF), enhanced financing by infrastructure finance companies, takeout financing, model concession agreements, annuity based funding are few examples. What is required today is commitment for speedier implementation. We still have glaring gaps in infrastructure. We still have about 9% energy shortage. Large transmission and distribution losses, estimated at nearly 40% and absence of adequate competition impacts electricity industry. At least 7% output is lost due to electrical outages. As a result, India's per capita electricity consumption at 542 kWh is only 4% that of United States and 1.5% that of Iceland. Our infrastructure deficit is reducing at a slow pace and we need to accelerate implementation of our plans. A lot may have been achieved in terms of the Golden Quadrilateral project and NHDP Phase III, but the road deficit remains large in terms of the ambitious but needed target of creating 20 kms of road every day.

26. Business leadership with integrity and vision can make a difference to our Governance. There are several areas where governance can be improved. This range from safety net delivery to corporate governance in our most dynamic of the businesses. We can easily push up our growth by at least 1-percentage point by improving governance. We can improve a lot other economic parameters including the fiscal deficit also. What we need to aim at delivery mechanisms to speed up project implementation in all walks of life.

Providing Leadership

27. While economists recognised that governance matters for growth, they have had little recognition for the role of leadership in the same. Leadership issues were left to the management experts. Yet, to my mind, leadership plays a vital role in growth and development in a society. The right leadership can ensure a number of things that include inclusive growth, green growth, good governance, entrepreneurship, economic stability, peace, social cohesion. All of these ultimately act with force multipliers to deliver not just high growth, but economic transformation. What we need is good political leadership, corporate leadership, managerial leadership and social leadership. In all these walks we need leaders who can transform their workspace. Without leadership, we may grow at an inertial pace for some time but drift eventually.

28. Take the simple case of provision of education services. Our Prime Minister, Dr. Manmohan Singh, has recognised the centrality of literacy in our growth and development strategy and asked how in this 'knowledge century' a third of our people have remained illiterate. We also have the dubious distinction that a third of the illiterates across globe reside in India. There are enough leaders in this country inside and outside the corporate world who can join and own up national literacy as a mission, taking up the challenge of removing illiteracy through social responsibility.

29. The quintessential Bengali genius Amartya Sen has highlighted the lack of access to basic education as a prime cause for underdevelopment. In my view, it is pity that we could not still implement the Article 45 of our Constitution that required us to provide free and compulsory education till the age of 14 within the first 10 year of our becoming a Republic. This is in the land of Raja Rammohan Roy, Swami Vivekanand, Sir Syed Ahmed Khan, Maharishi Mahesh Yogi and Sarvpalli Radhakrishna. Have we lost leadership now in our quest for greed, bonuses and bureaucratic power? Can we not have innovative solutions that provide a reasonable economic basis for providing basic education to all, while creating more institutions of excellence in different streams of education?

30. Presently, the country has over 300 million adult illiterates. The drop-out rates at primary and elementary education level are falling supported by the Sarva Siksha Abhiyan and the Mid-Day Meal schemes, but still remain above 25% and 40%, respectively. Today almost all rural habitations are served with at least one primary school. However, over 40% of our primary schools still do not have toilets or boundary walls. The quality of education right from the primary to the higher education stage leaves lot to be desired. The business leadership needs to step in and the public policy needs to create a workable space for private sector to invest in education. Such investment needs to flow in not only in profitable IB schools, but in bridging the gap illiteracy and in technical and skill education.

31. If India was to truly emerge as the world's leading knowledge economy, the business leadership needs to partner in technical education and skill development. If labour supply is augmented through vocational education and training, the biggest gainers would be business leaders themselves. Industrial Training Institutes (ITIs) can no longer be the preserve of Governments. These need to come up in PPP mode. Of nearly 7 million or more that enter into workforce each year, ITIs are able to supply less than 10% of it. The total number of IT and BPO professional employed in India are rising by nearly 0.2 million per annum currently. We do not have enough supply of trainers. So the leadership needs to grapple with how best to create more IITs as well as more ITIs at the same time.

32. Business leadership should also look inwards. In an era, where the business leadership frequently looks to banks for debt restructuring, history throws up many examples when corporate leadership can innovatively work out solutions on its own. Take the case of the US airline industry. It has faced a roller-coaster ride over the last 90 years of its existence. At its inception, even though there was no threat from hijackers or terrorists, they found it difficult to sell tickets as people thought airplanes were inherently dangerous. Till 1978, the industry was also overregulated by government, but full deregulation that followed brought new competitive pressures. I would urge you to read the book co-authored by Anthony J. Mayo and Nitin Nohria of Harvard Business School, and Mark Rennella, a former research associate titled 'What the Airline Industry Can Teach Us about Leadership'. The authors write in the introduction of the book that, "Leaders are change agents who see opportunities and promise where others see only defeat." At each stage of aviation's business life cycle—start-up, growth, maturity, decline, rebirth—new types of leaders emerged. They may have represented different leadership archetypes as the industry went through its life-cycle stages, but they believed in themselves as winners, rather than falling into the trap of looking out for bailouts.

33. Friends, we have done reasonably well over the last decade or three. But we can do much better. So why not? It is in this context that I drew your attention to the need for a more inclusive growth, better governance and better leadership. We also need to focus more on higher investments in agriculture and rural infrastructure, education and skill development, better health services, scaling up infrastructure investments further by faster execution of projects and speedier delivery. These would work to take us to a 10% sustainable growth path, but we would need to look beyond the narrow business interests to so. An enabling environment through stable macro-economy and a vibrant financial system exists, but improved governance is a necessary condition. We have the elephants and we have tigers within us. We need the leadership that not only takes us higher on growth, but takes everybody along so that each one of us can partner in these efforts and share the fruits. Sharing these thoughts, I leave you all to deliberate further upon the various aspects of leadership and the policy imperatives necessary for future sustainable and inclusive double digit growth.

Thank you!

1 Address by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India at the inaugural plenary of the National Conference on Leadership at the CII-Suresh Neotia Centre of Excellence for Leadership, Salt Lake, Kolkata on December 10, 2010. The assistance provided by Dr M. Saggar in preparation of this address is gratefully acknowledged.

http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=542


Economy of India

From Wikipedia, the free encyclopedia
Economy of The Republic of India
Indian rupees.png
Modern Indian currency notes
Rank10th (nominal) / 4th (PPP)
Currency1 Indian Rupee (INR) (Indian Rupee symbol.svg) = 100 Paise
Fiscal year Calendar year (1 April – 31 March)
Trade organizationsWTO, SAFTA, G-20 and others
Statistics
GDP

$1.53 trillion (nominal: 10th; 2010)[1]

$4.06 trillion (PPP: 4th; 2010)[1]
GDP growth8.5% (2010-11)
GDP per capita

$1,265 (nominal: 138th; 2010)[1]

$3,339 (PPP: 129th; 2010)[1]
GDP by sectorservices (55.3%), industry (28.6%), agriculture (16.1%) (2010)
Inflation (CPI) 8.66% (April 2011)[2]
Population
below poverty line		 37% (2010)[3]
Gini index 36.8 (List of countries)
Labour force478 million (2nd; 2010)
Labour force
by occupation		agriculture (52%), industry (14%), services (34%) (2009 est.)
Unemployment 9.4% (2009–10)[4]
Main industriestelecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology, pharmaceuticals
Ease of Doing Business Rank 134th[5] (2011)
External
Exports$247.4 billion (2010)
Export goodspetroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel
Main export partnersUAE 12.87%, US 12.59%, China 5.59% (2009)
Imports$359.3 billion (2010)
Import goodscrude oil, precious stones, machinery, fertilizer, iron and steel, chemicals
Main import partnersChina 10.94%, US 7.16%, Saudi Arabia 5.36%, UAE 5.18%, Australia 5.02%, Germany 4.86%, Singapore 4.02% (2009)
FDI stock $35.6 billion (2009-10)
Gross external debt $237.1 billion (2010 est.)
Public finances
Public debt$758 billion (2010)[6] 55.9% of GDP
Revenues$170.7 billion (2010 est.)
Expenses$257.4 billion (2010 est.)
Economic aid $2.107 billion (2008)[7]
Credit rating
Foreign reserves$310 billion (May 2011)[10]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
"Dollar" and "$" refer throughout to the US dollar.

The Economy of India is the tenth largest in the world by nominal GDP[1] and the fourth largest by purchasing power parity (PPP).[1] The country's per capita GDP (PPP) is$3,339 (IMF, 129th) in 2010.[1] Following strong economic reforms from the post-independence socialist economy, the country's economic growth progressed at a rapid pace, as free market principles were initiated in 1991 for international competition and foreign investment.[11] Despite fast economic growth India continues to face massiveincome inequalities, high unemployment and malnutrition.

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[edit]Overview

Social democratic policies governed India's economy from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth.[12][13] Since 1991, continuing economic liberalisation has moved the country towards a market-based economy.[12][13] A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India'seconomic growth rate. In recent years, Indian cities have continued to liberalise business regulations.[5] By 2008, India had established itself as the world's second-fastest growing major economy.[14]

However, as a result of the financial crisis of 2007–2010, coupled with a poor monsoon, India's gross domestic product (GDP) growth rate significantly slowed to 6.7% in 2008–09, but subsequently recovered to 7.4% in 2009–10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[15] India's current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 2009–2010, according to the state Labour Bureau, was 9.4% nationwide, rising to 10.1% in rural areas, where two-thirds of the 1.2 billion population live.[4]

India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively.[16]Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[17] However, statistics from a 2009-10 government survey, which used a smallersample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%.[4]

Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology-enabled services and pharmaceuticals.[18] The labour force totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[18] In 2009-2010, India's top five trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany.

Previously a closed economy, India's trade and business sector has grown fast.[12] India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's total trade in goods and services has reached a share of 43% of GDP in 2005–06, up from 16% in 1990–91.[19] India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion [20] and is currently the 11th largest in the world.

[edit]History

Main articles: Economic history of India and Timeline of the economy of India

[edit]Pre-colonial period (up to 1773)

The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well-planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the world's first urban sanitationsystems and the existence of a form of municipal government.[21]

The spice trade between India and Europe was the main catalyst for the Age of Discovery.[22]

Maritime trade was carried out extensively between South India and southeast and West Asiafrom early times until around the fourteenth century AD. Both the Malabar and Coromandel Coastswere the sites of important trading centres from as early as the first century BC, used for import and export as well as transit points between the Mediterranean region and southeast Asia.[23]Over time, traders organised themselves into associations which received state patronage. However, state patronage for overseas trade came to an end by the thirteenth century AD, when it was largely taken over by the local Jewish and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast.[24] Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Passconnecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia.[25] Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services.[26]

Silver coin minted during the reign of theGupta emperor Kumara Gupta I (AD 414–55)

Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage.[27] The political stability and uniform revenue policy resulting from a centralised administration under the Mughals, coupled with a well-developed internal trade network, ensured that India, before the arrival of the British, was to a large extent economically unified, despite having a traditional agrarian economy characterised by a predominance ofsubsistence agriculture dependent on primitive technology.[28] After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by theMaratha Empire. After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country, although this was compensated for to some extent by localised prosperity in the new provincial kingdoms.[29] By the end of the eighteenth century, the British East India Company entered the Indian political theatre and established its dominance over other European powers. This marked a determinative shift in India's trade, and a less powerful impact on the rest of the economy.[30]

[edit]Colonial period (1773–1947)

An aerial view of Calcutta Port taken in 1945. Calcutta, which was the economic hub of British India, saw increased industrial activity during World War II.


There is no doubt that our grievances against the British Empire had a sound basis. As the painstaking statistical work of the Cambridge historian Angus Maddison has shown, India's share of world income collapsed from 22.6% in 1700, almost equal to Europe's share of 23.3% at that time, to as low as 3.8% in 1952. Indeed, at the beginning of the 20th Century, "the brightest jewel in the British Crown" was the poorest country in the world in terms of per capita income.

— Manmohan Singh[31]

Company rule in India brought a major change in the taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines.[32] The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.[33] After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term showed an upward trend.[34] The result was a significant transfer of capital from India to England, which, due to the colonial policies of the British, led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy.[35]

Estimates of the per capita income of India (1857–1900) as per 1948–49 prices.[36]

India's colonisation by the British created an institutional environment that, on paper, guaranteedproperty rights among the colonisers, encouraged free trade, and created a single currency withfixed exchange rates, standardised weights and measures and capital markets. It also established a well-developed system of railways and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system.[37] This coincided with major changes in the world economy – industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world,[38] with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.[39]

The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages,[40] and urbanisation generally remained sluggish until the 1920s, due to the lack of industrialisation and absence of adequate transportation. Subsequently, the policy of discriminating protection (where certain important industries were given financial protection by the state), coupled with the Second World War, saw the development and dispersal of industries, encouraging rural-urban migration, and in particular the large port cities ofBombay, Calcutta and Madras grew rapidly. Despite this, only one-sixth of India's population lived in cities by 1951.[41]

The impact of the British rule on India's economy is a controversial topic. Leaders of the Indian independence movement and left-nationalisteconomic historians have blamed colonial rule for the dismal state of India's economy in its aftermath and argued that financial strength required for industrial development in Europe was derived from the wealth taken from colonies in Asia and Africa. At the same time, right-wing historians have countered that India's low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialisation and economic integration.[42]

[edit]Pre-liberalisation period (1947–1991)

Compare India (orange) with South Korea (yellow). Both started from about the same income level in 1950. The graph shows GDP per capita of South Asian economies and South Korea as a percentage of the American GDP per capita.

Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union.[39] Domestic policy tended towards protectionism, with a strong emphasis on import substitution industrialisation, economic interventionism, a large public sector, business regulation, and central planning,[43] while trade and foreign investment policies were relatively liberal.[44] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s.[45]

Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, formulated and oversaw economic policy during the initial years of the country's existence. They expected favorable outcomes from their strategy, involving the rapid development of heavy industry by both public and private sectors, and based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system.[46][47] The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticised by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.[48] The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the East Asian Tigers.[49][50]

Since 1965, the use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to theGreen Revolution in India, which improved the condition of agriculture by increasing crop productivity, improving crop patterns and strengthening forward and backward linkages between agriculture and industry.[51] However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.[52]

[edit]Post-liberalisation period (since 1991)

Main articles: Economic liberalisation in India and Economic development in India

In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for non-communist economies. However, the subsequent government policy ofFabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans.[53] India asked for a $1.8 billion bailout loan from theInternational Monetary Fund (IMF), which in return demanded reforms.[54]

In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.[55] Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies.[56] By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation.[57] This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents.[58]

While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody's.[59] In 2003, Goldman Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035, making it the third largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.[60][61]

It may be noted that the sustainability of economic reforms after 1991 has been a major cause of discussion among political economists. Various reasons have been attributed to the sustainability of economic reforms such as : (a) crisis and subsequent World Bank- International Monetary Fund (WB-IMF) aid [Bhaduri and Nayyar 1996][62] (b) Application of stealth, including obfuscation and betrayal [Rob Jenkins, 1999][63] (c) a favourable executive orientation[ Rahul Mukherji 2000][64]

However, none of these theories have been able to put all the preceding attempts ( 1966, 1975, 1980, and 1985) at reforming Indian economy in a proper perspective. In a recent publication in India Review [ Taylor and Francis (U.K.)] a discursive dominance theory has been proposed which not only solves the puzzle of the economic reform sustainability after 1991 but also explains the reversal of liberalization attempts of 1966 and 1985 and incrementalism of the 1975 and 1980 attempts [Sharma 2011]."[65]http://www.tandfonline.com/toc/find20/10/2 The theory states that the economic reforms become sustainable only when the discursive conditions prevailing in society tip against the existing paradigm under exceptional circumstances. Otherwise they are reversed.http://ideas.repec.org/p/pra/mprapa/31001.html

[edit]Sectors

[edit]Industry and services

See also: Information technology in India, Business process outsourcing in India, and Retailing in India
India has one of the world's fastest growing automobile industries.[66] Shown here is the Tata Nano, the world's cheapest car.[67]

Industry accounts for 28% of the GDP and employ 14% of the total workforce.[17] In absolute terms, India is 12th in the world in terms of nominal factory output.[68] The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods.[69] Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes.[70]

Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people.[71] Ludhianaproduces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear.[72]

India is 13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950.[17]Information technology and business process outsourcing are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 1997–98 and 2002–03 and contributing to 25% of the country's total exports in 2007–08.[73] The growth in the IT sector is attributed to increased specialisation, and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8 % in 2005–06 to 7% in 2008.[74] In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.[75]

Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 2009–10, including iron ore, manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphoriteand silica sand.[76] Organised retail supermarkets accounts for 24% of the market as of 2008.[77] Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states.[77] Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.[78]

[edit]Agriculture

Farmers work outside a rice field inAndhra Pradesh. India is the second largest producer of rice in the world after China,[79]and Andhra Pradesh is the second largest rice producing state in India with Uttar Pradesh being the largest.[80]
Main articles: Agriculture in India, Forestry in India, Animal husbandry in India, and Fishing in India
See also: Natural resources in India

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, loggingand fishing accounted for 15.7% of the GDP in 2009–10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India.[81] Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world.[82].Indian states Uttar Pradesh,Punjab,Haryana,Madhya Pradesh,Andhra Pradesh,West Bengal and Maharashtra are key agricultural contributing states of India.

India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including surface and groundwater, amounting to 1123 billion cubic metres.[83] 546,820 square kilometres (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated.[84] India's inland water resources including rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly six million people in the fisheries sector. In 2008, India had the world's third largest fishing industry.[85]

India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008.[79] It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.[79] India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.[86]

[edit]Banking and finance

Main article: Finance in India
See also: Banking in India and Insurance in India

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks andcooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies.[87] The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.[88]

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from Indian Rupee symbol.svg5,910 crore (US$1.32 billion) in 1970–71 to Indian Rupee symbol.svg3,830,922 crore (US$854.3 billion) in 2008–09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.[89][90]

India's gross domestic saving in 2006–07 as a percentage of GDP stood at a high 32.7%.[91] More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold.[92] The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[93] Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.[17][94]

[edit]Energy and power

Main article: Energy policy of India
As of 2010, India imported about 70% of its crude oil requirements.[95] Shown here is an ONGC platform at Mumbai High in theArabian Sea, one of the few sites of domestic production.

India's oil reserves meet 25% of the country's domestic oil demand.[17][96] As of 2009, India's total proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion cubic metres.[97] Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat andRajasthan.[97] India is the fourth largest consumer of oil in the world and imported $82.1 billion worth of oil in the first three quarters of 2010, which had an adverse effect on its current account deficit.[95] The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in the oil sector such as Reliance Industries Limited (RIL) which operates the world's largest oil refining complex.[98]

As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of which thermal power contributed 64.6%, hydroelectricity 24.7%, other sources of renewable energy 7.7%, and nuclear power 2.9%.[99] India meets most of its domestic energy demand through its 106 billion tonnes of coal reserves.[100] India is also rich in certain renewable sources of energy with significant future potential such as solar, wind and biofuels (jatropha, sugarcane). India's huge thorium reserves – about 25% of world's reserves – are expected to fuel the country's ambitious nuclear energy program in the long-run. India's dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years.[101] However, the Indo-US nuclear deal has paved the way for India to import uranium from other countries.[102]

[edit]External trade and investment

Further information: Globalisation in India and List of the largest trading partners of India

[edit]Global trade relations

A map showing the global distribution of Indian exports in 2006 as a percentage of the top market (USA - $20,902,500,000).

Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.[103] India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods.[104]

Since liberalisation, the value of India's international trade has increased sharply,[105] with the contribution of total trade in goods and services to the GDP rising from 16% in 1990–91 to 43% in 2005–06.[19] India's major trading partners are the European Union, China, the United States and the United Arab Emirates.[106] In 2006–07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver.[107] In November 2010, exports increased 22.3% year-on-year to Indian Rupee symbol.svg85,063 crore (US$18.97 billion), while imports were up 7.5% at Indian Rupee symbol.svg125,133 crore (US$27.9 billion). Trade deficit for the same month dropped from Indian Rupee symbol.svg46,865 crore (US$10.45 billion) in 2009 to Indian Rupee symbol.svg40,070 crore (US$8.94 billion) in 2010.[108]

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers to trade into the WTO policies.[109]

[edit]Balance of payments

Cumulative Current Account Balance 1980–2008 based on IMF data

Since independence, India's balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91.[110]However, the global economic slump followed by a general deceleration in world trade saw the exports as a percentage of imports drop to 61.4% in 2008–09.[111] India's growing oil import bill is seen as the main driver behind the large current account deficit,[95] which rose to $118.7 billion, or 9.7% of GDP, in 2008–09.[112] Between January and October 2010, India imported $82.1 billion worth of crude oil.[95]

Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009.[113] The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports.[114] However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to Indian Rupee symbol.svg25,250 crore (US$5.63 billion).[113]. As of June 2011, exports and imports have both registered impressive growth with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. This represents a year on year growth of 56.9% for exports and 54.1% for imports. [115]

India's reliance on external assistance and concessional debt has decreased since liberalisation of the economy, and the debt service ratiodecreased from 35.3% in 1990–91 to 4.4% in 2008–09.[116] In India, External Commercial Borrowings (ECBs), or commercial loans from non-resident lenders, are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates them through ECB policy guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act of 1999.[117] India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $283.5 billion in December 2009. [118]

[edit]Foreign direct investment

Share of top five investing countries in FDI inflows. (2000–2010)[119]
RankCountryInflows
(million USD)		Inflows (%)
1Mauritius50,16442.00
2Singapore11,2759.00
3USA8,9147.00
4UK 6,1585.00
5Netherlands4,9684.00

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for FDI;[120] India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies were a significant hindrance. However, due to positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia-Pacific region.[120] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.[121]

During 2000–10, the country attracted $178 billion as FDI.[122] The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.[123]

India's recently liberalised FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100% FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.[124] Despite a number of changes in the FDI policy to remove caps in most sectors, there still remains an unfinished agenda of permitting greater FDI in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 2008–09 stood at Indian Rupee symbol.svg122,919 crore (US$27.41 billion), a growth of 25% in rupee terms over the previous period.[125].

[edit]Currency

The RBI headquarters in Mumbai
Main articles: Indian rupee and Reserve Bank of India

The Indian rupee is the only legal tender in India, and is also accepted as legal tender in the neighbouring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paise. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 10 paise coin.[126] However, with effect from 30 June 2011, 50 paise will be the minimum coin accepted in the markets as all denominations below it will cease to be legal currency.[127][128] India's monetary system is managed by the Reserve Bank of India (RBI), the country's central bank.[129] Established on 1 April 1935 and nationalised in 1949, the RBI serves as the nation's monetary authority, regulator and supervisor of the monetary system, banker to the government, custodian of foreign exchange reserves, and as an issuer of currency. It is governed by a central board of directors, headed by a governor who is appointed by the Government of India.[130]

The rupee was linked to the British pound from 1927–1946 and then the U.S. dollar till 1975 through a fixed exchange rate. It was devalued in September 1975 and the system of fixed par rate was replaced with a basket of four major international currencies – the British pound, the U.S. dollar, the Japanese yen and theDeutsche mark.[131] Since 2003, the rupee has been steadily appreciating against the U.S. dollar.[132] In 2009, a rising rupee prompted the Government of India to purchase 200 tons of gold for $6.7 billion from the IMF.[133]

[edit]Income and consumption

Main article: Income in India
See also: Poverty in India
World map showing the Gini coefficient, a measure of income inequality. India has a Gini coefficient of 0.368.

India's gross national income per capita in 2010-11 fiscal was at $ 1219,up 18% from $ 1033 in the previous year.[134] Indian official estimates of the extent of poverty have been subject to debate, with concerns being raised about the methodology for the determination of the poverty line.[135][136] As of 2005, according to World Bank statistics, 75.6% of the population lived on less than $2 a day (PPP), while 41.6% of the population was living below the new international poverty line of $1.25 (PPP) per day.[137][138][139] However, data released in 2009 by the Government of India estimated that 37% of the population lived below the poverty line.[3]

Housing is modest. According to The Times of India, a majority of Indians had a per capita space equivalent to or less than a 100 square feet (9.3 m2) room for their basic living needs, and one-third of urban Indians lived in "homes too cramped to exceed even the minimum requirements of a prison cell in the US."[140] The average is 103 sq ft (9.6 m2) per person in rural areas and 117 sq ft (10.9 m2) per person in urban areas.[140]

GNI per capita:
  India (1,170 $)
  Higher GNI per capita compared to India
  Lower GNI per capita compared to India

Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa.[141][142] However, India has not had any major famines since Independence.[143]

Since the early 1950s, successive governments have implemented various schemes to alleviate poverty, under central planning, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure.[144] In August 2005, the Parliament of India, in response to the perceived failure of economic growth to gene rate employment for the rural poor, passed the Rural Employment Guarantee Bill into law, guaranteeing 100 days of minimum wage employment to every rural household in all the districts of India.[145] Parliament also refused to accept government's argument that it had taken adequate measures to reduce incidence of poverty in India.The question of whether economic reforms have reduced poverty has fuelled debates without generating clear-cut answers and has also increased political pressure against further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies.[146] Recent statistics in 2010 point out that the number of high income households has crossed lower income households.[147]

[edit]Employment

See also: Labour in India and Indian labour law

India's labor regulations – among the most restrictive and complex in the world – have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India's unemployed millions and those trapped in poor quality jobs. Given the country's momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade.

— World Bank: India Country Overview 2008.[148]

Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10.[81] While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in the organised sector, two-thirds of which are in the public sector.[149] The NSSO survey estimated that in 2004–05, 8.3% of the population was unemployed, an increase of 2.2% over 1993 levels, with unemployment uniformly higher in urban areas and among women.[150][151] Growth of labour stagnated at around 2% for the decade between 1994–2005, about the same as that for the preceding decade.[145] Avenues for employment generation have been identified in the IT and travel and tourism sectors, which have been experiencing high annual growth rates of above 9%.[152]

Unemployment in India is characterised by chronic (disguised) unemployment. Government schemes that target eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decline in organised employment due to the decreased role of the public sector after liberalisation has further underlined the need for focusing on better education and has also put political pressure on further reforms.[153] [154] India's labour regulations are heavy even by developing country standards and analysts have urged the government to abolish or modify them in order to make the environment more conducive for employment generation.[155][156] The 11th five-year plan has also identified the need for a congenial environment to be created for employment generation, by reducing the number of permissions and other bureaucratic clearances required.[157] Further, inequalities and inadequacies in the education system have been identified as an obstacle preventing the benefits of increased employment opportunities from reaching all sectors of society.[158]

Child labour in India is a complex problem that is basically rooted in poverty, coupled with a failure of governmental policy, which has focused on subsidising higher rather than elementary education, as a result benefiting the privileged rather than the poorer sections of society.[159]The Indian government is implementing the world's largest child labour elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organisations are also involved. Special investigation cells have been set up in states to enforce existing laws banning the employment of children under 14 in hazardous industries. The allocation of the Government of India for the eradication of child labour was $21 million in 2007.[160] Public campaigns, provision of meals in school and other incentives have proven successful in increasing attendance rates in schools in some states.[161]

In 2009–10, remittances from Indian migrants overseas stood at Indian Rupee symbol.svg250,000 crore (US$55.75 billion), the highest in the world, but their share in FDI remained low at around 1%.[162] India ranked 133rd on the Ease of Doing Business Index 2010, behind countries such as China (89th), Pakistan (85th), and Nigeria (125th).[163]

[edit]Economic trends and issues

Commercial office buildings in Gurgaon.

In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India's GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2043.[164] In spite of the high growth rate, the report stated that India would continue to remain a low-income country for decades to come but could be a "motor for the world economy" if it fulfills its growth potential.[164]

[edit]Agriculture

Main article: Agriculture in India

Slow agricultural growth is a concern for policymakers as some two-thirds of India's people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation.

— World Bank: "India Country Overview 2008"[148]

India's population is growing faster than its ability to produce rice and wheat.[165] The low productivity in India is a result of several factors. According to the World Bank, India's large agricultural subsidies are hampering productivity-enhancing investment. While overregulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure and services are inadequate.[166] Further, the average size of land holdings is very small, with 70% of holdings being less than one hectare in size.[167] The partial failure of land reforms in many states, exacerbated by poorly maintained or non-existent land records, has resulted in sharecropping with cultivators lacking ownership rights, and consequently low productivity of labour.[168] Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs, illiteracy, slow progress in implementing land reforms, inadequate or inefficient finance and marketing services for farm produce and impracticality in the case of small land holdings. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating.[166] Irrigation facilities are inadequate, as revealed by the fact that only 39% of the total cultivable land was irrigated as of 2010,[84] resulting in farmers still being dependent on rainfall, specifically the monsoon season, which is often inconsistent and unevenly distributed across the country.[169]

[edit]Corruption

Overview of the index of perception of corruption, 2010
Main article: Corruption in India

Corruption has been one of the pervasive problems affecting India. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that were largely blamed for the institutionalised corruption and inefficiency.[170] Yet, a 2005 study by Transparency International(TI) found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.[171]

The Right to Information Act (2005) which requires government officials to furnish information requested by citizens or face punitive action, computerisation of services, and various central and state government acts that established vigilance commissions, have considerably reduced corruption and opened up avenues to redress grievances.[171] The 2010 report by TI ranks India at 87th place and states that significant setbacks were made by India in reducing corruption.[172]

The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-agriculture establishments with 10 or more employees.[144]

The current government has concluded that most spending fails to reach its intended recipients. A large, cumbersome and overworked bureaucracy also contributes to administrative inefficiency.[173] India's absence rates are one of the worst in the world; one study found that 25% of public sector teachers and 40% of public sector medical workers could not be found at the workplace.[174][175]

The Indian economy continues to face the problem of an underground economy with a 2006 estimate by the Swiss Banking Association suggesting that India topped the worldwide list for black money with almost $1,456 billion stashed in Swiss banks. This amounts to 13 times the country's total external debt.[176][177]

[edit]Education

Main article: Education in India

India has made huge progress in terms of increasing primary education attendance rate and expanding literacy to approximately two thirds of the population.[178] The right to education at elementary level has been made one of the fundamental rights under the eighty-sixth Amendment of 2002, and legislation has been enacted to further the objective of providing free education to all children.[179] However, the literacy rate of 74% is still lower than the worldwide average and the country suffers from a high dropout rate.[180] Further, there exists a severe disparity in literacy rates and educational opportunities between males and females, urban and rural areas, and among different social groups.[181]

[edit]Infrastructure

Shown here is the Chennai Port.
Shown here is the Mumbai Pune expressway in Maharashtra.
See also: Transport in India, Indian Road Network, Ports in India, Electricity sector in India,States of India by installed power capacity, Water supply and sanitation in India, andCommunications in India

In the past, development of infrastructure was completely in the hands of the public sector and was plagued by slow progress, poor quality and inefficiency.[182] India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment,[144][183] and most public infrastructure, barring railways, is today constructed and maintained by private contractors, in exchange for tax and other concessions from the government.[184]

Some 600 million Indians have no electricity at all.[185] While 80% of Indian villages have at least an electricity line, just 44% of rural households have access to electricity. Some half of the electricity is stolen, compared with 3% in China. The stolen electricity amounts to 1.5% of GDP.[186][187] Transmission and distribution losses amount to around 20%, as a result of an inefficient distribution system, handled mostly by cash-strapped state-run enterprises.[188] Almost all of the electricity in India is produced by the public sector. Power outages are common, and many buy their own power generators to ensure electricity supply.[185] As of 2006–07 the electricity production was at 652.2 billion kWh, with an installed capacity of 128400 MW.[189] In 2007, electricity demand exceeded supply by 15%.[185] However, reforms brought about by theElectricity Act of 2003 caused far-reaching policy changes, including mandating the separation of generation, transmission and distribution aspects of electricity, abolishing licencing requirements in generation and opening up the sector to private players, thereby paving the way for creating a competitive market-based electricity sector.[190] Substantial improvements in water supply infrastructure, both in urban and rural areas, have taken place over the past decade, with the proportion of the population having access to safe drinking water rising from 66% in 1991 to 92% in 2001 in rural areas, and from 82% to 98% in urban areas. however, quality and availability of water supply remains a major problem even in urban India, with most cities getting water for only a few hours during the day.[191]

India has the world's third largest road network,[192] covering about 3.3 million kilometers and carrying 65% of freight and 80% of passenger traffic.[193] Container traffic is growing at 15% a year.[194] India has a national teledensity rate of 67.67% with 806.1 million telephone subscribers, two-thirds of them in urban areas,[195] but Internet use is rare—there were only 10.29 million broadband lines in India in September 2010. However, this is growing and is expected to boom following the expansion of 3G and wimax services.[196]

[edit]Economic disparities

Main articles: Economic disparities in India and Poverty in India

Lagging states need to bring more jobs to their people by creating an attractive investment destination. Reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance are important.

— World Bank: India Country Overview 2008[148]

Illegal Slums next to high-rise commercial buildings in Kochi. millions of people, mostly comprising rural residents who migrate to cities seeking jobs, live in squalid conditions like these.[197]

A critical problem facing India's economy is the sharp and growing regional variations among India's different states and territories in terms of poverty, availability of infrastructure and socio-economic development.[198] Six low-income states – Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh – are home to more than one third of India's population.[199]Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.[200]

The five-year plans, especially in the pre-liberalisation era, attempted to reduce regional disparities by encouraging industrial development in the interior regions and distributing industries across states, but the results have not been very encouraging since these measures in fact increased inefficiency and hampered effective industrial growth.[201] After liberalisation, the more advanced states have been better placed to benefit from them, with well-developed infrastructure and an educated and skilled workforce, which attract the manufacturing and service sectors. The governments of backward regions are trying to reduce disparities by offering tax holidays and cheap land, and focusing more on sectors like tourism which, although being geographically and historically determined, can become a source of growth and develops faster than other sectors.[202][203]

[edit]See also

India portal
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[edit]Notes

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[edit]References

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[edit]Further reading

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[edit]External links

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pril 22, 2011

India to Step up Economic Growth, But Inflation Remains a Concern

Anjana Pasricha

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A man pulls a hand-drawn cart loaded with sacks of chickpeas on a main road in Mumbai, April 21, 2011
Photo: Reuters
A man pulls a hand-drawn cart loaded with sacks of chickpeas on a main road in Mumbai, April 21, 2011

India is planning to increase the pace of economic growth in the coming years.

At a meeting Thursday to set out the future path of the country's economic policy, Prime Minister Manmohan Singh said India will set a target growth rate of nine to 9.5 percent from the year 2012 to 2017.

After a swift recovery from the global financial slowdown, India's economy has been growing at a rate of about eight percent in the last two years. Companies have posted good profits and employment is growing from strong consumer demand for everything from cars to houses.    

However, economists have warned that high inflation could slow down India's economic momentum, making it difficult to achieve the ambitious target of more than nine percent growth.

Government advisers admit that stubbornly high inflation poses a challenge. Despite efforts to slow rising prices, inflation remained at a higher than forecast nine percent in March.     

The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, says the government plans to tackle inflation by improving its fiscal balance. He says in the coming years, India aims to substantially cut its fiscal deficit, which is presently about five percent.      

"We are working on the assumption that we will achieve this year's fiscal deficit target of 4.6 per [percent], and then it will go down to 4.1.  Then it will go down to 3.5, and in the year 2014-15 it will become three [percent] and then it will remain at three," Ahluwalia said.

Ahluwalia says that increasing farm output will also reduce pressure on rising prices and tame inflation. Food prices, which grew by nearly 18 percent last year, have contributed most to inflation in the past year.

Weather forecasters have said that monsoon rains, which are vital for farm productivity, will be normal this year. This has raised hopes that agricultural productivity will be on track, and food prices will not rise further.  

India is Asia's second fastest growing economy. Some analysts have said that in the coming years India could outpace China, which is the world's fastest growing major economy.

Related Articles

http://www.voanews.com/english/news/asia/south/India-to-Step-up-Economic-Growth-But-Inflation-Remains-a-Concern-120441589.html

India's Economy in 2010

India is an emerging economy which has witnessed unprecedented levels of economic expansion, alongside China, Russia, Mexico and Brazil. India is a cost effective and labor intensive economy, and has benefited immensely from outsourcing of work from developed countries, and has a strong manufacturing and export oriented industrial framework.

With India's economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years.

Economic Prospects for 2010

The global economy seems to be recovering after the recent financial crisis in 2008. The Indian economy, however, was hit in the latter part of the global recession as real economic growth witnessed a sharp fall, followed by lower exports, capital outflow and corporate restructuring.

It's expected global economies will continue to be sustained in the short-term, as the effect of stimulus programs is yet to tak and tax cuts are working their way through the system in 2010. Due to the strong liquidity positions in the market, large corporations now have access to capital in the corporate credit markets.

http://www.economywatch.com/indianeconomy/indian-economy-overview/Does Human Development Policy Matter for Economic Growth? Evidence from Indian States
  1. Jaya Prakash Pradhan
    1. Research and Information System for the Non-Aligned and Other Developing Countries, New Delhi
  1. Vinoj Abraham
    1. Jawaharlal Nehru University, New Delhi

Abstract

For explaining growth differentials across the countries, recent growth literature is increasingly relying on the process of human capital accumulation along with the traditional factors like labour and non-human capital. This study has investigated the role of human development policy on the economic growth of Indian states for the period 1980-97. Evidences suggest that the human development position of the states is strongly determined by the human development policy pursued. Panel data evidence investigating the growth impact of human development policy found that economic growth significantly depends upon the human development policy It confirmed that the government allocation for education is critical for eco nomic development. However, per capita health expenditure does not posses any significant growth impact.

http://sae.sagepub.com/content/3/1/77.abstract

 


Economic development in India

From Wikipedia, the free encyclopedia
Main article: Economy of India

The economic development in India followed a socialist-inspired policies for most of its independent history, including state-ownership of many sectors; extensive regulation and red tape known as "Licence Raj"; and isolation from the world economy. India's per capita income increased at only around 1% annualized rate in the three decades after Independence.[1] Since the mid-1980s, India has slowly opened up its markets through economic liberalization. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a free market economy.[1]

In the late 2000s, India's growth has reached 7.5%, which will double the average income in a decade.[1] Analysts say that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's 2011 target of 10%.[1] States have large responsibilities over their economies. The annualized 1999-2008 growth rates for Gujarat (9.6%), Haryana (9.1%), or Delhi (8.9%) were significantly higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (6.5%).[2] India is the eleventh-largest economy in the world and the fourth largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks 128th in the world or118th by PPP.

The economic growth has been driven by the expansion of services that have been growing consistently faster than other sectors. It is argued that the pattern of Indian development has been a specific one and that the country may be able to skip the intermediate industrialization-led phase in the transformation of its economic structure. Serious concerns have been raised about the jobless nature of the economic growth. [3]

Favourable macroeconomic performance has been a necessary but not sufficient condition for the significant reduction of poverty among the Indian population. The rate of poverty decline has not been higher in the post-reform period (since 1991). The improvements in some other non-economic dimensions of social development have been even less favourable. The most pronounced example is an exceptionally high and persistent level of child malnutrition (46% in 2005–6). [4]

The progress of economic reforms in India is followed closely. The World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labor regulations, reforms in lagging states, and HIV/AIDS.[5] For 2010, India ranked 133rd in Ease of Doing Business Index, which is setback as compared with China 89th and Brazil 129th. According to Index of Economic Freedom World Ranking an annual survey on economic freedom of the nations, India ranks 124th as compared with China and Russia which ranks 140th and 143rd respectively in 2010.

Contents

 [hide]

[edit]Agriculture

Main article: Agriculture in India
Composition of India's total production (million tonnes) of foodgrains and commercial crops, in 2003–04.

India ranks second worldwide in farm output. Agriculture and allied sectors likeforestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce[6] and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the green revolution.[citation needed]

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger,turmeric and black pepper.[7] It also has the world's largest cattle population (193 million).[8] It is the second largest producer of wheat, rice, sugar, groundnut and inland fish.[9] It is the third largest producer of tobacco.[9] India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.[9]

The required level of investment for the development of marketing, storage and cold storage infrastructure is estimated to be huge. The government has implemented various schemes to raise investment in marketing infrastructure. Among these schemes are Construction of Rural Go downs, Market Research and Information Network, and Development / Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization.[10]

Main problems in the agricultural sector, as listed by the World Bank, are:[11]

  • India's large agricultural subsidies are hampering productivity-enhancing investment.
  • Overregulation of agriculture has increased costs, price risks and uncertainty.
  • Government interventions in labour, land, and credit markets.
  • Inadequate infrastructure and services.
Research and development

The Indian Agricultural Research Institute (IARI), established in 1905, was responsible for the research leading to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex body in kundiure and related allied fields, including research and education.[12] The Union Minister of Agriculture is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for the design of agricultural experiments, analyses data in agriculture, and specializes in statistical techniques for animal and plant breeding. Prof. M.S. Swaminathan is known as "Father of the Green Revolution" and heads the MS Swaminathan Research Foundation.[13] He is known for his advocacy of environmentally sustainable agriculture and sustainable food security.

[edit]Industrial output

An industrial zone near Mumbai, India.

India is fourteenth in the world in factory output. Manufacturing sector in addition to mining,quarrying, electricity and gas together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms introduced after 1991 brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.[14] In recent years, Indian cities have continued to liberalize, but excessive and burdensome business regulations remain a problem in some cities, like Kochi and Kolkata.[15]

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.[16]

[edit]Services

India is fifteenth in services output. Service industry employt English-speaking workers on the supply side and on the demand side, has increased demand from foreign consumers interested in India's service exports or those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of payments, accounts for only about 1% of the total GDP or 1/50th of the total services.[17]

The ITES-BPO sector has become a big employment generator especially amongst young college graduates. The number of professionals employed by IT and ITES sectors is estimated at around 1.3 million as on March 2006. Also, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect and induced employment.[18]

[edit]Banking and finance

Main articles: Banking in India and Insurance in India
The RBI headquarters in Mumbai

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.[6][19]

Currently, in 2007, banking in India is generally mature in terms of supply, product range and reach-even, though reach in rural India still remains a challenge for the private sector and foreign banks.[20] In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies of Asia.[20] The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate.[21]

Currently, India has 88 scheduled commercial banks (SCBs) — 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks.[22] They have a combined network of over 53,000 branches and 17,000 ATMs. The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[22]

[edit]GDP growth rate

Since the economic liberalization of 1991, India's GDP has been growing at a higher rate.[23]

Year↓ Growth (real) (%)↓
2000 5.5
2001 6.0
2002 4.3
2003 4.3
2004 8.3
2005 6.2
2006 8.4
2007 9.2
2008 9.0
2009 7.4

Prime Minister's Economic Advisory Council has projected the Indian economy to grow at 8.6% in 2010-11 and 9% in 2011-12 as of February 2011.[24]

[edit]Companies

47 Indian companies were listed in the Forbes Global 2000 ranking for 2009.[25] The 10 leading companies were:

World Rank↓ Company↓ Logo Industry↓ Revenue
(billion $)↓		 Profits
(billion $)↓		 Assets
(billion $)↓		 Market Value
(billion $)↓
121 Reliance Industries Oil & Gas Operations 34.03 4.87 43.61 35.95
150 State Bank of India Banking 22.63 2.23 255.86 12.75
152 Oil and Natural Gas Corporation Oil & Gas Operations 24.04 4.95 35.35 28.91
207 Indian Oil Corporation Indian Oil Logo.svg Oil & Gas Operations 51.66 1.97 33.64 10.20
317 NTPC Utilities 9.63 1.86 24.58 29.70
329 ICICI Bank Banking 15.06 0.85 120.61 7.14
463 Tata Steel Materials 32.77 3.08 31.16 2.46
508 Bharti Airtel Telecommunications Services 6.73 1.59 12.28 23.63
582 Steel Authority of India Limited Materials 9.82 1.89 10.54 6.14
689 Reliance Communications Telecommunications Services 4.26 1.35 19.31 6.27

[edit]India's resource consumption

[edit]Oil

India had about 5.6 billion barrels (890,000,000 m3) of proven oil reserves as of January 2007, which is the second-largest amount in the Asia-Pacific region behind China.[26] Most of India's crude oil reserves are located in the western coast (Mumbai High) and in the northeastern parts of the country, although considerable undeveloped reserves are also located in the offshore Bay of Bengal and in the state of Rajasthan.

The combination of rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet the consumption needs. In 2006, India produced an average of about 846,000 barrels per day (bbl/d) of total oil liquids, of which 77%, or 648,000 bbl/d (103,000 m3/d), was crude oil.[26] During 2006, India consumed an estimated 2.63 Mbbl/d (418,000 m3/d) of oil.[27] The Energy Information Administration (EIA) estimates that India registered oil demand growth of 100,000 bbl/d (16,000 m3/d) during 2006.[27] EIA forecasts suggest that country is likely to experience similar gains during 2007 and 2008.

Sector organisation

India's oil sector is dominated by state-owned enterprises, although the government has taken steps in past recent years to deregulate the hydrocarbons industry and support greater foreign involvement. India's state-owned Oil and Natural Gas Corporation (ONGC) is the largest oil company, and also the country's largest company overall by market capitalization. ONGC is the leading player in India's upstream sector, accounting for roughly 75% of the country's oil output during 2006, as per Indian government estimates.[26]

As a net importer of oil, the Government of India has introduced policies aimed at growing domestic oil production and oil exploration activities. As part of the effort, the Ministry of Petroleum and Natural Gas crafted the New Exploration License Policy (NELP) in 2000, which permits foreign companies to hold 100% equity possession in oil and natural gas projects.[26] However, to date, only a handful of oil fields are controlled by foreign firms. India's downstream sector is also dominated by state-owned entities, though private companies have enlarged their market share in past recent years.[26]

[edit]Natural gas

As per the Oil and Gas Journal, India had 38 trillion cubic feet (Tcf) of confirmed natural gas reserves as of January 2007. A huge mass of India's natural gas production comes from the western offshore regions, particularly the Mumbai High complex. The onshore fields in Assam,Andhra Pradesh, and Gujarat states are also major producers of natural gas. As per EIA data, India produced 996 billion cubic feet (Bcf) of natural gas in 2004.[28]

India imports small amounts of natural gas. In 2004, India consumed about 1,089×109 cu ft (3.08×1010 m3) of natural gas, the first year in which the country showed net natural gas imports. During 2004, India imported 93×109 cu ft (2.6×109 m3) of liquefied natural gas (LNG) fromQatar.[28]

Sector Organization

As in the oil sector, India's state-owned companies account for the bulk of natural gas production. ONGC and Oil India Ltd. (OIL) are the leading companies with respect to production volume, while some foreign companies take part in upstream developments in joint-ventures and production sharing contracts (PSCs). Reliance Industries, a privately-owned Indian company, will also have a bigger role in the natural gas sector as a result of a large natural gas find in 2002 in the Krishna Godavari basin.[28]

The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline projects. While GAIL's domination in natural gas transmission and allocation is not ensured by statute, it will continue to be the leading player in the sector because of its existing natural gas infrastructure.[28]

[edit]Issues

See also: Economy of India
Regulation, public sector, corruption
Main article: Corruption in India

India ranked 133rd on the Ease of Doing Business Index in 2010, compared with 85th for Pakistan, 89th for People's Republic of China, 125th for Nigeria, 129th for Brazil, and 122nd for Indonesia.

Extent of corruption in Indian states, asmeasured in a 2005 study by Transparency International India. (Darker regions are more corrupt)[29]

Corruption in many forms has been one of the pervasive problems affecting India. For decades, thered tape, bureaucracy and the Licence Raj that had strangled private enterprise.[30] The economic reforms of 1991 cut some of the worst regulations that had been utilized in corruption.

Corruption is still large. A 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying a bribe or peddling influence to get a job done in a public office.[29] The chief economic consequences of corruption are the loss to theexchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Indian Rupee symbol.svg21,068 crore (US$4.7 billion).[29] India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared with China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances.[29][31] The 2006 report by Transparency International puts India at 70th place and states that significant improvements were made by India in reducing corruption.[32][33]

Employment

India's labor force is growing by 2.5% every year, but employment is growing only at 2.3% a year.[34] Official unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs and remain unpaid for the rest of the time.[34] Only 10% of the workforce is in regular employment.[34] India's labor regulations are heavy even by developing country standards and analysts have urged the government to abolish them.[1][35]

From the overall stock of an estimated 458 million workers, 394 million (86%) operate in the unorganized sector (of which 63% are self-employed) mostly as informal workers. There is a strong relationship between the quality of employment and social and poverty characteristics. [36] The relative growth of informal employment was more rapid within the organized rather than the unorganized sector. This informalization is also related to the flexibilization of employment in the organized sector that is suggested by the increasing use of contract labor by employers in order to benefit from more flexible labor practices. [3]

Most children never go beyond primary level schooling. Children under 14 constitute 3.6% of the total labor force in the country. Of these children, 9 out of every 10 work in their own rural family settings. Around 85% of them are engaged in traditional agricultural activities. Less than 9% work in manufacturing, services and repairs.[37] Child labor is a complex problem that is basically rooted in poverty. The Indian government is implementing the world's largest child labor elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organizations are also involved. Special investigation cells have been set up in states to enforce existing laws banning employment of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of child laborwas US$10 million in 1995-96 and US$16 million in 1996-97. The allocation for 2007 is US$21 million.[37]

Environmental degradation
Main article: Environmental issues in India

About 1.2 billion people in developing nations lack clean, safe water because most household and industrial wastes are dumped directly into rivers and lakes without treatment. This contributes to the rapid increase in waterborne diseases in humans.[38] Out of India's 3119 towns and cities, just 209 have partial treatment facilities, and only 8 have full wastewater treatment facilities (WHO 1992).[39] 114 cities dump untreatedsewage and partially cremated bodies directly into the Ganges River.[40] Downstream, the untreated water is used for drinking, bathing, and washing. This situation is typical of many rivers in India as well as other developing countries. Globally, but especially in developing nations like India where people cook with fuelwood and coal over open fires, about 4 billion humans suffer continuous exposure to smoke. In India, particulate concentrations in houses are reported to range from 8,300 to 15,000 μg/m3, greatly exceeding the 75 μg/m3 maximum standard for indoor particulate matter in the United States.[41] Changes in ecosystem biological diversity, evolution of parasites, and invasion by exotic species all frequently result in disease outbreaks such as cholera which emerged in 1992 in India. The frequency of AIDS/HIV is increasing. In 1996, about 46,000 Indians out of 2.8 million (1.6 % of the population) tested were found to be infected with HIV.[42]

[edit]References

  1. ^ a b c d e Economic survey of India 2007: Policy Brief. OECD.
  2. ^ "A special report on India: Ruled by Lakshmi 11 December 2008 From The Economist print edition". Economist.com. 2008-12-11. Retrieved 2009-07-12.
  3. ^ a b NOVOTNÝ, J., RAMACHANDRAN, N. (2010): Alternative to jobless growth? All-India context and a case of participatory development scheme from rural Tamil Nadu. Geografie, 115, 3, 330-346.http://web.natur.cuni.cz/~pepino/Novotny_Ramachandran_2010_Alternative_to_jobless_growth.pdf
  4. ^ CHATTERJEE, P. (2007): Child malnutrition rises in India despite economic boom. The Lancet, 369, No. 9571, pp. 1417–1418.
  5. ^ India Country Overview 2008. World Bank
  6. ^ a b "CIA — The World Factbook — India". CIA. 2007-09-20. Retrieved 2007-10-02.
  7. ^ Agriculture sector Indo British Partnership network, Retrieved on December 2007
  8. ^ Lester R. Brown World's Rangelands Deteriorating Under Mounting Pressure Earth Policy Institute, Retrieved on- February 2008
  9. ^ a b c Indian agriculture Agribusiness Information Centre, Retrieved on- February 2008
  10. ^ Agriculture marketing india.gov Retrieved on- February 2008
  11. ^ India: Priorities for Agriculture and Rural Development. World Bank
  12. ^ Objectives Indian agricultural research institute, Retrieved on December 2007
  13. ^ MS Swaminathan Times Inc. Retrieved on- 21 February 2008
  14. ^ "Economic structure". The Economist. 6 October 2003.
  15. ^ "Doing Business in India 2009". World Bank. Retrieved 2010-06-08.
  16. ^ "Indian manufacturers learn to compete". The Economist. 12 February 2004.[dead link]
  17. ^ Gordon, Jim and Gupta, Poonam (2003) (PDF). Understanding India's Services Revolution. 12 November 2003.
  18. ^ ITES and BPO Services india.gov Retrieved on- February 2008
  19. ^ Datt, Ruddar & Sundharam, K.P.M.. "50". Indian Economy. pp. 865–867.
  20. ^ a b Nishtha Khurana Crisis Prevention and Capital Controls in India boeckler.de, Retrieved on- October 2007
  21. ^ Rajesh Chakrabarti Foreign Exchange Markets isb.edu Retrieved on- February 2008
  22. ^ a b India growth story is attracting talent from govt establishments HT media, Retrieved on- December 2007
  23. ^ India - GDP - real growth rate (%).
  24. ^ "Review of Economy 2010-11". PMEAC. Retrieved 7 March 2011.
  25. ^ "Forbes Global 2000 (Ger-Ind)". Retrieved 6 March 2009.
  26. ^ a b c d e "Energy Information Administration (EIA)". Statistical agency of the U.S. Department of Energy. Retrieved 2007-10-23.
  27. ^ a b International Petroleum Monthly 2005-2006
  28. ^ a b c d "Energy Information Administration (EIA)". Statistical agency of the U.S. Department of Energy. Retrieved 2007-10-27.
  29. ^ a b c d Centre for Media Studies (2005). India Corruption Study 2005: To Improve Governance Volume – I: Key Highlights. Transparency International India.
  30. ^ DeLong, J. Bradford (2001) (PDF). India Since Independence: An Analytic Growth Narrative.
  31. ^ Example of a central government department's implementation of the Right to Information Act.
  32. ^ "Transparency International Press release". Transparency.org. Retrieved 2009-07-12.
  33. ^ Transparency International Press release[dead link]
  34. ^ a b c "Growing Unemployment Problem in India" (PDF). Retrieved 2009-07-12.
  35. ^ Why India needs labour law reform. BBC
  36. ^ SENGUPTA, A., KANNAN, K. P., RAVEENDRAN, G. (2008): India's common people: who are they, how many are they and how do they live? Economic and Political Weekly, 43, No. 11, pp. 49–63.[1].
  37. ^ a b "Child Labor and India". Embassy of India, Washington, DC. Retrieved 2007-11-28.
  38. ^ Gleick PH. 1993. Water in Crisis. New York: Oxford University Press.
  39. ^ Russell Hopfenberg and David Pimentel HUMAN POPULATION NUMBERS AS A FUNCTION OF FOOD SUPPLY oilcrash.com Retrieved on- February 2008
  40. ^ National Geographic Society. 1995. Water: A Story of Hope. Washington (DC): National Geographic Society
  41. ^ Christiani DC. 1993. Urban and trans-boundary air pollution: Human health consequences. Pages 13-30 in Chivian E, McCally M, Hu H, Haines A, eds. Critical Condition: Human Health and the Environment. Cambridge (MA): MIT Press.
  42. ^ Burns JF. 1996. Denial and taboo blind India to the horror of its AIDS scourge. New York Times, 22 September: A1.

[edit]External links

India portal
Economics portal
Business and economics portal

Economy of the People's Republic of China

From Wikipedia, the free encyclopedia
Economies of Special Administrative Regions of Hong Kong and Macau are administered separately from the rest of People's Republic of China. Therefore, the information below pertains only to mainland China unless specified otherwise. For the Republic of China (Taiwan), see Economy of Taiwan.
 This article may be too long to read and navigate comfortably. Please consider splitting content into sub-articles and using this article for a summary of the key points of the subject. (July 2010)
Economy of People's Republic of China
Shanghaiviewpic1.jpg
Pudong in Shanghai
Rank2nd
CurrencyRenminbi (RMB); Unit: Yuan (CNY)
Fixed exchange rates USD = 6.54771648 RMB
(March 7. 2011)
[1]
Fiscal year Calendar year 01 January to 31 December
Trade organisationsWTO, APEC, G-20 and others
Statistics
GDP

$5.88 trillion (nominal: 2nd; 2010)

$10.08 trillion (PPP: 2nd; 2010)
GDP growth10.46% (major economies: 1st; 2010)
GDP per capita

$4,283 (nominal: 95th; 2010)

$7,518 (PPP: 93rd; 2010)
GDP by sectorindustry (46.8%), services (43.6%), agriculture (9.6%) (2010 est.)
Inflation (CPI) 4.9% (January 2011)[2]
Gini index 41.5
Labour force 819.5 million (1st; 2009)
Labour force
by occupation		agriculture (39.5%), industry (27.2%), services (33.2%) (2008)
Unemployment 4.2% (July 2010)[3]
Main industriesmining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites
Ease of Doing Business Rank 79th[4] (2011)
External
ExportsUS$1.506 trillion (2010)
Export goodselectrical and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment
Main export partnersUS 20.03%, Hong Kong 12.03%, Japan 8.32%, South Korea 4.55%, Germany 4.27% (2009)
ImportsUS$1.307 trillion (2010)
Import goodselectrical and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics, organic chemicals
Main import partnersJapan 12.27%, Hong Kong 10.06%, South Korea 9.04%, US 7.66%, Taiwan 6.84%, Germany 5.54% (2009)
FDI stock $100 billion (2010)
Gross external debt $406.6 billion (22nd; 2010)
Public finances
Public debt17.5% of GDP (112th; 2010)
Revenues$1.149 trillion (2010)
Expenses$1.27 trillion (2010)
Economic aid recipient: $1.12 per capita (2008)[5]
Credit rating AA- (Domestic)
AA- (Foreign)
AA- (T&C Assessment)
(Standard & Poor's)[6]
Foreign reserves$3.05 trillion (1st; 2011)
All values, unless otherwise stated, are in US dollars
GNI per capita:
  China (3,650 $)
  Higher GNI per capita compared to China
  Lower GNI per capita compared to China

The People's Republic of China is the world's second largest economy after theUnited States. It is the world's fastest-growing major economy, with average growth rates of 10% for the past 30 years. China is also the largest exporter and second largest importer of goods in the world. China became the world's top manufacturer in 2011, surpassing the United States. The country's per capita GDP (PPP) is $7,518(IMF, 93rd in the world) in 2010. The provinces in the coastal regions of China[7] tend to be more industrialized, while regions in the hinterland are less developed. As China's economic importance has grown, so has attention to the structure and health of that economy.[8][9]

Contents

 [hide]

[edit]Overview

In the modern era, China's influence in the world economy was minimal until the late 1980s. At that time, economic reforms initiated after 1978 began to generate significant and steady growth in investment, consumption and standards of living. China now participates extensively in the world market and private sector companies play a major role in the economy. Since 1978 hundreds of millions have been lifted out of poverty: According to China's official statistics, the poverty rate fell from 53% in 1981[10] to 2.5% in 2005. However, in 2006, 10.8% of people still lived on less than $1 a day (purchasing power parity-adjusted).[11] The infant mortality rate fell by 39.5% between 1990 and 2005,[12] and maternal mortality by 41.1%.[13] Access to telephones during the period rose more than 94-fold, to 57.1%.[14]

In the 1949 revolution, China's economic system was officially made into acommunist system. Since the wide-ranging reforms of the 1980s and afterwards, many scholars assert that China can be defined as one of the leading examples ofstate capitalism today.[15][16]

China has generally implemented reforms in a gradualist fashion. As its role in world trade has steadily grown, its importance to the international economy has also increased apace. China's foreign trade has grown faster than its GDP for the past 25 years.[17] China's growth comes both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated.[18] The smaller but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resourcesthat facilitated private sector growth and drove investment, the foundation of national growth. In 2008 thousands of private companies closed down and the government announced plans to expand the public sector to take up the slack caused by the global financial crisis.[19] In 2010, there were approximately 10 million small businesses in China.[20]

The PRC government's decision to permit China to be used by multinational corporations as an export platform has made the country a major competitor to other Asian export-led economies, such as South Korea, Singapore, and Malaysia.[21] China has emphasized raising personal income andconsumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.[22] Nevertheless, key bottlenecks continue to constrain growth. Available energy is insufficient to run at fully installed industrial capacity,[23] and the transport system is inadequate to move sufficient quantities of such critical items as coal.[24]

The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP. The two sectors have differed in many respects. Technology, labor productivity, and incomes have advanced much more rapidly in industry than in agriculture. Agricultural output has been vulnerable to the effects ofweather, while industry has been more directly influenced by the government. The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society. China is the world's largest producer of rice and is among the principal sources of wheat, corn (maize), tobacco, soybeans, peanuts (groundnuts), and cotton. The country is one of the world's largest producers of a number of industrial and mineral products, including cotton cloth, tungsten, and antimony, and is an important producer of cotton yarn, coal, crude oil, and a number of other products. Its mineral resources are probably among the richest in the world but are only partially developed.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories. The technological level and quality standards of its industry as a whole are still fairly low,[25] notwithstanding a marked change since 2000, spurred in part by foreign investment. A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history.[26]

China's increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s.[27] By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

Wayne M. Morrison of the Congressional Research Service wrote in 2009 that "Despite the relatively positive outlook for its economy, China faces a number of difficult challenges that, if not addressed, could undermine its future economic growth and stability. These include pervasive government corruption, an inefficient banking system, over-dependence on exports and fixed investment for growth, the lack of rule of law, severe pollution, and widening income disparities."[28] Economic consultant David Smick adds that the recent actions by the Chinese government to stimulate their economy have only added to a huge industrial overcapacity and commercial real estate vacancy problems.[29]

[edit]History

 It has been suggested that this section be split into a new article titled Economic history of the People's Republic of China. (Discuss)
Main articles: Economic history of the People's Republic of China, Economic history of China, Five-Year Plans of the People's Republic of China, and Historical GDP of the People's Republic of China

[edit]1949–1978

See also: Great Leap Forward

In 1949, China followed a socialist heavy industry development strategy, or the "Big Push" strategy. Consumption was reduced while rapidindustrialization was given high priority. The government took control of a large part of the economy and redirected resources into building newfactories. Entire new industries were created. Most important, economic growth was jump-started. Tight control of budget and money supplyreduced inflation by the end of 1950. Though most of it was done at the expense of suppressing the private sector of small to big businesses by the Three-anti/five-anti campaigns between 1951 to 1952. The campaigns were notorious for being anti-capitalist, and imposed charges that allowed the government to punish capitalists with severe fines.[30] In the beginning of the Communist party's rule, the leaders of the party had agreed that for a nation such as China, which does not have any heavy industry and minimal secondary production, capitalism is to be utilized to help the building of the "New China" and finally merged into communism.[31]

[edit]1978–1990

See also: Chinese economic reform

Since 1978, China began to make major reforms to its economy. The Chinese leadership adopted a pragmatic perspective on many political and socioeconomic problems, and quickly began to introduce aspects of a capitalist economic system. Political and social stability, economic productivity, and public and consumer welfare were considered paramount and indivisible. In these years, the government emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government also had focused on foreign trade as a major vehicle for economic growth. In the 1980s, China tried to combine central planningwith market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation,unemployment, and budget deficits. Reforms began in the agricultural, industrial, fiscal, financial, banking, price setting, and labor systems.[32]

A decision was made in 1978 to permit foreign direct investment in several small "special economic zones" along the coast.[33] The country lacked the legal infrastructure and knowledge of international practices to make this prospect attractive for many foreign businesses, however.[33] In the early 1980s steps were taken to expand the number of areas that could accept foreign investment with a minimum of red tape, and related efforts were made to develop the legal and other infrastructures necessary to make this work well.[34] This additional effort resulted in making 14 coastal cities and three coastal regions "open areas" for foreign investment. All of these places provide favored taxtreatment and other advantages for foreign investment. Laws on contracts, patents, and other matters of concern to foreign businesses were also passed in an effort to attract international capital to spur China's development.[35] The largely bureaucratic nature of China's economy, however, posed a number of inherent problems for foreign firms that wanted to operate in the Chinese environment, and China gradually had to add more incentives to attract foreign capital.[36]

[edit]1990–2000

See also: Grasping the large, letting go of the small
China's nominal GDP trend from 1952 to 2005

In the 1990s, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by low inflation. The Asian financial crisis affected China at the margin, mainly through decreased foreign direct investment and a sharp drop in the growth of its exports. However, China had huge reserves, a currency that was not freely convertible, and capital inflows that consisted overwhelmingly of long-term investment. For these reasons it remained largely insulated from the regional crisis and its commitment not to devalue had been a major stabilizing factor for the region. However, China faced slowing growth and rising unemployment based on internal problems, including a financial system burdened by huge amounts of bad loans, and massive layoffs stemming from aggressive efforts to reform state-owned enterprises (SOEs).

Despite China's impressive economic development during the past two decades, reforming the state sector and modernizing the banking system remained major hurdles. Over half of China's state-owned enterprises were inefficient and reporting losses. During the 15th National Communist Party Congress that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased "non-public ownership" (feigongyou or privatization in euphemistic terms). The 9th National People's Congress endorsed the plans at its March 1998 session. In 2000, China claimed success in its three year effort to make the majority of large state owned enterprises (SOEs) profitable.

[edit]2000–2010

GDP increase, 1990–1998 and 1990–2006, in major countries

Following the Chinese Communist Party's Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduceunemployment (now in the 8–10% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity. The National People's Congress approved the amendments when it met in March 2004.[37]

The Fifth Plenum in October 2005 approved the 11th Five-Year Economic Program (2006–2010) aimed at building a "harmonious society" through more balanced wealth distribution and improved education,medical care, and social security. On March 2006, the National People's Congress approved the 11th Five-Year Program. The plan called for a relatively conservative 45% increase in GDP and a 20% reduction in energy intensity (energy consumption per unit of GDP) by 2010.

China's economy grew at an average rate of 10% per year during the period 1990–2004, the highest growth rate in the world. China's GDP grew 10.0% in 2003, 10.1%, in 2004, and even faster 10.4% in 2005 despite attempts by the government to cool the economy. China's total trade in 2010 surpassed $2.97 trillion, making China the world's second-largest trading nation after the U.S. Such high growth is necessary if China is to generate the 15 million jobs needed annually—roughly the size of Ecuador or Cambodia—to employ new entrants into the national job market.

On January 14, 2009, as confirmed by the World Bank[38] the NBS published the revised figures for 2007 fiscal year in which growth happened at 13 percent instead of 11.9 percent (provisional figures). China's gross domestic product stood at US$3.38 trillion whileGermany's GDP was USD $3.32 trillion for 2007. This made China the world's third largest economy by gross domestic product.[39] Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13.1 percent.[40]

China launched its Economic Stimulus Plan to specifically deal with the Global financial crisis of 2008–2009. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009 it appeared that the Chinese economy was showing signs of recovery. At the 2009 Economic Work Conference in December 'managing inflation expectations' was added to the list of economic objectives, suggesting a strong economic upturn and a desire to take steps to manage it.[41]

[edit]2010–present

see also : Economy of the PRC: Noopolitik and the Knowledge Economy

By 2010 it was evident to outside observers such as The New York Times that China was poised to move from export dependency to development of an internal market. Wages were rapidly rising in all areas of the country and Chinese leaders were calling for an increased standard of living.[42]

Wikinews has related news:China's economy surpasses Japan's in second quarter

In 2010, China's GDP was valued at $5.87 trillion, surpassed Japan's $5.47 trillion, and became the world's second largest economy after the U.S.[43] China could become the world's largest economy (by nominal GDP) sometime as early as 2020.[44]

China is the largest creditor nation in the world and owns approximately 20.8% of all foreign-owned US Treasury securities.[45]

It has also appeared that Noopolitik and the knowledge economy had become salient interests of the PRC's economic policy across the 2000s, through which the country made clear its move from "Made in China" to "Innovated in China" as notes Adam Segal [46]. Idriss Aberkane thus argued "With China's cosmopolitan and highly educated diaspora, it is no surprise that as of 2010, five of the top twenty most visited websites in the world are indexed in Mandarin. They include PRC-born behemoths such as Baidu.com, Taobao.com, andSina.com.cn, and video sharing Tudou.com, which has gained users in both North America and Europe." [47]

[edit]Government role

See also: Government of the People's Republic of China

Since 1949 the government, under socialist political and economic system, has been responsible for planning and managing the national economy.[48] In the early 1950s, the foreign trade system was monopolized by the state. Nearly all the domestic enterprises were state-owned and the government had set the prices for key commodities, controlled the level and general distribution of investment funds, determined output targets for major enterprises and branches, allocated energy resources, set wage levels and employment targets, operated the wholesale and retail networks, and steered the financial policy and banking system. In the countryside from the mid-1950s, the government established cropping patterns, set the level of prices, and fixed output targets for all major crops.

Since 1978 when economic reforms were instituted, the government's role in the economy has lessened by a great degree. Industrial output by state enterprises slowly declined, although a few strategic industries, such as the aerospace industry have today remained predominantly state-owned. While the role of the government in managing the economy has been reduced and the role of both private enterprise and market forces increased, the government maintains a major role in the urban economy. With its policies on such issues as agricultural procurement the government also retains a major influence on rural sector performance. The State Constitution of 1982 specified that the state is to guide the country's economic development by making broad decisions on economic priorities and policies, and that the State Council, which exercises executive control, was to direct its subordinate bodies in preparing and implementing the national economic plan and the state budget. A major portion of the government system (bureaucracy) is devoted to managing the economy in a top-down chain of command with all but a few of the more than 100 ministries, commissions, administrations, bureaus, academies, and corporations under the State Council are concerned with economic matters.

Each significant economic sector is supervised by one or more of these organizations, which includes the People's Bank of China, National Development and Reform Commission, Ministry of Finance, and the ministries of agriculture; coal industry; commerce; communications;education; light industry; metallurgical industry; petroleum industry; railways; textile industry; and water resources and electric power. Several aspects of the economy are administered by specialized departments under the State Council, including the National Bureau of Statistics, Civil Aviation Administration of China, and the tourism bureau. Each of the economic organizations under the State Council directs the units under its jurisdiction through subordinate offices at the provincial and local levels.

The whole policy-making process involves extensive consultation and negotiation.[49] Economic policies and decisions adopted by theNational People's Congress and the State Council are to be passed on to the economic organizations under the State Council, which incorporates them into the plans for the various sectors of the economy. Economic plans and policies are implemented by a variety of direct and indirect control mechanisms. Direct control is exercised by designating specific physical output quotas and supply allocations for some goods and services. Indirect instruments—also called "economic levers"—operate by affecting market incentives. These included levyingtaxes, setting prices for products and supplies, allocating investment funds, monitoring and controlling financial transactions by the banking system, and controlling the allocation of key resources, such as skilled labor, electric power, transportation, steel, and chemicals (including fertilizers). The main advantage of including a project in an annual plan is that the raw materials, labor, financial resources, and markets are guaranteed by directives that have the weight of the law behind them. In reality, however, a great deal of economic activity goes on outside the scope of the detailed plan, and the tendency has been for the plan to become narrower rather than broader in scope. A major objective of the reform program was to reduce the use of direct controls and to increase the role of indirect economic levers. Major state-owned enterprises still receive detailed plans specifying physical quantities of key inputs and products from their ministries. These corporations, however, have been increasingly affected by prices and allocations that were determined through market interaction and only indirectly influenced by the central plan.

Total economic enterprise in China is apportioned along lines of directive planning (mandatory), indicative planning (indirect implementation of central directives), and those left to market forces. In the early 1980s during the initial reforms enterprises began to have increasing discretion over the quantities of inputs purchased, the sources of inputs, the variety of products manufactured, and the production process. Operational supervision over economic projects has devolved primarily to provincial, municipal, and county governments. The majority of state-owned industrial enterprises, which were managed at the provincial level or below, were partially regulated by a combination of specific allocations and indirect controls, but they also produced goods outside the plan for sale in the market. Important, scarce resources—for example,engineers or finished steel—may have been assigned to this kind of unit in exact numbers. Less critical assignments of personnel and materials would have been authorized in a general way by the plan, but with procurement arrangements left up to the enterprise management.

In addition, enterprises themselves are gaining increased independence in a range of activity. While strategically important industry and services and most of large-scale construction have remained under directive planning, the market economy has gained rapidly in scale every year as it subsumes more and more sectors.[50] Overall, the Chinese industrial system contains a complex mixture of relationships. The State Council generally administers relatively strict control over resources deemed to be of vital concern for the performance and health of the entire economy. Less vital aspects of the economy have been transferred to lower levels for detailed decisions and management. Furthermore, the need to coordinate entities that are in different organizational hierarchies generally causes a great deal of informal bargaining and consensus building.[50]

Consumer spending has been subject to a limited degree of direct government influence but is primarily determined by the basic market forces of income levels and commodity prices. Before the reform period, key goods were rationed when they were in short supply, but by the mid-1980s availability had increased to the point that rationing was discontinued for everything except grain, which could also be purchased in the free markets. Collectively owned units and the agricultural sector were regulated primarily by indirect instruments. Each collective unit was "responsible for its own profit and loss," and the prices of its inputs and products provided the major production incentives.

Vast changes were made in relaxing the state control of the agricultural sector from the late 1970s. The structural mechanisms for implementing state objectives—the people's communes and their subordinate teams and brigades—have been either entirely eliminated or greatly diminished.[51] Farm incentives have been boosted both by price increases for state-purchased agricultural products, and it was permitted to sell excess production on a free market. There was more room in the choice of what crops to grow, and peasants are allowed to contract for land that they will work, rather than simply working most of the land collectively. The system of procurement quotas (fixed in the form of contracts) has been being phased out, although the state can still buy farm products and control surpluses in order to affect market conditions.[52]

Foreign trade is supervised by the Ministry of Commerce, customs, and the Bank of China, the foreign exchange arm of the Chinese banking system, which controls access to the foreign currency required for imports. Ever since restrictions on foreign trade were reduced, there have been broad opportunities for individual enterprises to engage in exchanges with foreign firms without much intervention from official agencies.

Though private sector companies still dominate small and medium sized businesses, the government still plays a large part in the bigger industries. The fact that government accounts for a third of the GDP shows this. Foreign owned companies hold significant stakes. The public sector is mainly made up of State Owned Enterprises (SOE's).

[edit]Regional economies

Distribution of GDP in mainland China in 2007
See also: Metropolitan regions of China and List of cities in China

China's unequal transportation system—combined with important differences in the availability ofnatural and human resources and in industrial infrastructure—has produced significant variations in the regional economies of China.

Economic development has generally been more rapid in coastal provinces than in the interior, and there are large disparities in per capita income between regions. The three wealthiest regions are along the southeast coast, centred on the Pearl River Delta; along the east coast, centred on the Lower Yangtze River; and near the Bohai Gulf, in the Beijing–Tianjin–Liaoning region. It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole, and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions.

See also: List of administrative regions by GDP, List of administrative regions by GDP per capita, and List of cities by GDP per capita.

[edit]Development

See also: List of administrative divisions by Human Development Index (HDI).

China, economically frail before 1978, has again become one of the world's major economic powers with the greatest potential. In the 22 years following reform and opening-up in 1979 in particular, China's economy developed at an unprecedented rate, and that momentum has been held steady into the 21st century.

China adopts the "five-year-plan" strategy for economic development. The Twelfth Five-Year Plan (2011–2015) is currently being implemented.

[edit]Regional development

Zhongguo jingji bankuai.png
The East Coast
(with existing development programmes)
"Rise of Central China"
"Revitalize Northeast China"
"China Western Development"

These strategies are aimed at the relatively poorer regions in China in an attempt to prevent widening inequalities:

Foreign investment abroad:

  • Go Global, to encourage its enterprises to invest overseas.

[edit]Key national projects

The "West-to-East Electricity Transmission," the "West-to-East Gas Transmission," and the "South–North Water Transfer Project" are the government's three key strategic projects, aimed at realigning overall economic development and achieving rational distribution of national resources across China. The "West-to-East Electricity Transmission" project is in full swing, involving hydropower and coal resources in western China and the construction of new power transmission channels to deliver electricity to the east. The southern power grid line, transmitting three million kW from Guizhou to Guangdong, was completed in September 2004. The "West-to-East Gas Transmission" project includes a 4,000 km trunk pipeline running through 10 provinces, autonomous regions or municipalities, conveying natural gas to cities in northern and eastern China. This was finished in October 2004 and has a design capacity of12 billion cu m per year. Construction of the "South-to-North Water Diversion" project was officially launched on 27 December 2002 and completion of Phase I is scheduled for 2010; this will relieve serious water shortfall in northern China and realize a rational distribution of the water resources of the Yangtze, Yellow, Huaihe, and Haihe river valleys.

[edit]Hong Kong and Macau

Main articles: One Country, Two Systems, Economy of Hong Kong, and Economy of Macau

In accordance with the One Country, Two Systems policy, the economies of the former European colonies, Hong Kong and Macao, are separate from the rest of the PRC, and each other. Both Hong Kong and Macau are free to conduct and engage in economic negotiations with foreign countries, as well as participating as full members in various international economic organizations such as the World Customs Organization, the World Trade Organization and the Asia-Pacific Economic Cooperation forum, often under the names "Hong Kong, China" and "Macao, China".

See also: Closer Economic Partnership Arrangement with Hong Kong and Macau.

[edit]Macroeconomic trends

See also: Historical GDP of the People's Republic of China

In January 1985, the State Council of China approved to establish a SNA (System of National Accounting), use the GDP (Gross Domestic Product) to measure the national economy. China started the study of theoretical foundation, guiding, and accounting model etc., for establishing a new system of national economic accounting. In 1986, as the first citizen of the People's Republic of China to receive a Ph.D. in economics from an overseas country, Dr. Fengbo Zhang headed Chinese Macroeconomic Research - the key research project of the seventh Five-Year Plan of China, as well as completing and publishing the China GDP data by China's own research. The summary of the above has been included in the book Chinese Macroeconomic Structure and Policy (1988) Editor: Fengbo Zhang, collectively authored by the Research Center of the State Council of China. This is the first GDP data which was published by China. The State Council of Chinaissued "The notice regarding implementation of System of National Accounting" in August 1992, the SNA system officially is introduced to China, replaced Soviet Union's MPS system, Western economic indicator GDP became China's most important economic indicator (WikiChina: China GDP, The First China GDP).

The table below shows the trend of the GDP of China at market prices estimated by the IMF with figures in millions (Chinese yuan).[53][54]See also.[55] For purchasing power parity comparisons, the US dollar is exchanged at 2.05 CNY only.

Year Gross domestic product US dollar exchange Inflation index
(2000=100)		 Nominal Per Capita GDP
(as % of USA)		 PPP Per Capita GDP
(as % of USA)
1955 91,000 2.46 19.2 2.43 -
1960 145,700 2.46 20.0 3.04 -
1965 171,600 2.46 21.6 2.63 -
1970 225,300 2.46 21.3 2.20 -
1975 299,700 1.86 22.4 2.32 -
1980 460,906 1.49 25.0 2.52 2.04
1985 896,440 2.93 30.0 1.65 2.84
1990 1,854,790 4.78 49.0 1.48 3.43
1995 6,079,400 8.35 91.0 2.17 5.44
2000 9,921,500 8.27 100.0 2.69 6.75
2005 18,308,500 8.19 106.0 4.05 9.61
2010 25,506,956 6.97 112.0 6.23 15.90

[edit]Systemic problems

The government has in recent years struggled to contain the social strife and environmental damage related to the economy's rapid transformation; collect public receipts due from provinces, businesses, and individuals; reduce corruption and other economic crimes; sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; and keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy and many of which had been losing the ability to pay full wages and pensions. From 50 to 100 million surplus rural workers were adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China's population control program. Another long-term threat to continued rapid economic growth has been the deterioration in the environment, notably air and water pollution, soil erosion, growing desertification and the steady fall of the water tableespecially in the north. China also has continued to lose arable land because of erosion and infrastructure development.

Other major problems concern the labor force and the pricing system. There is large-scale underemployment in both urban and rural areas, and the fear of the disruptive effects of major, explicit unemployment is strong. The prices of certain key commodities, especially of industrialraw materials and major industrial products, are determined by the state. In most cases, basic price ratios were set in the 1950s and are often irrational in terms of current production capabilities and demands. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s.[27] By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship.

By 2010, rapidly rising wages and a general increase in the standard of living had put increased energy use on a collision course with the need to reduce carbon emissions in order to control global warming. There were diligent efforts to increase energy efficiency and increase use of renewable sources; over 1,000 inefficient power plants had been closed, but projections continued to show a dramatic rise in carbon emissions from burning fossil fuels.[56]

[edit]Regulatory environment

Though China's economy has expanded rapidly, its regulatory environment has not kept pace. Since Deng Xiaoping's open market reforms, the growth of new businesses has outpaced the government's ability to regulate them. This has created a situation where businesses, faced with mounting competition and poor oversight, take drastic measures to increase profit margins, often at the expense of consumer safety. This issue became more prominent in 2007, with a number of restrictions being placed on problematic Chinese exports by the United States.[57]

[edit]Inflation

During the winter of 2007–2008, inflation ran about 7% on an annual basis, rising to 8.7% in statistics for February 2008, released in March 2008.[58][59][60]

Shortages of gasoline and diesel fuel developed in the fall of 2007 due to reluctance of refineries to produce fuel at low prices set by the state. These prices were slightly increased in November 2007 with fuel selling for $2.65 a gallon, still slightly below world prices. Price controls were in effect on numerous basic products and services, but were ineffective with food, prices of which were rising at an annual rate of 18.2% in November 2007.[61][62] The problem of inflation has caused concern at the highest levels of the Chinese government. On January 9, 2008, the government of China issued the following statement on its official website: "The Chinese government decided on Wednesday to take further measures to stabilize market prices and increase the severity of punishments for those guilty of driving up prices through hoarding or cheating."[63][64]

Pork is an important part of the Chinese economy with a per capita consumption of a fifth of a pound per day. The worldwide rise in the price of animal feed associated with increased production of ethanol from corn resulted in steep rises in pork prices in China in 2007. Increased cost of production interacted badly with increased demand resulting from rapidly rising wages. The state responded by subsidizing pork prices for students and the urban poor and called for increased production. Release of pork from the nation's strategic pork reserve was considered.[65]

By January 2008, the inflation rate rose to 7.1%, which BBC News described as the highest inflation rate since 1997, due to the winter storms that month.[66] China's inflation rate jumped to a new decade high of 8.7 percent in February 2008 after severe winter storms disrupted the economy and worsened food shortages, the government said March 11, 2008.[67]

Throughout the summer and fall, however, inflation fell again to a low of 6.6% in October 2008.[68]

By November 2010, the inflation rate rose up to 5.1%, driven by a 11.7% increase in food prices year on year. According to the bureau, industrial output went up 13.3 percent. As supplies have run short, prices for fuel and other commodities have risen up.[69]

[edit]Labor shortages and rising export costs

See also: Labor section below.

By 2005, there were signs of stronger demand for workers being able to choose employment that offered higher wages and better working conditions, enabling some to move away from the restrictive dormitory life and boring marige work that have characterized export industries in provinces such as Guangdong and Fujian. Minimum wages began rising toward the equivalent of 100 U.S. dollars a month as companies scrambled for employees, with some paying as much as $150 a month on average. The labor shortage was partially driven by thedemographic trends, as the proportion of people of working age fell as the result of strict family planning.[70]

It was reported in The New York Times in April 2006 that labor costs continued to increase and a shortage of unskilled labor had developed with a million or more employees being sought. Operations that relied on cheap labor were contemplating relocations to cities in the interior or to other low-cost countries such as Vietnam or Bangladesh. Many young people were attending college rather than opting for minimum-wage factory work. The demographic shift resulting from the one-child policy continued to reduce the supply of young entry-level workers. Also, government efforts to advance economic development in the interior of the country were beginning to be effective at creating better opportunities there.[71] A follow-up article in The New York Times in late August 2007 reported acceleration of this trend. The minimum wage a young unskilled factory worker could be hired at had increased to $200 with experienced workers commanding more. There was strong demand for young workers willing to work long hours and live in dormitory conditions, while older workers, over forty, were considered unsuitable.

Rising wages were being, to a certain extent, offset by increases in productivity, but in 2007, a slight rise in the cost of imports from China was recorded by the United States government: "After falling since its inception in December 2003, the price index for imports from China rose 0.4 percent in July 2007, the largest monthly increase since the index was first published in December 2003. The July increase was the third consecutive monthly advance. Over the past year, import prices from China increased 0.9 percent."[72][73] By February 2008, concerns were being raised that rising wages and inflation in China were beginning to create inflationary pressure in the United States and Europe, which had depended on cheap prices for consumer goods from China exerting downward pressure on prices.[74]

On January 1, 2008, China introduced a new Labor Law, increasing the rights of the workforce, this caused many foreign and private companies, whose operations in China were based on low wages, to move to countries with lower labor costs, like Thailand, Vietnam or Bangladesh. In the summer of 2008 the growth in export orders began to fall sharply as the sub-prime crisis in export markets reduced demand in Guangdong province, particularly in toy and textile manufacture. According to Chinese Government sources 20 million jobs in 67,000 factories were reported to have been lost.[75] The government initially was happy to see factories close down in labour intensive low wage factories, and the Labor law was seen as a means of helping to eradicate them, but the global financial crisis led to a far more rapid process of private sector collapse in Guangdong than was expected, raising fears of a contagious spread of social unrest.

In early 2010 a labor shortage developed in coastal areas with many migrant workers not returning after the new year holiday. Wages rose rapidly with temp agencies charging over $1.00 US per hour for factory workers in Guangzhou.[76] Following the strikes in 2010 at Japanese auto plants, the shortage continued with many factories unable to fully staff their factories.[77]

According to Fan Gang, professor of economics at Beijing University and director of China's National Economic Research Institute, due to the large volume of workers engaged in relatively unremunerative agricultural work there is considerable room for increased nominal wages in China without changing the competitive position of the Chinese export industry for the next few decades. Lower wages in other countries may not represent productivity comparable to the increasing productivity of Chinese workers.[78]

[edit]Financial and banking system

A Shanghai branch of Industrial and Commercial Bank of China (ICBC)
Foreign currency reserves and gold minus external debt based on 2010 data from CIA Factbook
Main articles: Chinese financial system, Banking in China, Foreign exchange reserves of the People's Republic of China, Hedge fund industry in China, and China Venture Capital Association

Most of China's financial institutions are state owned and governed and 98% of banking assets are state owned.[79] The chief instruments of financial and fiscal control are the People's Bank of China(PBC) and the Ministry of Finance, both under the authority of the State Council. The People's Bank of China replaced the Central Bank of China in 1950 and gradually took over private banks. It fulfills many of the functions of other central and commercial banks. It issues the currency, controls circulation, and plays an important role in disbursing budgetary expenditures. Additionally, it administers the accounts, payments, and receipts of government organizations and other bodies, which enables it to exert thorough supervision over their financial and general performances in consideration to the government's economic plans. The PBC is also responsible for international tradeand other overseas transactions. Remittances by overseas Chinese are managed by the Bank of China (BOC), which has a number of branch offices in several countries.

Other financial institutions that are crucial, include the China Development Bank (CDB), which funds economic development and directs foreign investment; the Agricultural Bank of China (ABC), which provides for the agricultural sector; the China Construction Bank (CCB), which is responsible for capitalizing a portion of overall investment and for providing capital funds for certain industrial and construction enterprises; and the Industrial and Commercial Bank of China (ICBC), which conducts ordinary commercial transactions and acts as a savings bank for the public.

Shanghai Stock Exchange (SSE)

China's economic reforms greatly increased the economic role of the banking system. In theory any enterprises or individuals can go to the banks to obtain loans outside the state plan, in practice 75% of state bank loans go to State Owned Enterprises. (SOEs)[80] Even though nearly all investment capital was previously provided on a grant basis according to the state plan, policy has since the start of the reform shifted to a loan basis through the various state-directed financial institutions. Increasing amounts of funds are made available through the banks for economic and commercial purposes. Foreign sources of capital have also increased. China has received loans from the World Bank and several United Nations programs, as well as from countries (particularly Japan) and, to a lesser extent, commercial banks. Hong Kong has been a major conduit of this investment, as well as a source itself.

With two stock exchanges (Shanghai Stock Exchange and Shenzhen Stock Exchange), mainland China's stock market had a market value of $1 trillion by January 2007, which became the third largest stock market in Asia, after Japan and Hong Kong.[81] It is estimated to be the world's third largest by 2016.[82]

[edit]Currency system

See also: Renminbi, Chinese yuan, and Currency of China
1 RMB to US dollar, since 1981

The renminbi ("people's currency") is the currency of China, denominated as the yuan, subdivided into 10 jiao or 100 fen. The renminbi is issued by the People's Bank of China, the monetary authority of the PRC. The ISO 4217 abbreviation is CNY, although also commonly abbreviated as "RMB". The Latinised symbol is ¥. The yuan is generally considered by outside observers to be undervalued by about 30-40%.[83] [84]

The renminbi is held in a floating exchange-rate system managed primarily against the US dollar. On July 21, 2005, China revalued its currency by 2.1% against the US dollar and, since then has moved to an exchange rate system that references a basket of currencies and has allowed the renminbi to fluctuate at a daily rate of up to half a percent.

The rate of exchange (Chinese yuan per US$1) on July 31, 2008, was RMB 6.846, in mid-2007 was RMB 7.45, while in early 2006 was RMB 8.07:US $1=8.2793 yuan (January 2000), 8.2783 (1999), 8.2790 (1998), 8.2898 (1997), 8.3142 (1996), 8.3514 (1995).

There is a complex relationship between China's balance of trade, inflation, measured by the consumer price index and the value of its currency. Despite allowing the value of the yuan to "float", China's central bank has decisive ability to control its value with relationship to other currencies. Inflation in 2007, reflecting sharply rising prices for meat and fuel, is probably related to the worldwide rise in commodities used as animal feed or as fuel. Thus rapid rises in the value of the yuan permitted in December 2007 are possibly related to efforts to mitigate inflation by permitting the renminbi to be worth more.[85]222

[edit]Tax system

Main article: Tax system in China

From the 1950s to the 1980s, the central government's revenues derived chiefly from the profits of the state enterprises, which were remitted to the state. Some government revenues also came from taxes, of which the most important was the general industrial and commercial tax.

The trend, however, has been for remitted profits of the state enterprises to be replaced with taxes on those profits. Initially, this tax system was adjusted so as to allow for differences in the capitalization and pricing situations of various firms, but more-uniform tax schedules were introduced in the early 1990s. In addition, personal income and value-added taxes were implemented at that time.

[edit]Agriculture

Main article: Agriculture in China
Peanut harvest in Jiangxia District, Hubei

China is the world's largest producer and consumer of agricultural products – and some 300 millionChinese farm workers are in the industry, mostly laboring on pieces of land about the size of U.S farms. Virtually all arable land is used for food crops. China is the world's largest producer of riceand is among the principal sources of wheat, corn (maize), tobacco, soybeans, potatoes,sorghum, peanuts, tea, millet, barley, oilseed, pork, and fish. Major non-food crops, including cotton, other fibers, and oilseeds, furnish China with a small proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, for example, China's cropland area is only 75% of the U.S. total, but China still produces about 30% more crops and livestock than the United States. China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology.

According to the government statistics issued in 2005,[86] after a drop in the yield of farm crops in 2000, output has been increasing annually.

Production of wheat from 1961 to 2004. Data from FAO, year 2005. Y-axis: Production in metric ton.

According to the United Nations World Food Program, in 2003, China fed 20 percent of the world's population with only 7 percent of the world's arable land.[87] Chinaranks first worldwide in farm output, and, as a result of topographic and climaticfactors, only about 10–15 percent of the total land area is suitable for cultivation. Of this, slightly more than half is unirrigated, and the remainder is divided roughly equally between paddy fields and irrigated areas. Nevertheless, about 60 percent of the population lives in the rural areas, and until the 1980s a high percentage of them made their living directly from farming. Since then, many have been encouraged to leave the fields and pursue other activities, such as light manufacturing, commerce, and transportation; and by the mid-1980s farming accounted for less than half of the value of rural output. Today, agriculture contributes only 13% of China's GDP.

Animal husbandry constitutes the second most important component of agricultural production. China is the world's leading producer of pigs, chickens, and eggs, and it also has sizable herds of sheep and cattle. Since the mid-1970s, greater emphasis has been placed on increasing the livestock output. China has a long tradition of ocean and freshwater fishing and of aquaculture. Pond raising has always been important and has been increasingly emphasized to supplement coastal and inland fisheries threatened by overfishing and to provide such valuable export commodities as prawns.

Environmental problems such as floods, drought, and erosion pose serious threats to farming in many parts of the country. The wholesale destruction of forests gave way to an energetic reforestation program that proved inadequate, and forest resources are still fairly meagre.[88]The principal forests are found in the Qinling Mountains and the central mountains and on the Sichuan–Yunnan plateau. Because they are inaccessible, the Qinling forests are not worked extensively, and much of the country's timber comes from Heilongjiang, Jilin, Sichuan, andYunnan.

Western China, comprising Tibet, Xinjiang, and Qinghai, has little agricultural significance except for areas of floriculture and cattle raising. Rice, China's most important crop, is dominant in the southern provinces and many of the farms here yield two harvests a year. In the north, wheat is of the greatest importance, while in central China wheat and rice vie with each other for the top place. Millet and kaoliang (a variety of grain sorghum) are grown mainly in the northeast and some central provinces, which, together with some northern areas, also provide considerable quantities of barley. Most of the soybean crop is derived from the north and the northeast; corn (maize) is grown in the center and the north, while tea comes mainly from the warm and humid hilly areas of the south. Cotton is grown extensively in the central provinces, but it is also found to a lesser extent in the southeast and in the north. Tobacco comes from the center and parts of the south. Other important crops are potatoes, sugar beets, and oilseeds.

Fish ponds near Daye, Hubei

There is still a relative lack of agricultural machinery, particularly advanced machinery. For the most part the Chinese peasant or farmer depends on simple, nonmechanized farming implements. Good progress has been made in increasing water conservancy, and about half the cultivated land is under irrigation.

In the late 1970s and early 1980s, economic reforms were introduced. First of all this began with the shift of farming work to a system of household responsibility and a phasing out of collectivized agriculture. Later this expanded to include a gradual liberalization of price controls; fiscaldecentralization; massive privatization of state enterprises, thereby allowing a wide variety ofprivate enterprises in the services and light manufacturing; the foundation of a diversified banking system (but with large amounts of state control); the development of a stock market; and the opening of the economy to increased foreign trade and foreign investment.

[edit]Energy and mineral resources

Energy
Electricity:

  • production: 2.8344 trillion kWh (2006)
  • consumption: 2.8248 trillion kWh (2006)
  • exports: 11.19 billion kWh (2005)
  • imports: 5.011 billion kWh (2005)

Electricity – production by source:

  • thermal: 77.8% (68.7% from coal) (2006)
  • hydro: 20.7% (2006)
  • other: 0.4% (2006)
  • nuclear: 1.1% (2006)

Oil:

  • production: 3,631,000 bbl/d (577,300 m3/d) (2005)
  • consumption: 6,534,000 bbl/d (1,038,800 m3/d) (2005) and expected 9,300,000 bbl/d (1,479,000 m3/d) in 2030
  • exports: 443,300 bbl/d (70,480 m3/d) (2005)
  • imports: 3,181,000 bbl/d (505,700 m3/d) (2005)
  • net imports: 2,740,000 barrels per day (436,000 m3/d) (2005)
  • proved reserves: 16.3 Gbbl (2.59×109 m3) (1 January 2006)

Natural gas:

  • production: 47.88 km3 (2005 est.)
  • consumption: 44.93 km3 (2005 est.)
  • exports: 2.944 km3 (2005)
  • imports: 0 m3 (2005)
  • proved reserves: 1,448k m3 (1 January 2006 est.)
See also: Energy policy of China

Since 1980, China's energy production has grown dramatically, as has the proportion allocated to domestic consumption. Some 80 percent of all power generated from fossil fuel at thermal plants, with about 17 percent at hydroelectric installations; only about two percent is from nuclear energy, mainly from plants located in Guangdong and Zhejiang.[89] Though China has rich overall energy potential, most have yet to be developed. In addition, the geographical distribution of energy puts most of these resources relatively far from their major industrial users. Basically the northeast is rich in coal and oil, the central part of north China has abundant coal, and the southwest has immense hydroelectric potential. But the industrialized regions around Guangzhou and the Lower Yangtze region around Shanghai have too little energy, while there is relatively little heavy industrylocated near major energy resource areas other than in the southern part of the northeast.

Although electric-generating capacity has grown rapidly, it has continued to fall considerably short of demand. This has been partly because energy prices were long fixed so low that industries had few incentives to conserve. In addition, it has often been necessary to transport fuels (notably coal) great distances from points of production to consumption. Coal provides about 70–75 percent of China's energy consumption, although its proportion has been gradually declining. Petroleumproduction, which grew rapidly from an extremely low base in the early 1960s, has increased much more gradually from 1980. Natural gas production still constitutes only a small (though increasing) fraction of overall energy production, but gas is supplanting coal as a domestic fuel in the major cities.

In the 1990s, energy demand rocketed in response to the rapid expansion of the economy but energy production was constrained by limited capital. As in other sectors of the state-owned economy, the energy sector suffered from low utilization and inefficiencies in production, transport, conversion, consumption, and conservation. Other problems included declining real prices, rising taxes and production costs, spiraling losses, high debt burden, insufficient investment, low productivity, poor management structure, environmental pollution, and inadequate technological development. To keep pace with demand, China sought to increase electric generating capacity to a target level of 290 gigawatts by 2000.

According to Chinese statistics, China managed to keep its energy growth rate at just half the rate of GDP growth throughout the 1990s. Though these numbers are not reliable, there has been agreement that China had improved its energy efficiency significantly over this period. In the late 1990s, an estimated 10,000 megawatts of generating capacity was added each year, at an annual cost of about $15 billion. China imported new power plants from the West to increase its generation capacity, and these units then accounted for approximately 20% of total generating capacity. More power generating capacity came on line in the mid-2000s as large scale investments were completed. In 2001, China's total energy consumption was projected to double by 2020. Energy consumption grew at nearly 10 percent per year between 2000 and 2005, more than twice the yearly rate of the previous two decades.[90]

In 2003, China surpassed Japan to become the second-largest consumer of primary energy, after the United States. China is the world's second-largest consumer of oil, after the United States, and for 2006, China's increase in oil demand represented 38% of the world total increase in oil demand. China is also the third-largest energy producer in the world, after the United States and Russia. China's electricity consumption is expected to grow by over 4% a year through 2030, which will require more than $2 trillion in electricity infrastructure investment to meet the demand. China expects to add approximately 15,000 megawatts of generating capacity a year, with 20% of that coming from foreign suppliers.

China, due in large part to environmental concerns, has wanted to shift China's current energy mix from a heavy reliance on coal, which accounts for 70–75% of China's energy, toward greater reliance on oil, natural gas, renewable energy, and nuclear power. China has closed thousands of coal mines over the past five to ten years to cut overproduction. According to Chinese statistics, this has reduced coal production by over 25%.

Only one-fifth of the new coal power plant capacity installed from 1995 to 2000 included desulfurization equipment. Interest in renewable sources of energy is growing, but except for hydropower, their contribution to the overall energy mix is unlikely to rise above 1–2% in the near future. China's energy sector continues to be hampered by difficulties in obtaining funding, including long-term financing, and by marketbalkanization due to local protectionism that prevents more efficient large plants from achieving economies of scale.

Since 1993, China has been a net importer of oil, a large portion of which comes from the Middle East. Imported oil accounts for 20% of the processed crude in China. Net imports are expected to rise to 3.5 million barrels (560,000 m3) per day by 2010. China is interested in diversifying the sources of its oil imports and has invested in oil fields around the world. China is developing oil imports from Central Asia and has invested in Kazakhstani oil fields. Beijing also plans to increase China's natural gas production, which currently accounts for only 3% of China's total energy consumption and incorporated a natural gas strategy in its 10th Five-Year Plan (2001–2005), with the goal of expanding gas use from a 2% share of total energy production to 4% by 2005 (gas accounts for 25% of U.S. energy production). Analysts expect China's consumption of natural gas to more than double by 2010.

The 11th Five-Year Program (2006–10), announced in 2005 and approved by the National People's Congress in March 2006, called for greater energy conservation measures, including development of renewable energy sources and increased attention to environmental protection. Guidelines called for a 20% reduction in energy consumption per unit of GDP by 2010. Moving away from coal towards cleaner energy sources including oil, natural gas, renewable energy, and nuclear power is an important component of China's development program. Beijing also intends to continue to improve energy efficiency and promote the use of clean coal technology. China has abundant hydroelectric resources; the Three Gorges Dam, for example, will have a total capacity of 18 gigawatts when fully on-line (projected for 2009). In addition, the share of electricity generated by nuclear power is projected to grow from 1% in 2000 to 5% in 2030. China's renewable energy law, which went into effect in 2006, calls for 10% of its energy to come from renewable energy sources by 2020.

In May 2004, then-Secretary of Energy in the United States Spencer Abraham signed a Memorandum of Understanding (MOU) with China'sNational Development and Reform Commission (NDRC) that launched the U.S.–China Energy Policy Dialogue. The Dialogue strengthened energy-related interactions between China and the United States, the world's two largest energy consumers. The U.S.–China Energy Policy Dialogue has built upon the two countries' existing cooperative ventures in high energy nuclear physics, fossil energy, energy efficiency and renewable energy and energy information exchanges. The NDRC and the Department of Energy also exchange views and expertise on Peaceful Uses of Nuclear Technologies, and convenes an annual Oil and Gas Industry Forum with China.

[edit]Mining

Outdated mining and ore-processing technologies are being replaced with modern techniques, but China's rapid industrialization requires imports of minerals from abroad. In particular, iron ore imports from Australia and the United States have soared in the early 2000s as steelproduction rapidly outstripped domestic iron ore production. Also China has become increasingly active in several African countries to mine the reserves it requires for economic growth, particularly in countries such as the Democratic Republic of the Congo and Gabon.

Energy and mineral resources

The major areas of production in 2004 were coal (nearly 2 billion tons), iron ore (310 million tons), crude petroleum (175 million tons), natural gas (41 million cubic meters), antimony ore (110,000 tons), tin concentrates (110,000 tons), nickel ore (64,000 tons), tungstenconcentrates (67,000 tons), unrefined salt (37 million tons), vanadium (40,000 tons), andmolybdenum ore (29,000 tons). In order of magnitude, produced minerals were bauxite,gypsum, barite, magnesite, talc and related minerals, manganese ore, fluorspar, and zinc. In addition, China produced 2,450 tons of silver and 215 tons of gold in 2004. The mining sector accounted for less than 0.9% of total employment in 2002 but produced about 5.3% of total industrial production.

See also: Gold mining in China

[edit]Hydroelectric resources

China has an abundant potential for hydroelectric power production due to its considerable river network and mountainous terrain. Most of the total hydroelectric capacity is situated in the southwest of the country, where coal supplies are poor but demand for energy is rising swiftly. The potential in the northeast is fairly small, but it was there that the first hydroelectric stations were built—by the Japanese during its occupation of Manchuria.[91] Due to considerable seasonal fluctuations inrainfall, the flow of rivers tends to drop during the winter, forcing many power stations to operate at less than normal capacity, while in the summer, on the other hand, floods often interfere with generation.

Thirteen years in construction at a cost of $24 billion, the immense Three Gorges Dam across the Yangtze River was essentially completed in 2006 and will revolutionize electrification and flood control in the area.

[edit]Coal

Main article: Coal power in the People's Republic of China

China is well endowed with mineral resources,[92] the most important of which is coal. China's mineral resources include large reserves ofcoal and iron ore, plus adequate to abundant supplies of nearly all other industrial minerals. Although coal deposits are widely scattered (some coal is found in every province), most of the total is located in the northern part of the country. The province of Shanxi, in fact, is thought to contain about half of the total; other important coal-bearing provinces include Heilongjiang, Liaoning, Jilin, Hebei, and Shandong.[93]Apart from these northern provinces, significant quantities of coal are present in Sichuan, and there are some deposits of importance inGuangdong, Guangxi, Yunnan, and Guizhou.[93] A large part of the country's reserves consists of good bituminous coal, but there are also large deposits of lignite. Anthracite is present in several places (especially Liaoning, Guizhou, and Henan), but overall it is not very significant.[94]

To ensure a more even distribution of coal supplies and to reduce the strain on the less than adequate transportation network, the authorities pressed for the development of a large number of small, locally run mines throughout the country. This campaign was energetically pursued after the 1960s, with the result that thousands of small pits have been established, and they produce more than half the country's coal. This output, however, is typically expensive and is used for local consumption. It has also led to a less than stringent implementation of safety measures in these unregulated mines, which cause several thousands of deaths each year.[95]

Coal makes up the bulk of China's energy consumption (70% in 2005), and China is the largest producer and consumer of coal in the world. As China's economy continues to grow, China's coal demand is projected to rise significantly. Although coal's share of China's overall energy consumption will decrease, coal consumption will continue to rise in absolute terms. China's continued and increasing reliance on coal as a power source has contributed significantly to putting China on the path to becoming the world's largest emitter of acid rain-causing sulfur dioxide and greenhouse gases, including carbon dioxide.

[edit]Oil and natural gas

Chinese oil reserves
Main article: Petroleum industry in the People's Republic of China

China's onshore oil resources are mostly located in the Northeast and in Xinjiang,Gansu, Qinghai, Sichuan, Shandong, and Henan provinces. Oil shale is found in a number of places, especially at Fushun in Liaoning, where the deposits overlie the coal reserves, as well as in Guangdong. Light oil of high quality has been found in the Pearl River estuary of the South China Sea, the Qaidam Basin in Qinghai, and the Tarim Basin in Xinjiang. The country consumes most of its oil output but does export some crude oil and oil products. China has explored and developed oil deposits in the China Seas, the Yellow Sea, the Gulf of Tonkin, and the Bohai Sea.

The total extent of China's natural gas reserves is unknown, as relatively little exploration for natural gas has been done.[96] Sichuan accounts for almost half of the known natural gas reserves and production.[97] Most of the rest of China's natural gas is associated gas produced in the Northeast's major oil fields, especially Daqing oilfield. Other gas deposits have been found in the Qaidam Basin, Hebei, Jiangsu,Shanghai, and Zhejiang, and offshore to the southwest of Hainan Island.[98]

[edit]Metals and nonmetals

Iron ore reserves are found in most provinces, including Hainan. Gansu, Guizhou, southern Sichuan, and Guangdong provinces have rich deposits. The largest mined reserves are located north of the Yangtze River and supply neighboring iron and steel enterprises. With the exception of nickel, chromium, and cobalt, China is well supplied with ferroalloys and manganese. Reserves of tungsten are also known to be fairly large. Copper resources are moderate, and high-quality ore is present only in a few deposits. Discoveries have been reported fromNingxia. Lead and zinc are available, and bauxite resources are thought to be plentiful. China's antimony reserves are the largest in the world.Tin resources are plentiful, and there are fairly rich deposits of gold. China is the world's fifth largest producer of gold and in the early 21st century became an important producer and exporter of rare metals needed in high-technology industries. The rare earth reserves at the Bayan Obi mine in Inner Mongolia are thought to be the largest in any single location in the world.

China also produces a fairly wide range of nonmetallic minerals. One of the most important of these is salt, which is derived from coastalevaporation sites in Jiangsu, Hebei, Shandong, and Liaoning, as well as from extensive salt fields in Sichuan, Ningxia, and the Qaidam Basin. There are important deposits of phosphate rock in a number of areas. Pyrites occur in several places; Liaoning, Hebei, Shandong, and Shanxi have the most important deposits. China also has large resources of fluorite (fluorspar), gypsum, asbestos, and cement.

[edit]Industry and manufacturing

Further information: Industry of the People's Republic of China, Made in China, and Industrial history of the People's Republic of China

Industry and construction account for 46.8[99]% of China's GDP. In 2009 around 8% of the total manufacturing output in the world came from China itself and China ranked third worldwide in industrial output that year (first was EU and second US). Research by IHS Global Insight states that in 2010 China contributed to 19,8% of world's manufacturing output and became the largest manufacturer in the world that year, after the US had held that position for about 110 years.[100][101]

Major industries include mining and ore processing; iron and steel; aluminium; coal; machinery; armaments; textiles and apparel; petroleum;cement; chemical; fertilizers; food processing; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; consumer products including footwear, toys, and electronics; telecommunications and information technology. China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China. The state-owned sector still accounts for about 30% of GDP. In recent years, authorities have been giving greater attention to the management of state assets—both in the financial market as well as among state-owned-enterprises—and progress has been noteworthy.

Since the founding of the People's Republic, industrial development has been given considerable attention. Among the various industrial branches the machine-building and metallurgical industries have received the highest priority. These two areas alone now account for about 20–30 percent of the total gross value of industrial output.[102] In these, as in most other areas of industry, however, innovation has generally suffered at the hands of a system that has rewarded increases in gross output rather than improvements in variety, sophistication and quality. China, therefore, still imports significant quantities of specialized steels. Overall industrial output has grown at an average rate of more than 10 percent per year, having surpassed all other sectors in economic growth and degree of modernization.[103] Some heavy industries and products deemed to be of national strategic importance remain state-owned, but an increasing proportion of lighter and consumer-oriented manufacturing firms are privately held or are private-state joint ventures.

The predominant focus of development in the chemical industry is to expand the output of chemical fertilizers, plastics, and synthetic fibers. The growth of this industry has placed China among the world's leading producers of nitrogenous fertilizers. In the consumer goods sector the main emphasis is on textiles and clothing, which also form an important part of China's exports. Textile manufacturing, a rapidly growing proportion of which consists of synthetics, account for about 10 percent of the gross industrial output and continues to be important, but less so than before. The industry tends to be scattered throughout the country, but there are a number of important textile centers, includingShanghai, Guangzhou, and Harbin.[104][105]

Major state industries are iron, steel, coal, machine building, light industrial products, armaments, and textiles. These industries completed a decade of reform (1979–1989) with little substantial management change. Prior to 1978, most output was produced by state-owned enterprises. As a result of the economic reforms that followed, there was a significant increase in production by enterprises sponsored bylocal governments, especially townships and villages, and, increasingly, by private entrepreneurs and foreign investors. The 1996 industrial census revealed that there were 7,342,000 industrial enterprises at the end of 1995; total employment in industrial enterprises was approximately 147 million. The 1999 industrial census revealed that there were 7,930,000 industrial enterprises at the end of 1999 (including small-scale town and village enterprises); total employment in state-owned industrial enterprises was about 24 million. The automobile industry has grown rapidly since 2000, as has the petrochemical industry. Machinery and electronic products became China's main exports. China is the world's leading manufacturer of chemical fertilizers, cement, and steel. By 2002 the share in gross industrial output by state-owned and state-holding industries had decreased to 41%, and the state-owned companies themselves contributed only 16% of China's industrial output.

China's construction sector has grown substantially since the early 1980s. In the 21st century, investment in capital construction has experienced major annual increases. In 2001 investments increased 8.5% over the previous year. In 2002 there was a 16.4% increase, followed by a 30% increase in 2003. The manufacturing sector produced 44.1% of GDP in 2004 and accounted for 11.3% of total employmentin 2002. Industry and construction produced 53.1% of China's GDP in 2005. Industry (including mining, manufacturing, construction, andpower) contributed 52.9% of GDP in 2004 and occupied 22.5% of the workforce.

Energy production has increased rapidly, but it still falls considerably short of demand. This is partly due to artificial energy prices that have been held so low that industries have had few incentives to conserve. Coal provides about 75–80 percent of China's energy consumption.Petroleum production, which began growing rapidly from an extremely low base in the early 1960s, has basically remained at the same level since the late 1970s. There are large petroleum reserves in the inaccessible northwest and potentially significant offshore petroleum deposits, but about half of the country's oil production still comes from the major Daqing oilfield in the northeast. China has much, and partially undeveloped, hydroelectric power potential and natural gas reserves. The government has made plans to develop nuclear power plants in the coastal and western regions (see Nuclear power in China).

Overall, the distribution of industry remains very uneven, despite serious efforts from the mid-1950s to the late 1970s to build up industry in the interior at the cost of the major cities on the east coast. While percentage growth of industry in the interior provinces generally greatly exceeded that of the coastal areas, the far larger initial industrial base of the latter has meant that a few coastal regions have continued to dominate China's industrial economy. The establishment of special economic zones in coastal areas only heightened this disparity. Shanghaiby itself accounts for about 8–10 percent of China's gross value of industrial output,[105] and the east coast accounts for about 60 percent of the national industrial output.[102] The rate of industrialization increased and diversified after the early 1990s. Notable were the development ofaerospace, aircraft, and automobile manufacturing. In addition, China expanded rapidly into the production of pharmaceuticals, software,semiconductors, electronics, and precision equipment.

[edit]Steel industry

China is the largest producer of steel in the world and the steel industry has been rapidly increasing its steel production. Iron ore production kept pace with steel production in the early 1990s but was soon outpaced by imported iron ore and other metals in the early 2000s. Steel production, an estimated 140 million tons in 2000, was increased to 419 million tons in 2006. Much of the country's steel output comes from a large number of small-scale producing centers, one of the largest being Anshan in Liaoning.

China is the top exporter of steel in the world. Export volumes in 2008 were 59.23 million tons, a 5.5% fall over the previous year.[106] The decline ends China's decade-old steel export growth.

[edit]Automotive industry

Main article: Automobile industry in the People's Republic of China

By 2006 China had become the world's third largest automotive vehicle manufacturer (after US and Japan) and the second largest consumer (only after US). Automobile manufacturing has soared during the reform period. In 1975 only 139,800 automobiles were produced annually, but by 1985 production had reached 443,377, then jumped to nearly 1.1 million by 1992 and increased fairly evenly each year up until 2001, when it reached 2.3 million. In 2002 production rose to nearly 3.25 million and then jumped to 4.44 million in 2003, 5.07 million in 2004, 5.71 million in 2005, 7.28 million in 2006, 8.88 million in 2007, 9.35 million in 2008 and 13.83 million in 2009. China has become the number-one automaker in the world in 2009. Domestic sales have kept pace with production. After respectable annual increases in the mid- and late 1990s, passenger car sales soared in the early 2000s. In 2006, a total of 7.22 million automobiles were sold, including 5.18 million units of passenger cars and 2.04 million units of commercial vehicles.

China's automotive industry has been so successful that it began exporting car parts in 1999. China began to plan major moves into the automobile and components export business starting in 2005. A new Honda factory in Guangzhou was built in 2004 solely for the export market and was expected to ship 30,000 passenger vehicles to Europe in 2005. By 2004, 12 major foreign automotive manufacturers hadjoint-venture plants in China. They produced a wide range of automobiles, minivans, sport utility vehicles, buses, and trucks. In 2003 China exported US$4.7 billion worth of vehicles and components. The vehicle export was 78,000 units in 2004, 173,000 units in 2005, and 340,000 units in 2006. The vehicle and component export is targeted to reach US$70 billion by 2010.

The market for domestically produced cars, under a local name, is likely to continue to grow both inside China and outside. Companies such as Geely and Chery are constantly evaluating new international locations, both in developing and developed countries.[107]

[edit]Other industries

Further information: Telecommunications industry in the People's Republic of China, Electronics industry in the People's Republic of China, Pharmaceutical industry in the People's Republic of China, Defense industry in the People's Republic of China, and Shipping industry of the People's Republic of China

China is the world's biggest sex toy producer and accounts for 70% of the worldwide sex toys production.[108] In the country, 1,000 manufacturers are active in this industry, which generates about two billion dollars a year.[108]

[edit]Services

China's services output ranks fifth worldwide, and high power and telecom density has ensured that it has remained on a high-growth trajectory in the long-term. In 2005 the services sector produced 40.3% of China's annual GDP, second only to manufacturing. However, its proportion of GDP is still low compared with the ratio in more developed countries, and the agricultural sector still employs a larger workforce. Prior to the onset of economic reforms in 1978, China's services sector was characterized by state-operated shops, rationing, and regulated prices. With reform came private markets and individual entrepreneurs and a commercial sector. The wholesale and retail trade has expanded quickly, with urban areas now having many shopping malls, retail shops, restaurant chains and hotels. Public administration has still remained a main component of the service sector, while tourism has become a significant factor in employment and as a source of foreign exchange. The potential for growing services in China through franchising is huge.[109]

[edit]Tourism

Main article: Tourism in the People's Republic of China

China's tourism industry is one of the fastest-growing industries in the national economy and is also one of the industries with a very distinct global competitive edge. The total revenue of China's tourism industry reached USD 67.3 billion in 2002, accounting for 5.44% of the GDP. It dropped, largely due to SARS, to USD 59 billion in 2003. Nevertheless, for areas rich in tourism resources, tourism has become the main source of tax revenue and the key industry for economic development.

The total number of inbound tourists was 91.66 million in 2003, and that of tourists staying overnight was 32.7 million, about 10 times of the number in 1980. International tourism receipts were USD 17.4 billion in 2003. China's ranking for both the overnight tourist arrivals and tourism receipts were among the world's top five in 2003. However, there is unlikely to be a big increase in the inbound tourism market.

China's domestic tourism market makes up more than 90% of the country's tourism traffic, and contributes more than 70% of total tourism revenue. In 2002, domestic tourists reached 878 million and tourism revenue was USD 46.9 billion. The five-days-per-week and long vacation schemes have increased leisure time for the Chinese people and spurred market demand in domestic tourism and led to its prosperity.

A large middle class population with strong consumption power is emerging in China, especially in major cities. China's outbound tourists reached 20.22 million in 2003, overtaking Japan for the first time. Currently there are 65 countries/areas open to Chinese tour groups. Putting aside the threat of SARS and other unexpected events, based on the current economic growth situation and the social development of China, China's outbound tourism is poised to achieve a new growth peak.

Driven by the flourishing tourism industry, China's tourist hotel sector is expanding rapidly. At the end of 2003, China had a total of 10,093 tourist hotels and more than 820,000 rooms. 773 of these tourist hotels were foreign-funded. The number of foreign-funded (inclusive of Hong Kong, Macau and Taiwan investments) four- and five-star tourist hotels made up 26% and 30.02% of the national total, respectively.

In 2003, there were a total of 11,522 travel agencies in China, among which, 1,349 were international ones and 10,203 were domestic ones. While overall tourism market concentration rose, there was a drop in the market position of the traditional three key travel agencies. As competition heightened, China's tourism industry on the whole, had begun to start earning low profits, even while it was expanding its scale of operations.

Currently, there are approximately 15,000 natural, cultural and man-made places of attraction that are above county level. Presently, Hong Kong investors are the main participants in the establishment of tourist attractions in China. In 2001, Sichuan became the first province to propose renting out the operation rights of 10 scenic areas to foreign investors.

According to the plan by China National Tourism Administration, the number of inbound tourists, foreign exchange earnings from tourism and the domestic market size are targeted to have an annual growth of 4%, 8% and 8%, respectively, in the next five to ten years. It is also forecast by the WTO that China's tourism industry will take up to 8.6% of world market share to become the world's top tourism industry by 2020.

[edit]Labor and welfare

Main articles: Labor relations in the People's Republic of China and Social welfare in the People's Republic of China
A window washer on one of skyscrapers inShanghai

One of the hallmarks of China's socialist economy was its promise of employment to all able and willing to work and job-security with virtually lifelong tenure. Reformers targeted the labor market as unproductive because industries were frequently overstaffed to fulfill socialist goals and job-security reduced workers' incentive to work. This socialist policy was pejoratively called the iron rice bowl.

In 1979–1980, the state reformed factories by giving wage increases to workers, which was immediately offset by sharply rising inflation rates of 6–7%. The reforms also dismantled theiron rice bowl, which meant it witnessed a rise in unemployment in the economy. In 1979 there were 20 million unemployed people.[110] Official Chinese statistics reveal that 4.2% of the total urban workforce was unemployed in 2004, although other estimates have reached 10%. As part of its newly developing social security legislation, China has an unemployment insurance system. At the end of 2003, more than 103.7 million people were participating in the plan, and 7.4 million laid-off employees had received benefits.

A 10-percent sample tabulation of census questionnaires from the 1982 census provided needed statistical data on China's working population and allowed the first reliable estimates of the labor force's size and characteristics. The estimated mid-1982 labor force was546 million, or approximately 54 percent of the total population. Males accounted for slightly more than half of the estimated labor force, and the labor force participation rates for persons age fifteen years and older were among the highest in the world.

The 10-percent sample showed that approximately three-fourths of the labor force worked in the agricultural sector. According to the National Bureau of Statistics, in the mid-1980s more than 120 million people worked in the nonagricultural sector. The sample revealed that men occupied the great majority of leadership positions. The average worker was about thirty years old, and three out of every four workers were under forty-five years of age. The working population had a low education level. Less than 40 percent of the labor force had more than a primary school education, and 30 percent were illiterate or semiliterate.

In mid-1982 the overall unemployment rate was estimated to be about 5 percent. Of the approximately 25 million unemployed, 12 million were men and 13 million were women. The unemployment rate was highest in the northeast and lowest in the south. The unemployment rates were higher than those of East Asian, Southeast Asian, and Pacific island countries for which data were available but were lower than the rates found in North America and Europe. Virtually all of the unemployed persons in cities and towns were under twenty years of age.

By the 1990s and 2000s, agriculture has remained the largest employer, though its proportion of the workforce has steadily declined; between 1991 and 2001 it dropped from about 60% to 40% of the total. The manufacturing labor force has also become smaller at a slower rate, partially because of reforms implemented at many of the state-run enterprises. Such reforms and other factors have increasedunemployment and underemployment in both urban and rural areas. Women have been a major labor presence in China since the People's Republic was established. Some 40–45 percent of all women over age 15 are employed.

China's estimated employed labor force in 2005 totaled 791.4 million persons, about 60% of the total population. During 2003, 49% of the labor force worked in agriculture, forestry, and fishing; 22% in mining, manufacturing, energy, and construction industries; and 29% in theservices sector and other categories. In 2004 some 25 million persons were employed by 743,000 private enterprises. Urban wages rose rapidly from 2004 to 2007, at a rate of 13 to 19% per year with average wages near $200/month in 2007.[111]

The All-China Federation of Trade Unions (ACFTU) was established in 1925 to represent the interests of national and local trade unions and trade union councils. The ACFTU reported a membership of 130 million, out of an estimated 248 million urban workers, at the end of 2002. Chinese trade unions are organized on a broad industrial basis. Membership is open to those who rely on wages for the whole or a large part of their income, a qualification that excludes most agricultural workers. In theory, membership is not compulsory, but in view of the unions' role in the distribution of social benefits, the economic pressure to join is great. The lowest unit is the enterprise union committee. Individual trade unions also operate at the provincial level, and there are trade union councils that coordinate all union activities within a particular area and operate at county, municipal, and provincial levels. At the top of the movement is the ACFTU, which discharges its functions through a number of regional federations.

In theory the appropriate trade union organizations have been consulted on the level of wages as well as on wage differentials, but in practice their role in these and similar matters has been insignificant. They have not engaged in collective bargaining, as their principal duties have included assisting the party and promoting production. In fulfilling these tasks, they have had a role in enforcing labor discipline. From the point of view of the membership, the most important activities have concerned the social and welfare services. Thus, the unions have looked after industrial safety, organized social and cultural activities, and, provided services such as clinics, rest and holiday homes, hostels, libraries, and clubs. They also administer old-age pensions, workers' insurance, disability benefits, and other welfare schemes. More recently, however, reforms of the social security system have involved moving the responsibility for pensions and other welfare to the provinces.

Chinese labor laws, if fully enforced, would greatly alleviate common abuses such as not paying workers.[112][113] In 2006 and thereafter there was an organizing campaign orchestrated by the central government to organize Chinese operations of foreign companies.[114] It was reported in 2008 that problems with sweatshops persist.[115][116]

In 2010, the issues of manufacturing wages caused a strike at a Honda parts plant. This resulted in wage increases both at the struck plant and other industrial plants.[117][118][119][120][121]

The 2010 census found that the PRC was now half urban and rapidly aging due to the one child policy. This is expected to lead to increased demand for labor to take care of an elderly population and a reduced supply of migrant labor from the countryside.[122]

[edit]External trade

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Main article: History of trade of the People's Republic of China
Current account balance 2006[123]
Global distribution of Chinese exports in 2006 as a percentage of the top market

International trade makes up a sizeable portion of China's overall economy. The course of China's foreign trade has experienced considerable transformations since the early 1950s. In 1950 more than 70 percent of the total trade was with non-Communist countries, but by 1954, a year after the end of the Korean War, the situation was completely reversed, and trade with Communist countries stood at about 75 percent. During the next few years, trade with the Communist world lost some of its standing, but it was only after the Sino-Soviet splitof 1960, which resulted in the cancellation of Soviet credits and the withdrawal of Soviet technicians, that the non-Communist world began to see a speedy recovery in its position. In 1965 China's trade with other socialist countries made up only about a third of the total.

Being a Second World country at the time, a meaningful segment of China's trade with the Third World was financed through grants, credits, and other forms of assistance. At first, from 1953 to 1955, aid went mainly to North Korea and North Vietnam and some other Communist states; but from the mid-1950s large amounts, mainly grants and long-term, interest-free loans, were promised to politically uncommitted developing countries. The principal efforts were made in Asia, especially to Indonesia, Burma, Pakistan, and Ceylon, but large loans were also granted in Africa (Ghana, Algeria, Tanzania) and in the Middle East (Egypt). However, after Mao Zedong's death in 1976, these efforts were scaled back. After which, trade with developing countries became negligible, though during that time,Hong Kong and Taiwan both began to emerge as major trading partners.

Since economic reforms began in the late 1970s, China sought to decentralize its foreign trade system to integrate itself into the international trading system. On November 1991, China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation the in economic, trade, investment, and technology spheres. China served as APEC chair in 2001, and Shanghai hosted the annual APEC leaders meeting in October of that year.

China's global trade totaled $324 billion in 1997 and $151 billion in the first half of 1998; the trade surplus stood at $40.0 billion. China's primary trading partners were Japan, Taiwan, the U.S., South Korea, Hong Kong, Germany, Singapore, Russia, and the Netherlands. China had a trade surplus with the U.S. of $49.7 billion in 1997 and $54.6 billion in 1998. Major imports were power generating equipment, aircraft and parts, computers and industrial machinery, raw materials, and chemical and agricultural products.

In 1998, China was in its 12th year of negotiations for accession to the World Trade Organization (WTO)—formerly the General Agreement on Tariffs and Trade (GATT), and had significantly reduced import tariffs. Previously in 1996, China had already introduced cuts to more than 4,000 tariff lines, reducing average tariffs from 35% to 23%; further tariff cuts that took effect October 1, 1997, decreased average tariffs to 17%. To gain WTO entry, all prospective WTO members were required to comply with certain fundamental trading disciplines and offer substantially expanded market access to other members of the organization. Many major trading entities—among them the United States, the European Union, and Japan—shared concerns with respect to China's accession. These concerns included obtaining satisfactory market access offers for both goods and services, full trading rights for all potential Chinese consumers and end-users, nondiscrimination between foreign and local commercial operations in China, the reduction of monopolistic state trading practices, and the elimination of arbitrary or non-scientific technical standards. China and other WTO members worked to achieve a commercially viable accession protocol.

In 1999, Premier Zhu Rongji signed a bilateral U.S.–China Agricultural Cooperation Agreement, which lifted longstanding Chinese prohibitions on imports of citrus, grain, beef, and poultry. In November 1999, the United States and China reached a historic bilateral market-access agreement to pave the way for China's accession to the WTO. As part of the far-reaching trade liberalization agreement, China agreed to lower tariffs and abolish market impediments after it joins the world trading body. Chinese and foreign businessmen, for example, would gain the right to import and export on their own – and to sell their products without going through a government middleman. After reaching a bilateral WTO agreement with the EU and other trading partners in summer 2000, China worked on a multilateral WTO accession package. China concluded multilateral negotiations on its accession to the WTO in September 2001. The completion of its accession protocol and Working Party Report paved the way for its entry into the WTO on December 11, 2001, after 16 years of negotiations, the longest in the history of the General Agreement on Tariffs and Trade.

With bilateral trade exceeding US$38.6 billion, China is India's largest trading partner.[124] Shown here is a Chinese container ship unloading its cargo atJawaharlal Nehru Port, Navi Mumbai, India.

China's global trade exceeded $2.4 trillion at the end of 2008. It first broke the $100 billion mark in 1988, $200 billion in 1994, $500 billion in 2001 and $1 trillion mark ($1.15 trillion) in 2004. The table below shows the average annual growth (in nominal US dollar terms) of China's foreign trade during the reform era.

Period Two-way trade Exports Imports
1981–85 +12.8% +8.6% +16.1%
1986–90 +10.6% +17.8% +4.8%
1991–95 +19.5% +19.1% +19.9%
1996–2000 +11.0% +10.9% +11.3%
2000–05 +24.6% +25.0% +24.0%
2006 +27.2% +19.9% +23.8%
2007 +25.6% +20.8% +23.4%

The vast majority of China's imports consists of industrial supplies and capital goods, notably machinery and high-technology equipment, the majority of which comes from the developed countries, primarily Japan[citation needed] and the United States[citation needed]. Regionally, almost half of China's imports come from East and Southeast Asia, and about one-fourth of China's exports go to the same destinations[citation needed]. About 80 percent of China's exports consist of manufactured goods, most of which are textiles and electronic equipment, with agricultural products and chemicals constituting the remainder. Out of the five busiest ports in the world, three are in China.

The U.S. is one of China's primary suppliers of semiconductors and electronic components, power-generating equipment, aircraft and parts, computers and industrial machinery, raw materials, waste and scrap, and chemical and agricultural products[citation needed]. However, U.S. exporters continue to have concerns about fair market access due to China's restrictive trade policies and U.S. export restrictions[dubious – discuss][citation needed]. Intellectual property theft makes many foreign companies wary of doing business in mainland China.[citation needed] According to U.S. statistics, China had a trade surplus with the U.S. of $170 billion in 2004, more than doubling from 1999. Wal-Mart, the United States' largest retailer, is China's 7th largest export partner, just ahead of the United Kingdom.

Gourmet foods, such as Florida softshell turtle, are among China's imports[125]

The U.S. trade deficit with China reached $232.5 billion in 2006, as imports grew 18%. China's share of total U.S. imports has grown from 7% to 15% since 1996. At the same time, the share of many other Asian countries' imports to the United States fell, from 39% in 1996 to 21.1% in 2005. The share of overall Asian imports (including China) to the United States actually declined from 38.8% in 1996 to 35.7% in 2005. The U.S. global trade deficit with the Asia–Pacific region as a whole also has fallen from 75% in 1995 to 49% in 2005.

Trade volume between China and Russia reached $29.1 billion in 2005, an increase of 37.1% compared with 2004. A spokesman for the Ministry of Commerce, Van Jingsun, said that the volume of trade between China and Russia could exceed 40 billion dollars in 2007.[126] China's export of machinery and electronic goods to Russia grew 70%, which is 24% of China's total export to Russia in the first 11 months of 2005. During the same time, China's export of high-tech products to Russia increased by 58%, and that is 7% of China's total exports to Russia. Also in this time period border trade between the two countries reached $5.13 billion, growing 35% and accounting for nearly 20% of the total trade. Most of China's exports to Russia remain apparel and footwear. Russia is China's eighth largest trade partner and China is now Russia's fourth largest trade partner, and China now has over 750 investment projects in Russia, involving $1.05 billion. China's contracted investment in Russia totaled $368 million during January–September 2005, twice that in 2004.

Chinese cars at a dealer's lot in Nizhny Novgorod, the traditional capital of the Russian automotive industry

Chinese imports from Russia are mainly those of energy sources, such as crude oil, which is mostly transported by rail, and electricity exports from neighboring Siberian and Far Eastern regions. In the near future, exports of both of these commodities are set to increase, as Russia is building the Eastern Siberia-Pacific Ocean oil pipeline with a branch to Chinese border, and Russian power grid monopoly UES is building some of its hydropower stations with a view of future exports to China.

Export growth has continued to be a major component supporting China's rapid economic growth. To increase exports, China pursued policies such as fostering the rapid development of foreign-invested factories, which assembled imported components into consumer goods for export and liberalizing trading rights. In its 11th Five-Year Program, adopted in 2005, China placed greater emphasis on developing a consumer demand-driven economy to sustain economic growth and address imbalances.

The China Council for the Promotion of International Trade (CCPIT) promotes China's international economic and commercial interests. This is accomplished by developing business cooperation and exchanges with foreign countries. It also produces economic data, creates diplomatic ties and is active with trade arbitration issues. Hong Kong remains prominent in domestic trade, notably in its reliance on the mainland for agricultural products.

[edit]Trading partners

Main article: List of the largest trading partners of the People's Republic of China

[edit]Foreign investment

See also: Qualified Domestic Institutional Investor, Qualified Foreign Institutional Investor, China Investment Promotion Agency, China Council for the Promotion of International Trade, and Ministry of Commerce of the People's Republic of China

China's investment climate has changed dramatically with more than two decades of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. The Encouraged Industry Catalogue sets out the degree of foreign involvement allowed in various industry sectors. From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999.[127] Foreign-invested enterprises account for 58–60% of China's imports and exports.[128]

Since the early 1990s, the government has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state, such as energy, communications and transportation.

China also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares ofstock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares sold to foreigners carried no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion in foreign direct investment. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001, easing export performance and domestic content requirements.

Foreign investment remains a strong element in China's rapid expansion in world trade and has been an important factor in the growth of urban jobs. In 1998, foreign-invested enterprises produced about 40% of China's exports, and foreign exchange reserves totalled about $145 billion. Foreign-invested enterprises today produce about half of China's exports (the majority of China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government's emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China's services sectors underdeveloped. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment after the United States. China received $39 billion FDI in 1999 and $41 billion FDI in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69.47 billion in foreign direct investment.[129]

Foreign exchange reserves totaled $155 billion in 1999 and $165 billion in 2000. Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003. Foreign exchange reserves were $819 billion at the end of 2005, $1.066 trillion at the end of 2006, $1.9 trillionby June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China has now surpassed those of Japan, making China's foreign exchange reserves the largest in the world.

As part of its WTO accession, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued. Major remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure. Warner Bros., for instance, withdrew its cinema business in China as a result of a regulation that requires Chinese investors to own at least a 51 percent stake or play a leading role in a foreign joint venture.[130]

[edit]Chinese investment abroad

Outward foreign direct investment is a new feature of Chinese globalization, where local Chinese firms seek to make investments in both developing and developed countries.[131] It was reported in 2011 that there was increasing investment by capital rich Chinese firms in promising firms in the United States. Such investments offer access to expertise in marketing and distribution potentially useful in exploiting the developing Chinese domestic market.[132]

[edit]Demographics

Main articles: Demographics of the People's Republic of China, Migration in the People's Republic of China, Urbanization in the People's Republic of China, and Chinese emigration
Further information: Standard of living in the People's Republic of China and Poverty in the People's Republic of China

Since the 1950s medical care, public hygiene and sanitation improved considerably, and epidemics were controlled. Consecutive generations continuously experienced better health. The population growth rate surged as the mortality rate dropped more rapidly than the birth rate. China's massive population has always been a major difficulty for the government as it has struggled to provide for it. In the 1950s, food supply was inadequate and the standard of living was generally low. This spurred the authorities to initiate a major birth control program. The Great Leap Forward industrial plan in 1958–60 was partially responsible for a huge famine that caused the death rate to surpass the birth rate, and by 1960, the overall population was declining. A second population control drive began in 1962 with major efforts focused on promoting late marriages and the use of contraceptives. By 1963 the country was in the beginning of recovery from the famine and the birth rate soared to its highest since 1949 with an annual population growth rate of 3%. In 1966, the Cultural Revolution suspended this secondfamily planning program, but resumed four years later with the third attempt by making later marriage and family size limitation an obligation. Since 1970, the efforts have been much more effective. The third family planning program continued until 1979 when the one child per family policy was implemented. By the early 1980s, China's population reached around 1 billion and by the early 2000s, surpassed 1.3 billion. In the 1980s, the average overall population growth was around 1.5%. In the 1990s, this fell to about 1%. Today it is about 0.6%.[133] China'spopulation growth rate is now among the lowest for a developing country, although, due to its large population, annual net population growth is still considerable. One demographic consequence of the one-child policy is that China is now one of the most rapidly ageing countries in the world.

From 100 million to 150 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time, low-paying jobs.

According to the latest Forbes China Rich List (2007), China had 66 billionaires, the second largest number after the United States, which had 415. In the 2006 Forbes Rich List it stated that there were 15 Chinese billionaires.[134] In the latest 2007 Hurun Report, it lists 106 billionaires in China.[135]

[edit]Transportation

Main article: Transport in the People's Republic of China

Development of the country's transportation infrastructure is given a high priority because it is so strategically tied to the national economy and national defense. Regardless, the transportation infrastructure is still not fully developed in many aspects and areas, and it constitutes a major hindrance on economic growth and the efficient logistical movement of goods and people. China's transportation policy, influenced by political, military, and economic concerns, have undergone major changes since 1949.[136]

Immediately after the People's Republic was founded, the primary goal was to repair existing transportation infrastructure in order to meetmilitary transport and logistics needs as well as to strengthen territorial integrity. During most of the 1950s, new road and rail links were built, while at the same time old ones were improved. During the 1960s much of the improvement of regional transportation became the responsibility of the local governments, and many small railways were constructed. Emphasis was also placed on developing transportation in remote rural, mountainous, and forested areas, in order to integrate poorer regions of the country and to help promote economies of scale in the agricultural sector.

Before the reform era began in the late 1970s, China's transportation links were mostly concentrated in the coastal areas and access to the inner regions was generally poor. This situation has been improved considerably since then, as railways and highways have been built in the remote and frontier regions of the northwest and southwest. At the same time, the development of international transportation was also pursued, and the scope of ocean shipping was broadened considerably.

Freight haulage is mainly provided by rail transport. The rail sector is monopolized by China Railways, which is controlled by the Ministry of Railways and there is wide variation in services provided. In late 2007 China became one of the few countries in the world to launch its own indigenously developed high-speed train.[137] As rail capacity is struggling to meet demand for the transport of goods and raw materials such as coal, air routes, roads and waterways are rapidly being developed to provide an increasing proportion of China's overall transportation needs.[138]

[edit]Communications

Main article: Telecommunications in the People's Republic of China

China possesses a diversified communications system that links all parts of the country by Internet, telephone, telegraph, radio, and television.

China's number of Internet users or netizens topped 137 million by the end of 2006,[139] an increase of 23.4% from a year before and162 million by June 2007, making China the second largest Internet user after the United States, according to China's Ministry of Information Industry (MII). China's mobile phone penetration rate is 34% in 2007. In 2006, mobile phone users sent 429 billion text messages, or on average 967 text messages per user. For 2006, the number of fixed-lines grew by 79%, mainly in the rural areas.[140]

[edit]Science and technology

Main articles: Science and technology in the People's Republic of China, Higher education in China, and List of Chinese universities

Science and technology have always preoccupied China's leaders and indeed, China's political leadership comes almost exclusively from technical backgrounds and has a high regard for science. Deng Xiaoping called it "the first productive force." In recent times, with Hu Jintaoand Wen Jiabao and their predecessors Jiang Zemin and Zhu Rongji all being trained engineers, China's leaders have been described astechnocrats.

Since the early 1980s scientific and technological modernization has been given an especially high priority. Plans were made to rebuild the educational structure, continue sending students abroad, negotiate technological purchases and transfer arrangements with the U.S. and others, and develop ways to disseminate scientific and technological information. Areas of most critical interest have included microelectronics, telecommunications, computers, automated manufacturing, and energy. China also has had a space program since the 1960s and, by the late 1990s, had successfully launched more than 25 satellites.

On the other hand, distortions in the economy and society created by party rule have severely hurt Chinese science, according to some Chinese science policy experts. The Chinese Academy of Sciences, modeled on the Soviet system, puts much of China's greatest scientific talent in a large, under-funded apparatus that remains largely isolated from industry, although the reforms of the past decade have begun to address this problem.

Chinese science strategists have seen China's greatest opportunities in newly emerging fields such as biotechnology and computers where there is still a chance for China to become a significant player. A majority of Chinese students who went abroad have not returned,[141] but they have built a dense network of global contacts that have greatly facilitated international scientific cooperation.[142] The United States is often held up as the standard of scientific modernity in China. Indeed, photos of the Space Shuttle often appear in Chinese advertisements as a symbol of advanced technology. China's growing space program, which has put a man in space and successfully completed their second manned orbit in October 2005, is a focus of national pride.

At the end of 1996, China had 5,434 state-owned independent research and development institutions at and above the county level. There were another 3,400 research institutions affiliated with universities, 13,744 affiliated with medium and large industrial enterprises, and 726 affiliated with medium and large construction enterprises. A total of 2.8 million people were engaged in scientific and technological activities in these institutions.

The U.S.–China Science and Technology Agreement remains the framework for bilateral cooperation between the two countries in this field. It was originally signed in 1979. A five-year agreement to extend and amend the accord, including provisions for the protection of intellectual property rights, was signed in May 1991, and the Agreement was again extended for five years in April 1996. Five-year agreements to extend the accord were signed in April 2001 and April 2006. The Agreement is among the longest-standing U.S.–China accords, and includes over eleven U.S. Federal agencies and numerous branches that participate in cooperative exchanges under the S&T Agreement and its nearly 60 protocols, memoranda of understanding, agreements and annexes. The Agreement covers cooperation in areas such as marine conservation,high-energy physics, renewable energy, and health. Biennial Joint Commission Meetings on Science and Technology bring together policymakers from both sides to coordinate joint science and technology cooperation. Executive Secretaries meetings are held biennially to implement specific cooperation programs.

Japan and the European Union also have high profile science and technology cooperative relationships with China.

[edit]Noopolitik and the Knowledge Economy

Unlike South Korea the People's Republic does not have a full Ministry of Knowledge Economy as of 2011. Yet China has always maintained a premiership in world innovation, as evidenced by the manifold inventions it contributed throughout its history. Notably taking note of the PRC's premiership in Maglev train technology along with its clear interest in arcologies [143] [144] and Solar powered planes while infrastructure, energy and transportation are known to have remained the PRC's main economic bottlenecks throughout the 2000s Idriss Aberkane (2011) has argued "it may not be more than a decade before the Euro-Atlantic community manufactures and copies Chinese products, architecture, and systems." [145]. Aberkane also underlined that while the PRC stood as the first nation in ability to provide popular material satisfaction, its doctrine of adressing all domestic issues through the lens of growth (which he calls a "growth panacea doctrine") was naturally continued by its interest in Noopolitik, a "knowledge panacea doctrine".

Furthermore, in an essay explicitly entitled "China's Innovation Wall" [146] Adam Segal reported that the PRC's policy had clearly moved from "Made in China" to "Innovated in China". Zbigniew Brzezinski had himself taken note of the PRC's emulating the original american "Revolution in Military Affairs" along which the term "Noopolitik" appeared in the essay of John Arquilla [147].

"In 2004, Brzezinski [148] underlined that the success of the American Revolution in Military Affairs (...) "has spurred China to pursue its own "RMA with Chinese characteristics" – described as "people's war under high-tech conditions." The notion of non linear R&D competition is made very clear in the title of a study by Kung Shuang-Yin "Achieving development by Leaps and Bounds in national Defense" [149] (translated). In January 2011 the Washington Post also quoted a "Chinese analyst" (sic): "instead of competing to build ships and tanks, (…) China will focus on the weapons that can cripple them." [150] The development of the People's Liberation Army Air Force fifth generation stealth aircraft, Chengdu J-20, already considered superior to the USAF F-22 Raptor, and the implementation of the costly Shenzhou space programs testify to the PRC's adoption of non-linear R&D. It is probably China's wish to struggle for preeminence in the Pacific, and its investment in cheap air freight best demonstrates its interest in surpassing linear competition. -- Idriss J. Aberkane [151] "

[edit]Luxury goods

Main article: Luxury goods in the People's Republic of China

A factor that often goes overlooked is the extent of luxury spending the Chinese citizenry are undertaking. There is no greater indication of the newfound wealth of the Chinese than the amount of money now spent on goods and services that were once inaccessible. Foremost among these is the shift towards bottled water. The Chinese bottled water manufacturing industry is forecast to more than double in size in 2008, becoming a $10.5 (US dollars) billion industry in the process. Meanwhile, as those who once had no recourse but poor-quality tap water take advantage of its availability in supermarkets, those who had little or no running water are now capitalising on its availability. The tap water production and supply industry is expected to grow by 29.3% in 2008, to $11.9 billion. The country's motor vehicle production industry is expected to expand by 29.5% to nearly $200 billion, as many Chinese eschew traditional modes of transport, such as bicycles, for the comforts of modern cars. Also, consumption of chocolate and other confectionery is set to increase by 24.3%, as the industry expands to$4.6 billion, in order to keep up with China's collective sweet tooth. Couple with this is 20.8% growth in China's fast food industry, as major players such as McDonalds enter the country with vigour. Also, the LVMH group, who own major luxury brands including Louis Vuitton apparel, Moet-Chandon wines and champagne and Hennessey cognacs, reported earnings growth of over 25% in 2007 in China, the region now accounting for around 16% of their global business.[152]

[edit]Environment and public health

Main articles: Environment of China, Water supply and sanitation in the People's Republic of China, and Public health in the People's Republic of China

One of the serious negative consequences of China's rapid industrial development since the 1980s has been increased pollution anddegradation of natural resources. Problems such as soil erosion, desertification and the steady fall of the water table, especially in the north, have posed a threat to the sustainable development of the country. China is an active participant in climate change talks and other multilateral environmental negotiations in organization such as the UN Environment Program (UNEP).

[edit]Mergers & Acquisitions

From 1993 to 2010, Chinese companies have been involved as either an acquiror or acquired company in 25,284 mergers and acquisitionswith a total know value of 969 bil. USD.[153] The number and value of deals hit a new record in 2010. The number of deals that happened in 2010 has been 3,640 which is an increase of 17% compared to 2009. The value of deals in 2010 was 196 bil. USD which is an increase of 25% compared to the year before.

[edit]See also

China portal
Economics portal
Business and economics portal

[edit]References

 Constructs such as ibid., loc. cit. and idem are discouraged by Wikipedia's style guide for footnotes, as they are easily broken. Please improve this article by replacing them with named references (quick guide), or an abbreviated title. (August 2010)
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[edit]External links and further reading

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Economic growth

From Wikipedia, the free encyclopedia
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This article has multiple issues. Please help improve it or discuss these issues on the talk page.

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GDP real growth rates, 1990-1998 and 1990-2006, in selected countries.

Rate of change of Gross domestic product, world and OECD, since 1961

Economic growth caused the Production-possibility frontier to shift outward.

Economic growth is an increase (or decrease) in the value of goods and services that a geographic area produces and sells compared to an earlier time. If the value of an area's goods and services is higher in one year than the year before, it experiences positive growth, usually simply called "economic growth." In a year when less value than the year before is produced and sold, it experiences "negative economic growth," also called "recession" or "depression."
Economic growth can occur due to an increase in the number of goods or services. It can also occur due to production of more expensive goods and services. For example, often as people become wealthier, the types of food that they want change. While individuals may not eat more food, they may reduce the amount of pasta and potatoes they eat and may increase amounts of more expensive foods like meat and dairy.[1] Meeting these changes in consumer demand could create an increase in the value of goods produced and thus, economic growth.

Contents

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[edit]Economic growth versus the business cycle

Economists draw a distinction between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the "business cycle." Briefly, the business cycle is made up of booms and busts in production that occur over a period or months or years. The most recent example of a business cycle was the global boom starting in approximately 2002 that ended with the bust of 2008-09. As discussed in the article on the business cycle, economists attribute the ups and downs in the business cycle to a number of causes including: overproduction of goods followed by large inventories that can't be readily sold, overexpansion of credit resulting in piling up of debt that inhibits purchasing, speculative bubbles, and shocks like wars, political upheavals and so on.
In contrast, the topic of economic growth is concerned with the long-run trend in production due to basic causes such as industrialization. The business cycle moves up and down, creating fluctuations in the long-run trend in economic growth.

[edit]Economic growth per capita

Often, the concern about economic growth focuses on the desire to improve a country's standard of living -- the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if population has grown along with economic production, increases in GDP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis.
Economic growth per capita is primarily driven by improvements in productivity, also called economic efficiency. Increased productivity means producing more goods and services with the same inputs of labour, capital, energy and/or materials. For example, labour and land productivity in agriculture were increased during the Green Revolution. The Green Revolution of the 1940s to 1970s introduced new grain hybrids which increased yields around the world.
However, there is not necessarily a long term one-to-one relationship between improvements in productivity and improvements in average standard of living. [2] Among other factors that might prevent a long term improvement in standard of living despite economic growth is the potential for population growth matching or outstripping productivity improvements. When increased food supplies spur population growth rather an improvement in the standard of living, people are said to be caught in the "Malthusian Trap," named for Thomas Robert Malthus, the first observer to detail out this dilemma. There is considerable controversy, for example, as to whether the Green Revolution resulted in long term improvements in the standard of living as it was accompanied by rapid population growth creating population sizes that may be unsustainable. [3]
Economic growth can also be of interest without reference to per capita changes in standard of living. An example of this is the economic growth in England during the Industrial Revolution. Certainly, per capita increases in productivity occurred due to the replacement of hand labour by machines. However, economic growth during this period was in large part so dramatic because England's population simultaneously increased very rapidly (1700 A.D. - 1860 A.D.). The two factors together, more production per worker combined with many more workers, resulted in a sixfold increase in production between 1700 and 1860. Population growth alone accounted for most of this increase. [4]

[edit]Measuring economic growth

Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a country which creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011, has an economic growth rate of 1% for 2011.
In order to compare per capita economic growth among countries, the total sales of the countries to be compared may be quoted in a single currency. This requires converting the value of currencies of various countries into a selected currency, for example U.S. dollars. One way to do this conversion is to rely on exchange rates among the currencies, for example how many Mexican pesos buy a single U.S. dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same "basket of goods" in each country.
Inflation or deflation can make it difficult to measure economic growth. If GDP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation) or because more goods and services were produced and save? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation.
For example, a table may show changes in GDP in the period 1990 to 2000, as expressed in 1990 U.S. dollars. This means that the single currency being used is the U.S. dollar with the purchasing power it had in the U.S. in 1990. The table might mention that the figures are "inflation-adjusted" or real. If no adjustment were made for inflation, the table might make no mention of inflation-adjustment or might mention that the prices are nominal.

[edit]The power of annual growth

Over long periods of time, even small rates of growth, like a 2% annual increase, will have large effects. For example, the United Kingdom experienced a 1.97% average annual increase in inflation-adjusted GDP between 1830 and 2008. [5] In 1830, the GDP was 41,373 million pounds. It grew to 1,330,088 million pounds by 2008. (Figures are adjusted for inflation and stated in 2005 values for the pound.) A growth rate which averaged 1.97% over 178 years resulted in a 32-fold increase in GDP by 2008.
The large impact of a relatively small growth rate over a long period of time is due to the power of compounding (also see exponential growth). A growth rate of 2.5% per annum leads to a doubling of GDP within 29 years, whilst a growth rate of 8% per annum (an average exceeded byChina between 2000 and 2010) leads to a doubling of GDP within 10 years. Thus, a small difference in economic growth rates between countries can result in very different standards of living for their populations if this small difference continues for many years.

[edit]Historical growth

During colonial times, what ultimately mattered for economic growth were the institutions and systems of government imported throughcolonization. There is a clear reversal of fortune between the poor and wealthy countries, which is evident when comparing the method ofcolonialism in a region. Geography and endowments of natural resources are not the sole determinants of GDP. In fact, those that were blessed with good factor endowments experienced colonial extraction which only provided limited rapid growth; whereas, countries that were less fortunate in their original endowments experienced European settlement, relative equality, and demand for rule of law. These initially poor colonies end up developing an open franchise, equality, and broad public education, which helps them experience greater economic growth than the colonies that had exploited their economies of scale.
Since the Industrial Revolution a major factor of productivity was the substitution of energy for human and animal labor and water and wind power, and since that replacement, the great expansion of total power, which was driven by continuous improvements in energy conversion efficiency.[6] Other major historical sources of productivity were mechanization, transportation infrastructures (canals, railroads and highways),[7] new materials (steel) and power, which includes steam and internal combustion engines and electricity. Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, and the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, which is universally used today.
Great sources of productivity improvement in the late 19th century were the railroads, steam ships and horse pulled reapers and combine harvesters and steam powered factories. The invention of processes for making cheap steel were important for many forms of mechanization and transportation. By the late 19th century power and machinery were creating overproduction, which eventually caused a reduction of the hourly work week. Prices fell because less labor, materials and energy were required to produce and transport goods; however, workers real pay rose, allowing workers to improve their diet and buy consumer goods and better housing.[8]
Mass production of the 1920s created over-production, which was arguably one of several causes of the Great Depression of the 1930s.[9]Following the Great Depression, economic growth resumed, aided in part by demand for entirely new goods and services, such as householdelectricity, telephones, radio, television, automobiles, and household appliances, air conditioning, and commercial aviation (after 1950), creating enough new demand to stabilize the work week.[10] Building of highway infrastructures also contributed to post World War II growth, as did capital investments in manufacturing and chemical industries. The post World War II economy also benefited from the discovery of vast amounts of oil around the world, particularly in the Middle East.
Economic growth in Western nations slowed after 1973, but growth in Asia has been strong since then, starting with Japan and spreading to Korea, China, the Indian subcontinent and other parts of Asia. The Japanese economy has been growing very slowly since about 1990.

[edit]Origins of the concept

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This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (January 2010)


In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest descriptions of economic growth in his Muqaddimah (known asProlegomena in the Western world):
"When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life."[11]
In the early modern period, some people in Western European nations developed the idea that economies could "grow", that is, produce a greater economic surplus which could be expended on something other than mere subsistence. This surplus could then be used for consumption, warfare, or civic and religious projects. The previous view was that only increasing either population or tax rates could generate more surplus money for the Crown or country.
Later it was theorized that economic growth also corresponds to a process of continual rapid replacement and reorganization of human activities facilitated by investment motivated to maximize returns. This exponential evolution of our self-organized life-support and cultural systems is remarkably creative and flexible, but highly unpredictable in many ways. As there are difficulties in modelling complex self-organizing systems, various efforts to model the long term evolution of economies have produced mixed results.
During much of the "Mercantilist" period, growth was seen as involving an increase in the total amount of specie, that is circulating medium such as silver and gold, under the control of the state. This "Bullionist" theory led to policies to force trade through a particular state, the acquisition of colonies to supply cheaper raw materials which could then be manufactured and sold.
Later, such trade policies were justified instead simply in terms of promoting domestic trade and industry. The post-Bullionist insight that it was the increasing capability of manufacturing which led to policies in the 18th century to encourage manufacturing in itself, and the formula of importing raw materials and exporting finished goods. Under this system high tariffs were erected to allow manufacturers to establish "factories". Local markets would then pay the fixed costs of capital growth, and then allow them to export abroad, undercutting the prices of manufactured goods
Under this theory of growth, to foster growth was to grant monopolies, which would give an incentive for an individual to exploit a market or resource, confident that he would make all of the profits when all other extra-national competitors were driven out of business. The "Dutch East India company" and the "British East India company" were examples of such state-granted trade monopolies.[12]
In this period the view was that growth was gained through "advantageous" trade in which specie would flow in to the country, but to trade with other nations on equal terms was disadvantageous. It should be stressed that Mercantilism was not simply a matter of restricting trade.Within a country, it often meant breaking down trade barriers, building new roads, and abolishing local toll booths, all of which expanded markets. This corresponded to the centralization of power in the hands of the Crown (or "Absolutism"). This process helped produce the modern nation-state in Western Europe.
Internationally, Mercantilism led to a contradiction: growth was gained through trade, but to trade with other nations on equal terms was disadvantageous.

[edit]Various theories on economic growth

[edit]Classical growth theory

The modern conception of economic growth began with the critique of Mercantilism, especially by the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and the foundation of the discipline of modern political economy. The theory of the physiocrats was that productive capacity, itself, allowed for growth, and the improving and increasing capital to allow that capacity was "the wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the notion that manufacturing was central to the entire economy.[13]
David Ricardo argued that trade was a benefit to a country, because if one could buy a good more cheaply from abroad, it meant that there was more profitable work to be done here. This theory of "comparative advantage" would be the central basis for arguments in favor of free trade as an essential component of growth.[14]

[edit]The neoclassical growth model

The notion of growth as increased stocks of capital goods (means of production) was codified as the Solow-Swan Growth Model, which involved a series of equations which showed the relationship between labor-time, capital goods, output, and investment. According to this view, the role of technological change became crucial, even more important than the accumulation of capital. This model, developed byRobert Solow[15] and Trevor Swan[16] in the 1950s, was the first attempt to model long-run growth analytically. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person will grow faster because each investment in capital will produce a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies will eventually reach a point at which any increase in capital will no longer create economic growth. This point is called a "steady state".
The model also notes that countries can overcome this steady state and continue growing by inventing new technology. In the long run, output per capital depends on the rate of saving, but the rate of output growth should be equal for any saving rate. In this model, the process by which countries continue growing despite the diminishing returns is "exogenous" and represents the creation of new technology that allows production with fewer resources. Technology improves, the steady state level of capital increases, and the country invests and grows. The data does not support some of this model's predictions, in particular, that all countries grow at the same rate in the long run, or that poorer countries should grow faster until they reach their steady state. Also, the data suggests the world has slowly increased its rate of growth.
However modern economic research shows that the baseline version of the neoclassical model of economic growth is not supported by the evidence.

[edit]Endogenous growth theory

Main article: Endogenous growth theory
Growth theory advanced again with the theories of economist Paul Romer and Robert Lucas, Jr. in the late 1980s and early 1990s.
Unsatisfied with Solow's explanation, economists worked to "endogenize" technology in the 1980s. They developed the endogenous growth theory that includes a mathematical explanation of technological advancement.[17][18] This model also incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation).[19]

[edit]Unified growth theory

Unified growth theory was developed by Oded Galor and his co-authors to address the inability of endogenous growth theory to explain key empirical regularities in the growth processes of individual economies and the world economy as a whole. Endogenous growth theory was satisfied with accounting for empirical regularities in the growth process of developed economies over the last hundred years. As a consequence it was not able to explain the qualitatively different empirical regularities that characterized the growth process over longer time horizons in both developed and less developed economies. Unified growth theories are endogenous growth theories that are consistent with the entire process of development, and in particular the transition from the epoch of Malthusian stagnation that had characterized most of the process of development to the contemporary era of sustained economic growth.[20]

[edit]The big push

Theories of economic growth, the mechanisms that let it take place and its main determinants abound. One popular theory in the 1940s for example was that of the "Big Push" which suggested that countries needed to jump from one stage of development to another through a virtuous cycle in which large investments in infrastructure and education coupled to private investment would move the economy to a more productive stage, breaking free from economic paradigms appropriate to a lower productivity stage.[21]

[edit]Creative destruction and economic growth

Main article: Creative destruction
Many economists view entrepreneurship as having a major influence on a society's rate of technological progress and thus economic growth.[22] Joseph Schumpeter was a key figure in understanding the influence of entrepreneurs on technological progress.[22] In Schumpeter's Capitalism, Socialism and Democracy, published in 1942, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces "creative destruction" across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Former Federal Reserve chairman Alan Greenspan has described the influence of creative destruction on economic growth as follows: "Capitalism expands wealth primarily through creative destruction—the process by which the cash flow from obsolescent, low-return capital is invested in high-return, cutting-edge technologies."[23]

[edit]Useful work growth theory

Main article: Useful work growth theory
The useful work growth theory, also called the Ayres-Warr model, states that physical and chemical work performed by energy, or more correctly exergy, has historically been the most important driver of economic growth.[6] [24] Key support for this theory is a mathematical model showing that the efficiency of electrical generation is a good proxy for the Solow residual, or technological progress, that is, the portion of economic growth that is not attributable to capital, labor or materials.[25][26]
Useful work theory provides a greatly improved explanation of economic growth over previous production functions. The theory relates the slowing of economic growth to energy conversion efficiencies approaching thermodynamic limits, and cautions that declining resource quality could bring an end to economic growth in a few decades.
The useful work theory is part of a body of economic research and analysis sponsored by the International Institute for Applied Systems Analysis (IIASA) and INSEAD and is cited by the International Energy Agency.[27]

[edit]Inequality and Economic growth

[edit]The Effect of Inequality on Economic Growth

[edit]The Classical Theory

Inequality has a positive effect on economic development. The marginal propensity to save increases with wealth and inequality increases savings, capital accumulation, and economic growth.[28]

[edit]The Neoclassical Theory

The neoclassical theory ignores the relevance of income distribution for macroeconomic analysis. It interprets the observed relationship between inequality and economic growth as a reflection of the growth process on the distribution of income.

[edit]The Modern Theory

The modern theory suggests that income distribution, plays an important role in the determination of aggregate economic activity and economic growth.
The credit market imperfection approach, developed by Galor and Zeira (1993), demonstrates that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development.[29]
The political economy approach, developed by Alesian and Rodrik 1994) and Persson and Tabellini (1994), suggests that inequality is harmful for economic development because inequality generates a pressure to adopt redistributive policies that have an adverse effect on investment and economic growth.[30]

[edit]Evidence

Perotti (1996) examines of the channels through which inequality may affect economic growth. He shows that in accordance with the credit market imperfection approach, inequality is associated with lower level of human capital formation and higher level of fertility, while lower level of human capital is associated with lower growth and lower levels of economic growth. In contrast , his examination of the political economy channel refutes the political economy mechanism. He demonstrates that inequality is associated with lower levels of taxation, while lower levels of taxation, contrary to the theories, are associated with lower level of economic growth[31]

[edit]The Effect of Growth on Inequality

Economist Xavier Sala-i-Martin argues that global income inequality is diminishing,[32] and the World Bank argues that the rapid reduction in global poverty is in large part due to economic growth.[33] The decline in poverty has been the slowest where growth performance has been the worst (i.e. in Africa).[34]

[edit]Finance and Economic Growth

Substantial academic literature and government strategies support the finance-led growth hypothesis, based on an observation first made almost a century ago by Joseph Schumpeter that financial markets significantly boost real economic growth and development. Schumpeter asserted that finance had a positive impact on economic growth as a result of its effects on productivity growth and technological change.[35]As early as 1989 the World Bank also endorsed the view that financial deepening matters for economic growth "by improving the productivity of investment".[36] A number of case studies on Asia and Southern African countries show the positive nexus between development of financial intermediation and economic growth.[citation needed]

[edit]Institutions and Growth

According to Acemoğlu, Johnson and Robinson, the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e.g. those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and geo-political boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts which in turn hinder development. In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large.[37]

[edit]Quality of life

Happiness has been shown to increase with a higher GDP per capita, at least up to a level of $15,000 per person.[38]
Economic growth has the indirect potential to alleviate poverty, as a result of a simultaneous increase in employment opportunities and increase labour productivity.[39] A study by researchers at the Overseas Development Institute (ODI) of 24 countries that experienced growth found that in 18 cases, poverty was alleviated.[39] However, employment is no guarantee of escaping poverty, the International Labour Organisation (ILO) estimates that as many as 40% of workers as poor, not earning enough to keep their families above the $2 a day poverty line.[39] For instance, in India most of the chronically poor are wage earners in formal employment, because their jobs are insecure and low paid and offer no chance to accumulate wealth to avoid risks.[39] This appears to be the result of a negative relationship between employment creation and increased productivity, when a simultaneous positive increase is required to reduced poverty. According to the UNRISD, increasing labour productivity appears to have a negative impact on job creation: in the 1960s, a 1% increase in output per worker was associated with a reduction in employment growth of 0.07%, by the first decade of this century the same productivity increase implies reduced employment growth by 0.54%.[39]
Increases in employment without increases in productivity leads to a rise in the number of "working poor", which is why some experts are now promoting the creation of "quality" and not "quantity" in labour market policies.[39] This approach does highlight how higher productivity has helped reduce poverty in East Asia, but the negative impact is beginning to show.[39] In Viet Nam, for example, employment growth has slowed while productivity growth has continued.[39] Furthermore, productivity increases do not always lead to increased wages, as can be seen in the US, where the gap between productivity and wages has been rising since the 1980s.[39] The ODI study showed that other sectors were just as important in reducing unemployment, as manufacturing.[39] The services sector is most effective at translating productivity growth into employment growth. Agriculture provides a safety net for jobs and economic buffer when other sectors are struggling.[39] This study suggests a more nuanced understanding of economic growth and quality of life and poverty alleviation.

[edit]Negative effects of economic growth

A number of critical arguments have been raised against economic growth.[40]
It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living.[41] Historically, sustained growth has reached its limits (and turned to catastrophic decline) when perturbations to the environmental system last long enough to destabilise the bases of a culture.[41]

[edit]Consumerism

Growth may lead to consumerism by encouraging the creation of what some regard as artificial needs: Industries cause consumers to develop new taste, and preferences for growth to occur. Consequently, "wants are created, and consumers have become the servants, instead of the masters, of the economy."[40]

[edit]Resource depletion

Many earlier predictions of resource depletion, such as Thomas Malthus' 1798 predictions about approaching famines in Europe, The Population Bomb (1968),[42][43][44] Limits to Growth (1972),[42][43][44] and the Simon–Ehrlich wager (1980) [45] did not materialize, nor has diminished production of most resources occurred so far, one reason being that advancements in technology and science have allowed some previously unavailable resources to be produced.[45] In the case of the limited resource of land, famine was relieved firstly by the revolution in transportation caused by railroads and steam ships, and later by the Green Revolution and chemical fertilizers, especially the Haber processfor ammonia synthesis.[46][47] In the case of minerals, lower grades of mineral resources are being extracted, requiring higher inputs of capital and energy for both extraction and processing.[48] An example is natural gas from shale and other low permeability rock, which can be developed with much higher inputs of energy, capital and materials than conventional gas in previous decades. Another example is offshore oil and gas, which has exponentially increasing cost as water depth increases.
Also, physical limits may be very large if considering all the minerals in the planet Earth or all possible resources from space colonization, such as solar power satellites, asteroid mining, or a Dyson sphere. The book Mining the Sky: Untold Riches from the Asteroids, Comets, and Planets provides an alternative example of such arguments. However, critics say that these proposals have no realistic plan of implementation and would suffer from prohibitively high energy and capital cost.
Depletion and declining production from old resources can occur before replacement resources are developed. This is, in part, the logical basis of the Peak Oil theory, about which recent discussion on www.theoildrum.com [1] raises the possibility that peak oil may have already occurred.

[edit]Environmental impact

Some critics[who?] argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources.[49] Other critics draw on archaeology to cite examples of cultures they claim have disappeared because they grew beyond the ability of their ecosystems to support them.[50] Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the ideas of uneconomic growth andde-growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them.
Canadian scientist, David Suzuki stated in the 1990s that ecologies can only sustain typically about 1.5-3% new growth per year, and thus any requirement for greater returns from agriculture or forestry will necessarily cannibalize the natural capital of soil or forest.[citation needed]Some think this argument can be applied even to more developed economies.[citation needed]
Those more optimistic about the environmental impacts of growth believe that, although localized environmental effects may occur, large scale ecological effects are minor. The argument as stated by commentators Julian Lincoln Simon states that if these global-scale ecological effects exist, human ingenuity will find ways of adapting to them.[51]

[edit]Equitable growth

While acknowledging the central role economic growth can potentially play in human development, poverty reduction and the achievement of the Millennium Development Goals, it is becoming widely understood amongst the development community that special efforts must be made to ensure poorer sections of society are able to participate in economic growth.[52] For instance, with low inequality a country with a growth rate of 2% per head and 40% of its population living in poverty, can halve poverty in ten years, but a country with high inequality would take nearly 60 years to achieve the same reduction.[53] In the words of the Secretary General of the United Nations Ban Ki-Moon:

"While economic growth is necessary, it is not sufficient for progress on reducing poverty."[52]

Researchers at the Overseas Development Institute compares situations such as in Uganda, where during a period of annual growth of 2.5% between 2000 and 2003, the percentage of people living in poverty actually increased by 3.8%.[52] The ODI thus emphasises the need to ensure social protection is extended to allow universal access and that policies are introduced to encourage the private sector to create new jobs as the economy grows (as opposed to jobless growth) and seek to employ people from disadvantaged groups.[52]

[edit]Implications of global warming

see Economics of global warming

Up to the present there are close correlations of economic growth with carbon dioxide emissions across nations, although there is also a considerable divergence in carbon intensity (carbon emissions per GDP).[54] The Stern Review notes that the prediction that "under business as usual, global emissions will be sufficient to propel greenhouse-gas concentrations to over 550ppm CO2e by 2050 and over 650-700ppm by the end of this century is robust to a wide range of changes in model assumptions". The scientific consensus is that planetary ecosystem functioning without incurring dangerous risks requires stabilization at 450-550ppm.[55]
As a consequence, growth oriented environmental economists propose massive government intervention into switching sources of energy production, favouring wind, solar, hydroelectric and nuclear. This would largely confine use of fossil fuels to either domestic cooking needs (such as for kerosene burners) or where carbon capture and storage technology can be cost-effective and reliable.[56] The Stern Review, published by the United Kingdom Government in 2006, concluded that an investment of 1% of GDP per annum would be sufficient to avoid the worst effects of climate change, and that failure to do so could risk global GDP being 20% lower than it otherwise might be. Because carbon capture and storage is as yet widely unproven, and its long term effectiveness (such as in containing carbon dioxide 'leaks') unknown, and because of current costs of alternative fuels these policy responses largely rest on faith on technological change.
On the other hand, Nigel Lawson claimed that people in a hundred years' time would be "seven times as well off as we are today", therefore it is not reasonable to impose sacrifices on the "much poorer present generation".[57]

[edit]Before and after financial crisis

Before financial crisis Global economies growth is 5.2% at 2007 and drops significantly to 0.6% at 2009. Forecast for 2011 of Global economies growth is only 4.3% and it means Global economies growth is still below the number before the financial crisis.[58]

Growth in percent

2007

2008

2009

2010

2011

Global economies

5.2

3.0

0.6

4.2

4.3

Advanced economies

0.5

-3.2

2.3

Emerging and Developing economies

6.1

2.4

6.3

Note: Year 2010 and 2011 as per IMF forecast - April 2010

[edit]Prominent growth economists


[edit]See also


[edit]References

  1. ^ Gregory Clark, A Farewell to Alms, a Brief Economic History of the World, Princeton University Press, 2007, page 52
  2. ^ Gregory Clark, A Farewell to Alms, a Brief Economic History of the World, Princeton University Press, 2007
  3. ^ Spitz, Pierre (1987)"The Green Revolution Re-Examined in India in Glass". In Glaeser, Bernhard. The Green Revolution revisited: critique and alternatives. Allen & Unwin. pp. 57–75. ISBN 0-04-630014-7
  4. ^ Gregory Clark, A Farewell to Alms, a Brief Economic History of the World, Princeton University Press, 2007, pages 245-246 and Figure 12.8.
  5. ^ Lawrence H. Officer, "What Was the U.K. GDP Then?" MeasuringWorth, 2011. URL:http://www.measuringworth.com/ukgdp/
  6. ^ a b Ayres, Robert U.; Warr, Benjamin (2004). Accounting for Growth: The Role of Physical Work
  7. ^ Grubler, Arnulf (1990). The Rise and Fall of Infrastructures
  8. ^ Wells, David A. (1890). Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society. New York: D. Appleton and Co.. ISBN 0543724743.
  9. ^ Beaudreau, Bernard C. (1996). Mass Production, the Stock Market Crash and the Great Depression. New York, Lincoln, Shanghi: Authors Choice Press.
  10. ^ Moore, Stephen; Simon, Julian (Dec. 15, 1999). The Greatest Century That Ever Was: 25 Miraculous Trends of the last 100 Years, The Cato Institute: Policy Analysis, No. 364Diffusion curves for various innovations start at Fig. 14
  11. ^ Ibn Khaldun, Muqaddimah, 2:272-73, quoted in Dieter Weiss (1995), "Ibn Khaldun on Economic Transformation", International Journal of Middle East Studies 27 (1), p. 29-37 [30].
  12. ^ East India Companyhttp://en.wikipedia.org/wiki/East_India_Company
  13. ^ An Inquiry into the Nature and Causes of the Wealth of Nationshttp://econlib.org/library/Smith/smWN.html
  14. ^ The Theory of Comparative Advantagehttp://internationalecon.com/Trade/Tch40/T40-0.php
  15. ^ Robert M. Solow (1956), "A Contribution to the Theory of Economic Growth," Quarterly Journal of Economics, 70(1), p p. 65-94.
  16. ^ Trevor W. Swan (1956). "Economic Growth and Capital Accumulation', Economic Record, 32, pp. 334–61.
  17. ^ Romer, 1986
  18. ^ Lucas, 1988
  19. ^ Elhanah Helpman, The Mystery of Economic Growth, Havard University Press, 2004.
  20. ^ Galor O., 2005, From Stagnation to Growth: Unified Growth Theory. Handbook of Economic Growth, Elsevier
  21. ^ Paul Rosenstein-Rodan[specify]
  22. ^ a b "Economic growth." Encyclopædia Britannica. 2008.Encyclopædia Britannica 2006 Ultimate Reference Suite DVD. 14 June 2008.
  23. ^ Greenspan, Alan (May 3, 2002). "Stock Options and Related Matters". The Federal Reserve Board. Retrieved June 23, 2009.
  24. ^ Ayres, Robert U.; Warr, Benjamin (2006). Economic growth, technological progress and energy use in the U.S. over the last century: Identifying common trends and structural change in macroeconomic time series, INSEAD
  25. ^ Ayres, R. U.; Ayres, L. W.; Warr, B. (2002). Exergy, Power and Work in the U. S. Economy 1900-1998, Insead's Center For the Management of Environmental Resources, 2002/52/EPS/CMER
  26. ^ Ayres, Robert; Warr, Banjamin. The Economic Growth Engine: How Energy and Work Drive Material Prosperity (The International Institute for Applied Systems Analysis). Edward Elgar Publishing; Reprint edition (October 31, 2010). ISBN 1849804354.
  27. ^ International Energy Agency (2004). World Energy Outlook 2004<Chapter 10>
  28. ^ Kaldor, Nicoals, 1955, Alternative Theories of Distribution," Review of Economic Studies, 23(2), 83-100.
  29. ^ Galor, Oded and Joseph Zeira, 1993, "Income Distribution and Macroeconomics," Review of Economic Studies, 60(1), 35-52.
  30. ^ Alesina, Alberto and Dani Rodrik, 1994. "Distributive Politics and Economic Growth," Quarterly Journal of Economics, 109(2), 65-90; Persson, Torsten and Guido Tabellini, 1994, "Is Inequality Harmful for Growth?" American Economic Review 84(3), 600-621.
  31. ^ Perotti, Roberto, 1996, "Growth, Income Distribution, and Democracy: What the Data Say" Journal of Economic Growth, 1(2), 149-187.
  32. ^ Global Inequality Fades as the Global Economy Grows Xavier Sala-i-Martin. 2007 Index of Economic Freedom.
  33. ^ Poverty, Growth, and Inequality World Bank
  34. ^ Fischer, Stanley. "Globalization and Its Challenges." American Economic Review May 2003, p.13.
  35. ^ Schumpeter, Joseph A. "The theory of Economic Development", 1912, translated by Redvers Opie. Cambridge. MA: Harvard University Press, 1934.
  36. ^ World Bank, World Development Report, Washington DC, 1989, 9. 30.
  37. ^ Daron Acemoğlu, Simon Johnson and James A. Robinson.The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review 91(5): 1369-401. 2001.
  38. ^ In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? The Cato institute. April 11, 2007
  39. ^ a b c d e f g h i j k Claire Melamed, Renate Hartwig and Ursula Grant 2011. Jobs, growth and poverty: what do we know, what don't we know, what should we know? London: Overseas Development Institute
  40. ^ a b Case, K.E., and Fair, R.C. 2006. Principles of Macroeconomics. Prentice Hall. ISBN 0-13-222645-6, ISBN 978-0-13-222645-5.
  41. ^ a b Beddoe, R.; Costanza, R.; Farley, J.; Garza, E.; Kent, J.; Kubiszewski, I.; Martinez, L.; Mccowen, T. et al.; Costanza, R; Farley, J; Garza, E; Kent, J; Kubiszewski, I; Martinez, L; Mccowen, T; Murphy, K; Myers, N; Ogden, Z; Stapleton, K; Woodward, J (Feb 2009). "Overcoming systemic roadblocks to sustainability: the evolutionary redesign of worldviews, institutions, and technologies" (Free full text). Proceedings of the National Academy of Sciences of the United States of America 106 (8): 2483–2489. doi:10.1073/pnas.0812570106. ISSN 0027-8424.PMC 2650289. PMID 19240221. edit
  42. ^ a b "Chapter 17: Growth and Productivity-The Long-Run Possibilities". Oswego.edu. 1999-06-10. Retrieved 2010-12-22.
  43. ^ a b Ronald Bailey (2004-02-04). "Science and Public Policy - Reason Magazine". Reason.com. Retrieved 2010-12-22.
  44. ^ a b Hayward, Steven F.. "That Old Time Religion". AEI. Retrieved 2010-12-22.
  45. ^ a b http://www.wired.com/wired/archive/5.02/ffsimon_pr.html
  46. ^ Wells, David A. (1891). Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society. New York: D. Appleton and Co..ISBN 0543724743.Opening line of the Preface.
  47. ^ Smil, Vaclav (2004). Enriching the Earth: Fritz Haber, Carl Bosch, and the Transformation of World Food Production. MIT Press.ISBN 0262693135.
  48. ^ Hall, Charles A.S.; Cleveland, Cutler J.; Kaufmann, Robert (1992). Energy and Resource Quality: The ecology of the Economic Process. Niwot, Colorado: University Press of Colorado.
  49. ^ Donella H. Meadows, Jorgen Randers, Dennis L. Meadows. Limits to Growth: The 30-Year Update. White River Junction, Vermont : Chelsea Green, 2004. See also Allan Schnaiberg. The Environment: From Surpus to Scarcity. New York: Oxford University Press.
  50. ^ Jared Diamond. Collapse: How Societies Choose to Fail or Succeed. Penguin, 2006.
  51. ^ The Ultimate Resource, Julian Simon
  52. ^ a b c d Claire Melamed, Kate Higgins and Andy Sumner (2010)http://www.odi.org.uk/resources/details.asp?id=4892&title=millennium-development-goals-equitable-growth-policy-brief Economic growth and the MDGs] Overseas Development Institute
  53. ^ Ravallion, M. (2007) Inequality is bad for the poor in S. Jenkins and J. Micklewright, (eds.) Inequality and Poverty Re-examined, Oxford University Press, Oxford.
  54. ^ Stern Review, Part III Stabilization. Table 7.1 p. 168
  55. ^ Stern Review Economics of Climate Change. Part III Stabilization p.183
  56. ^ Jaccard, M. 2005 Sustainable Fossil Fuels. Cambridge University Press.
  57. ^ "Examination of Witnesses (Questions 32-39)". 16 May 2007. Retrieved 2007-11-29.
  58. ^ "Reserve Bank of India". Rbi.org.in. Retrieved 2010-12-22.

[edit]Further reading

  • Barro, Robert J. 1997. Determinants of Economic Growth: A Cross-Country Empirical Study. MIT Press: Cambridge, MA.
  • Erber, Georg, and Harald Hagemann, Growth, Structural Change, and Employment, in: Frontiers of Economics, Ed. Klaus F. Zimmermann, Springer-Verlag, Berlin – Heidelberg – New York, 2002, 269–310.
  • Foley, Duncan K. 1999. Growth and Distribution. Harvard University Press: Cambridge, MA.
  • Galor, Oded. 2005. From Stagnation to Growth: Unified Growth Theory. Handbook of Economic Growth, Elsevier.
  • Garrison, Roger. 1998 Time and Money
  • Hamilton, Clive 2002. Growth Fetish.
  • Jones, Charles I. 2002. Introduction to Economic Growth. 2nd ed. W. W. Norton & Company: New York, N.Y.
  • Kirzner, Israel. 1973. Competition and Entrepreneurship
  • Lucas, Robert E., Jr., "The Industrial Revolution: Past and Future," Federal Reserve Bank of Minneapolis, Annual Report (2003) online edition
  • Mises, Ludwig E. 1949 Human Action 1998 reprint by the Mises Institute
  • Schumpeter, Jospeph A. 1912. The Theory of Economic Development 1982 reprint, Transaction Publishers
  • Schumpeter, Jospeph A. 1942. Capitalism, Socialism, and Democracy Harper Perennial
  • Weil, David N. 2008. Economic Growth. 2nd ed. Addison Wesley.
  • Weber, Lars 2010: Demographic Change and Economic Growth - Simulation on Growth Models Physica. ISBN 978-3-7908-2589-3

[edit]External links

[edit]Articles and lectures


[edit]Data


http://www.indiainfoline.com/Markets/News/Economics-for-Everyone-Evaluating-Economic-Growth/4675439076
Categories: Economic growth | Welfare economics | Macroeconomics | Economic indicators | Economics terminology


Anna Hazare says govt's intentions over Lokpal Bill 'not good'

PUNE: An unrelenting Anna Hazare again chided the government, putting a question mark on its intentions in pursuing the course of a strong Lokpal Bill and charted out a programme of agitation for youths in the country as a run-up to his proposed indefinite fast in Delhi from August 16.

Stating that the government was opposing the draft amendments submitted by his team in an effort to dilute the authority of the anti-corruption ombudsman, Hazare said, "An effort was made to defame the members of civil society on the joint draft committee for the Lokpal Bill and the government has activated its machinery to hound me."

"The intentions of the government are not good and they do not appear sincere in their approach to enact a law that would institute a strong and independent Lokpal to curb the menace of corruption eating into the social fabric," he added.

Asking the youths to prepare themselves for the agitation ahead, Hazare, addressing a public function here, urged them to undertake 'Prabhat Pheris' in the morning and candle light marches in the evening from August 11, culminating into an hour long switching off electricity from 8 pm to 9 pm on the Independence Day (15 August) to "create a positive atmosphere" ahead of his proposed fast-unto-death to press for a strong Lokpal bill from August 16.

"Raise the slogan of 'Bharat Mata Ki Jai' and 'Inquilab Zindabad' and carry the tricolour on your shoulders during the processions from August 11. The government is not afraid of Anna Hazare. It is afraid of the power of people behind him which is supreme," he asserted speaking to a packed auditorium even as hundreds listened to him on big screens put up outside.

Earlier, Kiran Bedi, member of the Civil Society, spearheading the anti-corruption agitation under Hazare's leadership, who delivered the Prakash Kardaley memorial lecture on the occasion, criticised the government draft of the Bill saying it would not benefit the common man harassed by corruption in all walks of life.

"If you are fearless, you will get the Lokpal of Anna's vision and if you are afraid, you will get the government's Lokpal (with diluted authority)," she said.

Not holding government to ransom with fasts, says Bhushan

The government is not being held to ransom with fasts , an activist and civil society member of the Lokpal bill drafting panel said Friday, adding that they are ready for talks.

"This is not about holding the government to ransom with fasts. If the government wants to talk about anything that is being disagreed upon, we would definitely like to talk to them," Prashant Bhushan , lawyer and member of the Lokpal bill drafting committee, told media on Friday.

His statement comes a day after Gandhian Anna Hazare announced he would go on indefinite fast from Aug 16 following the open disagreements in the talks between the government and the civil society representatives.

After six rounds of talks (the civil society boycotted the June 6 meeting), Hazare accused the government of cheating the civil society that has campaigned for a strong Lokpal, or Ombudsman, while ministers accused the anti-corruption crusader of trying to set up "a parallel government".

"You cannot crate a parallel government outside the government which controls every activity which relates to the government," Human Resource Development Minister Kapil Sibal , one of the five ministers on the panel on Lokpal bill drafting, said Thursday.

Bhushan Friday said:"We are not making a parallel government. We are just putting pressure on the government on something that the people of India want".

Both the sides have left the issue on the hope that the bill, as they mutually agreed, will be presented in parliament June 30.

"We find fast as an effective way right now. Hunger strike will be continued. Let's see if it works or not," added Bhushan.

After Hazare's April 5-9 hunger strike, which evoked wide public support across India, the government set up a 10-member panel - with five representatives each from both sides - to draft an effective Lokpal bill to curb corruption in high places.

The government does not agree with the civil society members' demands that the prime minister and the higher judiciary should be brought within the ambit of the Lokpal.

There are also fundamental differences about the structure of the Lokpal institution and how it should function.

Telangana crisis: Telangana Congress leaders to hold 'extended' meeting on July 18

HYDERABAD: Telangana Congress leaders, who have intensified their agitation for a separate state after submitting en masse resignations, will on July 18 hold an extended meeting here, to discuss their future strategy.

"We will hold an extended meeting of Telangana Congress public representatives and others on July 18. We will discuss the issue threadbare and decide the future course of action," Congress MP Gutta Sukhender Reddy told reporters tonight after a meeting of the Congress leaders from the region here.

Talking about the meeting called by Andhra Pradesh Congress president Botsa Satyanarayana with the Telangana Congress MPs tonight, he said they would ask him to convey their concerns to the party leadership.

After quitting their posts en masse earlier this month, in support of a separate statehood demand, the Telangana Congress leaders held a two-day fast here to highlight their cause.

They indicated that they will have to undertake the agitation with others, if no concrete response came from the Centre by the end of this month

-- 

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Agriculture

From Wikipedia, the free encyclopedia
Maler der Grabkammer des Sennudem 001.jpg
Agriculture
General
Agribusiness · Agricultural science
Agronomy · Animal husbandry
Extensive farming
Factory farming · Free range
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Organic farming · Permaculture
Sustainable agriculture
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History
History of agriculture
Arab Agricultural Revolution
British Agricultural Revolution
Green Revolution
Neolithic Revolution
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Farmer plowing.jpg Agropedia portal
v · d · e

Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life.[1] Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development ofcivilization. The study of agriculture is known as agricultural science. Agriculture is also observed in certain species of ant and termite,[2][3] but generally speaking refers to human activities.

The history of agriculture dates back thousands of years, and its development has been driven and defined by greatly different climates, cultures, and technologies. However, all farming generally relies on techniques to expand and maintain the lands suitable for raising domesticated species. For plants, this usually requires some form of irrigation, although there are methods of dryland farming; pastoral herding onrangeland is still the most common means of raising livestock. In the developed world, industrial agriculturebased on large-scale monoculture has become the dominant system of modern farming, although there is growing support for sustainable agriculture (e.g. permaculture or organic agriculture).

Modern agronomy, plant breeding, pesticides and fertilizers, and technological improvements have sharply increased yields from cultivation, but at the same time have caused widespread ecological damage and negative human health effects.[4] Selective breeding and modern practices in animal husbandry such asintensive pig farming have similarly increased the output of meat, but have raised concerns about animal cruelty and the health effects of the antibiotics, growth hormones, and other chemicals commonly used in industrial meat production.[5]

The major agricultural products can be broadly grouped into foods, fibers, fuels, and raw materials. In the 21st century, plants have been used to grow biofuels, biopharmaceuticals, bioplastics,[6] and pharmaceuticals.[7] Specific foods include cereals, vegetables, fruits, and meat. Fibers include cotton, wool,hemp, silk and flax. Raw materials include lumber and bamboo. Other useful materials are produced by plants, such as resins. Biofuels include methane from biomass, ethanol, and biodiesel. Cut flowers, nursery plants, tropical fish and birds for the pet trade are some of the ornamental products.

In 2007, one third of the world's workers were employed in agriculture. The services sector has overtaken agriculture as the economic sector employing the most people worldwide.[8] Despite the size of its workforce, agricultural production accounts for less than five percent of the gross world product (an aggregate of all gross domestic products).

Contents

 [hide]

[edit]Etymology

The word agriculture is the English adaptation of Latin agricultūra, from ager, "a field",[9] and cultūra, "cultivation" in the strict sense of "tillageof the soil".[10] Thus, a literal reading of the word yields "tillage of a field / of fields".

[edit]Overview

Clark's Sector Model (1950): The percent of the human population working in primary sector activities such as agriculture has decreased over time.

Agriculture has played a key role in the development of human civilization. Until theIndustrial Revolution, the vast majority of the human population labored in agriculture. The type of agriculture they developed was typically subsistence agriculture in which farmers raised most of their crops for consumption on farm, and there was only a small portion left over for the payment of taxes, dues, or trade. In subsistence agriculture cropping decisions are made with an eye to what the family needs for food, and to make clothing, and not the world marketplace. Development of agricultural techniques has steadily increased agricultural productivity, and the widespread diffusion of these techniques during a time period is often called anagricultural revolution. A remarkable shift in agricultural practices has occurred over the past century in response to new technologies, and the development of world markets. This also led to technological improvements in agricultural techniques, such as the Haber-Bosch method for synthesizing ammonium nitrate which made the traditional practice of recycling nutrients with crop rotation and animal manureless necessary.

Synthetic nitrogen, along with mined rock phosphate, pesticides and mechanization, have greatly increased crop yields in the early 20th century. Increased supply of grains has led to cheaper livestock as well. Further, global yield increases were experienced later in the 20th century when high-yield varieties of common staple grains such as rice, wheat, and corn (maize) were introduced as a part of the Green Revolution. The Green Revolution exported the technologies (including pesticides and synthetic nitrogen) of the developed world to the developing world. Thomas Malthus famously predicted that the Earth would not be able to support its growing population, but technologies such as the Green Revolution have allowed the world to produce a surplus of food.[11]

Many governments have subsidized agriculture to ensure an adequate food supply. These agricultural subsidies are often linked to the production of certain commodities such as wheat, corn (maize), rice, soybeans, and milk. These subsidies, especially when instituted bydeveloped countries have been noted as protectionist, inefficient, and environmentally damaging.[12]

In the past century agriculture has been characterized by enhanced productivity, the use of synthetic fertilizers and pesticides, selective breeding, mechanization, water contamination, and farm subsidies. Proponents of organic farming such as Sir Albert Howard argued in the early 20th century that the overuse of pesticides and synthetic fertilizers damages the long-term fertility of the soil. While this feeling lay dormant for decades, as environmental awareness has increased in the 21st century there has been a movement towards sustainable agriculture by some farmers, consumers, and policymakers.

In recent years there has been a backlash against perceived external environmental effects of mainstream agriculture, particularly regarding water pollution,[13] resulting in the organic movement. One of the major forces behind this movement has been the European Union, which first certified organic food in 1991 and began reform of its Common Agricultural Policy (CAP) in 2005 to phase out commodity-linked farm subsidies,[14] also known as decoupling. The growth of organic farming has renewed research in alternative technologies such as integrated pest management and selective breeding. Recent mainstream technological developments include genetically modified food.

In late 2007, several factors pushed up the price of grains consumed by humans as well as used to feed poultry and dairy cows and other cattle, causing higher prices of wheat (up 58%), soybean (up 32%), and maize (up 11%) over the year.[15][16] Food riots took place in several countries across the world.[17][18][19] Contributing factors included drought in Australia and elsewhere, increasing demand for grain-fed animal products from the growing middle classes of countries such as China and India, diversion of foodgrain to biofuel production and trade restrictions imposed by several countries.

An epidemic of stem rust on wheat caused by race Ug99 is currently spreading across Africa and into Asia and is causing major concern.[20][21][22] Approximately 40% of the world's agricultural land is seriously degraded.[23] In Africa, if current trends of soil degradation continue, the continent might be able to feed just 25% of its population by 2025, according to UNU's Ghana-based Institute for Natural Resources in Africa.[24]

[edit]History

Main article: History of agriculture
A Sumerian harvester's sickle made from baked clay (ca. 3000 BC).

Agricultural practices such as irrigation, crop rotation, fertilizers, and pesticides were developed long ago, but have made great strides in the past century. The history of agriculture has played a major role in human history, as agricultural progress has been a crucial factor in worldwide socio-economic change. Division of labor in agricultural societies made commonplace specializations rarely seen in hunter-gatherer cultures. So, too, are arts such as epic literature and monumental architecture, as well as codified legal systems. When farmers became capable of producing food beyond the needs of their own families, others in their society were freed to devote themselves to projects other than food acquisition. Historians and anthropologists have long argued that the development of agriculture made civilization possible. The total world population probably never exceeded 15 million inhabitants before the invention of agriculture.[25]

[edit]Ancient origins

Further information: Neolithic Revolution

The Fertile Crescent of Western Asia, Egypt, and India were sites of the earliest planned sowing and harvesting of plants that had previously been gathered in the wild. Independent development of agriculture occurred in northern and southern China, Africa's Sahel, New Guinea and several regions of the Americas.[26] The eight so-called Neolithic founder crops of agriculture appear: first emmer wheat and einkorn wheat, then hulled barley, peas, lentils, bitter vetch, chick peas and flax.

By 7000 BC, small-scale agriculture reached Egypt. From at least 7000 BC the Indian subcontinent saw farming of wheat and barley, as attested by archaeological excavation at Mehrgarh in Balochistan in what is present day Pakistan. By 6000 BC, mid-scale farming was entrenched on the banks of the Nile. This, as irrigation had not yet matured sufficiently. About this time, agriculture was developed independently in the Far East, with rice, rather than wheat, as the primary crop. Chinese and Indonesian farmers went on to domesticate taroand beans including mung, soy and azuki. To complement these new sources of carbohydrates, highly organized net fishing of rivers, lakes and ocean shores in these areas brought in great volumes of essential protein. Collectively, these new methods of farming and fishing inaugurated a human population boom that dwarfed all previous expansions and continues today.

By 5000 BC, the Sumerians had developed core agricultural techniques including large-scale intensive cultivation of land, monocropping, organized irrigation, and the use of a specialized labor force, particularly along the waterway now known as the Shatt al-Arab, from itsPersian Gulf delta to the confluence of the Tigris and Euphrates. Domestication of wild aurochs and mouflon into cattle and sheep, respectively, ushered in the large-scale use of animals for food/fiber and as beasts of burden. The shepherd joined the farmer as an essential provider for sedentary and seminomadic societies. Maize, manioc, and arrowroot were first domesticated in the Americas as far back as 5200 BC.[27]

The potato, tomato, pepper, squash, several varieties of bean, tobacco, and several other plants were also developed in the Americas, as was extensive terracing of steep hillsides in much of Andean South America. The Greeks and Romans built on techniques pioneered by the Sumerians, but made few fundamentally new advances. Southern Greeks struggled with very poor soils, yet managed to become a dominant society for years. The Romans were noted for an emphasis on the cultivation of crops for trade.

In the same region, a parallel agricultural revolution occurred, resulting in some of the most important crops grown today. In Mesoamerica wild teosinte was transformed through human selection into the ancestor of modern maize, more than 6000 years ago. It gradually spread across North America and was the major crop of Native Americans at the time of European exploration.[28] Other Mesoamerican crops include hundreds of varieties of squash and beans. Cocoa was also a major crop in domesticated Mexico and Central America. The turkey, one of the most important meat birds, was probably domesticated in Mexico or the U.S. Southwest. In the Andes region of South America the major domesticated crop was potatoes, domesticated perhaps 5000 years ago. Large varieties of beans were domesticated, in South America, as well as animals, including llamas, alpacas, and guinea pigs. Coca, still a major crop, was also domesticated in the Andes.

A minor center of domestication, the indigenous people of the Eastern U.S. appear to have domesticated numerous crops. Sunflowers,tobacco,[29] varieties of squash and Chenopodium, as well as crops no longer grown, including marshelder and little barley were domesticated.[30][31] Other wild foods may have undergone some selective cultivation, including wild rice and maple sugar. The most common varieties of strawberry were domesticated from Eastern North America.[32]

By 3500 BC, the simplest form of the plough was developed, called the ard.[33] Before this period, simple digging sticks or hoes were used. These tools would have also been easier to transport, which was a benefit as people only stayed until the soil's nutrients were depleted. However, through excavations in Mexico it has been found that the continuous cultivating of smaller pieces of land would also have been a sustaining practice. Additional research in central Europe later revealed that agriculture was indeed practiced at this method. For this method, ards were thus much more efficient than digging sticks.[34]

[edit]Middle Ages

Wiki letter w cropped.svg This section requires expansion.

During the Middle Ages, farmers in North Africa, the Near East, and Europe began making use of agricultural technologies including irrigation systems based on hydraulic and hydrostatic principles, machines such as norias, water-raising machines, dams, and reservoirs. This combined with the invention of a three-field system of crop rotation and the moldboard plow greatly improved agricultural efficiency.

In the European medieval period, agriculture was considered part of the set of seven mechanical arts.

[edit]Modern era

Further information: British Agricultural Revolution and Green Revolution
The Harvesters. Pieter Bruegel. 1565.
This photo from a 1921 encyclopedia shows a tractor ploughing an alfalfa field.
Satellite image of farming in Minnesota.
Infrared image of the above farms. To the untrained eye, this image appears a hodge-podge of colours without any apparent purpose. But farmers are now trained to see yellows where crops are infested, shades of red indicating crop health, black where flooding occurs, and brown where unwanted pesticides land on chemical-free crops.[citation needed]

After 1492, a global exchange of previously local crops and livestock breeds occurred. Key crops involved in this exchange included the tomato, maize, potato, manioc, cocoa bean and tobaccogoing from the New World to the Old, and several varieties of wheat, spices, coffee, and sugar cane going from the Old World to the New. The most important animal exportation from the Old World to the New were those of the horse and dog (dogs were already present in the pre-Columbian Americas but not in the numbers and breeds suited to farm work). Although not usually food animals, the horse (including donkeys and ponies) and dog quickly filled essential production roles on western-hemisphere farms.

The potato became an important staple crop in northern Europe.[35] Since being introduced by Portuguese in the 16th century,[36] maize and manioc have replaced traditional African crops as the continent's most important staple food crops.[37]

By the early 19th century, agricultural techniques, implements, seed stocks and cultivar had so improved that yield per land unit was many times that seen in the Middle Ages. Although there is a vast and interesting history of crop cultivation before the dawn of the 20th century, there is little question that the work of Charles Darwin and Gregor Mendel created the scientific foundation for plant breeding that led to its explosive impact over the past 150 years.[38]

With the rapid rise of mechanization in the late 19th century and the 20th century, particularly in the form of the tractor, farming tasks could be done with a speed and on a scale previously impossible. These advances have led to efficiencies enabling certain modern farms in the United States, Argentina, Israel, Germany, and a few other nations to output volumes of high-quality produce per land unit at what may be the practical limit.

The Haber-Bosch method for synthesizing ammonium nitrate represented a major breakthrough and allowed crop yields to overcome previous constraints. In the past century agriculture has been characterized by enhanced productivity, the substitution of synthetic fertilizers and pesticides for labor, water pollution, and farm subsidies. In recent years there has been a backlash against theexternal environmental effects of conventional agriculture, resulting in the organic movement.

The cereals rice, corn, and wheat provide 60% of human food supply.[39] Between 1700 and 1980, "the total area of cultivated land worldwide increased 466%" and yields increased dramatically, particularly because of selectively bred high-yielding varieties, fertilizers, pesticides, irrigation, and machinery.[39] For example, irrigation increased corn yields in eastern Colorado by 400 to 500% from 1940 to 1997.[39]

However, concerns have been raised over the sustainability of intensive agriculture. Intensive agriculture has become associated with decreased soil quality in India and Asia, and there has been increased concern over the effects of fertilizers and pesticides on the environment, particularly as population increases and food demand expands. The monocultures typically used in intensive agriculture increase the number of pests, which are controlled through pesticides.Integrated pest management (IPM), which "has been promoted for decades and has had some notable successes" has not significantly affected the use of pesticides because policies encourage the use of pesticides and IPM is knowledge-intensive.[39]

Although the "Green Revolution" significantly increased rice yields in Asia, yield increases have not occurred in the past 15–20 years.[40] The genetic "yield potential" has increased for wheat, but the yield potential for rice has not increased since 1966, and the yield potential for maize has "barely increased in 35 years".[40] It takes a decade or two for herbicide-resistant weeds to emerge, and insects become resistant to insecticides within about a decade.[40] Crop rotation helps to prevent resistances.[40]

Agricultural exploration expeditions, since the late 19th century, have been mounted to find new species and new agricultural practices in different areas of the world. Two early examples of expeditions include Frank N. Meyer's fruit- and nut-collecting trip to China and Japan from 1916-1918[41] and the Dorsett-Morse Oriental Agricultural Exploration Expedition to China, Japan, and Korea from 1929-1931 to collect soybean germplasm to support the rise in soybean agriculture in the United States.[42]

In 2009, the agricultural output of China was the largest in the world, followed by the European Union, India and the United States, according to the International Monetary Fund (see below). Economists measure the total factor productivity of agriculture and by this measure agriculture in the United States is roughly 2.6 times more productive than it was in 1948.[43]

Six countries - the US, Canada, France, Australia, Argentina and Thailand - supply 90% of grain exports.[44] Water deficits, which are already spurring heavy grain imports in numerous middle-sized countries, including Algeria, Iran, Egypt, and Mexico,[45] may soon do the same in larger countries, such as China or India.[46]

[edit]Crop production systems

Farmers work inside a rice field inAndhra Pradesh, India.
Workers tending crop fields off of the highway from Dharwad to Hampi.
Banaue Rice Terraces, Ifugao Province,Philippines

Cropping systems vary among farms depending on the available resources and constraints; geography and climate of the farm; government policy; economic, social and political pressures; and the philosophy and culture of the farmer.[47][48] Shifting cultivation (or slash and burn) is a system in which forests are burnt, releasing nutrients to support cultivation of annual and thenperennial crops for a period of several years.[49]

Then the plot is left fallow to regrow forest, and the farmer moves to a new plot, returning after many more years (10-20). This fallow period is shortened if population density grows, requiring the input of nutrients (fertilizer or manure) and some manual pest control. Annual cultivation is the next phase of intensity in which there is no fallow period. This requires even greater nutrient and pest control inputs.

Further industrialization lead to the use of monocultures, when one cultivar is planted on a large acreage. Because of the low biodiversity, nutrient use is uniform and pests tend to build up, necessitating the greater use of pesticides and fertilizers.[48] Multiple cropping, in which several crops are grown sequentially in one year, and intercropping, when several crops are grown at the same time are other kinds of annual cropping systems known as polycultures.[49]

In tropical environments, all of these cropping systems are practiced. In subtropical and aridenvironments, the timing and extent of agriculture may be limited by rainfall, either not allowing multiple annual crops in a year, or requiring irrigation. In all of these environments perennial crops are grown (coffee, chocolate) and systems are practiced such as agroforestry. In temperateenvironments, where ecosystems were predominantly grassland or prairie, highly productive annual cropping is the dominant farming system.[49]

The last century has seen the intensification, concentration and specialization of agriculture, relying upon new technologies of agricultural chemicals (fertilizers and pesticides), mechanization, and plant breeding (hybrids and GMO's). In the past few decades, a move towards sustainability in agriculture has also developed, integrating ideas of socio-economic justice and conservation of resources and the environment within a farming system.[50][51] This has led to the development of many responses to the conventional agriculture approach, including organic agriculture, urban agriculture, community supported agriculture, ecological or biological agriculture, integrated farming and holistic management, as well as an increased trend towards agricultural diversification.

[edit]Crop statistics

Important categories of crops include grains and pseudograins, pulses (legumes), forage, and fruits and vegetables. Specific crops are cultivated in distinct growing regions throughout the world. In millions of metric tons, based on FAO estimate.

Top agricultural products, by crop types
(million tonnes) 2004 data
Cereals 2,263
Vegetables and melons 866
Roots and Tubers 715
Milk 619
Fruit 503
Meat 259
Oilcrops 133
Fish (2001 estimate) 130
Eggs 63
Pulses 60
Vegetable Fiber 30
Source:
Food and Agriculture Organization (FAO)[52]
Top agricultural products, by individual crops
(million tonnes) 2004 data
Sugar Cane 1,324
Maize 721
Wheat 627
Rice 605
Potatoes 328
Sugar Beet 249
Soybean 204
Oil Palm Fruit 162
Barley 154
Tomato 120
Source:
Food and Agriculture Organization (FAO)[52]


[edit]Livestock production systems

Main article: Livestock
Ploughing rice paddies with water buffalo, in Indonesia.

Animals, including horses, mules, oxen, camels, llamas, alpacas, and dogs, are often used to help cultivate fields, harvest crops, wrangle other animals, and transport farm products to buyers.Animal husbandry not only refers to the breeding and raising of animals for meat or to harvest animal products (like milk, eggs, or wool) on a continual basis, but also to the breeding and care of species for work and companionship. Livestock production systems can be defined based on feed source, as grassland - based, mixed, and landless.[53]

Grassland based livestock production relies upon plant material such as shrubland, rangeland, andpastures for feeding ruminant animals. Outside nutrient inputs may be used, however manure is returned directly to the grassland as a major nutrient source. This system is particularly important in areas where crop production is not feasible because of climate or soil, representing 30-40 million pastoralists.[49] Mixed production systems use grassland, fodder crops and grain feed crops as feed for ruminant and monogastic (one stomach; mainly chickens and pigs) livestock. Manure is typically recycled in mixed systems as a fertilizer for crops. Approximately 68% of all agricultural land is permanent pastures used in the production of livestock.[54]

Landless systems rely upon feed from outside the farm, representing the de-linking of crop and livestock production found more prevalently inOECD member countries. In the U.S., 70% of the grain grown is fed to animals on feedlots.[49] Synthetic fertilizers are more heavily relied upon for crop production and manure utilization becomes a challenge as well as a source for pollution.

[edit]Production practices

Road leading across the farm allows machinery access to the farm for production practices.

Tillage is the practice of plowing soil to prepare for planting or for nutrient incorporation or for pest control. Tillage varies in intensity from conventional to no-till. It may improve productivity by warming the soil, incorporating fertilizer and controlling weeds, but also renders soil more prone to erosion, triggers the decomposition of organic matter releasing CO2, and reduces the abundance and diversity of soil organisms.[55][56]

Pest control includes the management of weeds, insects/mites, and diseases. Chemical (pesticides), biological (biocontrol), mechanical (tillage), and cultural practices are used. Cultural practices include crop rotation, culling, cover crops,intercropping, composting, avoidance, and resistance. Integrated pest managementattempts to use all of these methods to keep pest populations below the number which would cause economic loss, and recommends pesticides as a last resort.[57]

Nutrient management includes both the source of nutrient inputs for crop and livestock production, and the method of utilization of manureproduced by livestock. Nutrient inputs can be chemical inorganic fertilizers, manure, green manure, compost and mined minerals.[58] Crop nutrient use may also be managed using cultural techniques such as crop rotation or a fallow period.[59][60] Manure is used either by holding livestock where the feed crop is growing, such as in managed intensive rotational grazing, or by spreading either dry or liquid formulations of manure on cropland or pastures.

Water management is where rainfall is insufficient or variable, which occurs to some degree in most regions of the world.[49] Some farmers use irrigation to supplement rainfall. In other areas such as the Great Plains in the U.S. and Canada, farmers use a fallow year to conserve soil moisture to use for growing a crop in the following year.[61] Agriculture represents 70% of freshwater use worldwide.[62]

[edit]Processing, distribution, and marketing

Main article: Food processing
Main article: Agricultural marketing

In the United States, food costs attributed to processing, distribution, and marketing have risen while the costs attributed to farming have declined. This is related to the greater efficiency of farming, combined with the increased level of value addition (e.g. more highly processed products) provided by the supply chain. From 1960 to 1980 the farm share was around 40%, but by 1990 it had declined to 30% and by 1998, 22.2%. Market concentration has increased in the sector as well, with the top 20 food manufacturers accounting for half the food-processing value in 1995, over double that produced in 1954. As of 2000 the top six US supermarket groups had 50% of sales compared to 32% in 1992. Although the total effect of the increased market concentration is likely increased efficiency, the changes redistribute economic surplus from producers (farmers) and consumers, and may have negative implications for rural communities.[63]

[edit]Crop alteration and biotechnology

Main article: Plant breeding
Tractor and Chaser bin.

Crop alteration has been practiced by humankind for thousands of years, since the beginning of civilization. Altering crops through breeding practices changes the genetic make-up of a plant to develop crops with more beneficial characteristics for humans, for example, larger fruits or seeds, drought-tolerance, or resistance to pests. Significant advances in plant breeding ensued after the work of geneticist Gregor Mendel. His work on dominant and recessive alleles gave plant breeders a better understanding of genetics and brought great insights to the techniques utilized by plant breeders. Crop breeding includes techniques such as plant selection with desirable traits, self-pollination and cross-pollination, and molecular techniques that genetically modify the organism.[64]

Domestication of plants has, over the centuries increased yield, improved disease resistance anddrought tolerance, eased harvest and improved the taste and nutritional value of crop plants. Careful selection and breeding have had enormous effects on the characteristics of crop plants. Plant selection and breeding in the 1920s and 1930s improved pasture (grasses and clover) in New Zealand. Extensive X-ray an ultraviolet induced mutagenesis efforts (i.e. primitive genetic engineering) during the 1950s produced the modern commercial varieties of grains such as wheat, corn (maize) and barley.[65][66]

The Green Revolution popularized the use of conventional hybridization to increase yield many folds by creating "high-yielding varieties". For example, average yields of corn (maize) in the USA have increased from around 2.5 tons per hectare (t/ha) (40 bushels per acre) in 1900 to about 9.4 t/ha (150 bushels per acre) in 2001. Similarly, worldwide average wheat yields have increased from less than 1 t/ha in 1900 to more than 2.5 t/ha in 1990. South American average wheat yields are around 2 t/ha, African under 1 t/ha, Egypt and Arabia up to 3.5 to 4 t/ha with irrigation. In contrast, the average wheat yield in countries such as France is over 8 t/ha. Variations in yields are due mainly to variation in climate, genetics, and the level of intensive farming techniques (use of fertilizers, chemical pest control, growth control to avoid lodging).[67][68][69]

[edit]Genetic engineering

Main article: Genetic Engineering

Genetically Modified Organisms (GMO) are organisms whose genetic material has been altered by genetic engineering techniques generally known as recombinant DNA technology. Genetic engineering has expanded the genes available to breeders to utilize in creating desired germlines for new crops. After mechanical tomato-harvesters were developed in the early 1960s, agricultural scientists genetically modified tomatoes to be more resistant to mechanical handling. More recently, genetic engineering is being employed in various parts of the world, to create crops with other beneficial traits. New research on woodland strawberry genome was found to be short and easy to manipulate. Researchers now have tools to improve strawberry flavors and aromas of cultivated strawberries as stated in a publication by Nature Genetics. http://www.isaaa.org/kc/cropbiotechupdate/article/default.asp?ID=7160

[edit]Herbicide-tolerant GMO crops

Roundup Ready seed has a herbicide resistant gene implanted into its genome that allows the plants to tolerate exposure to glyphosate.Roundup is a trade name for a glyphosate-based product, which is a systemic, nonselective herbicide used to kill weeds. Roundup Readyseeds allow the farmer to grow a crop that can be sprayed with glyphosate to control weeds without harming the resistant crop. Herbicide-tolerant crops are used by farmers worldwide. Today, 92% of soybean acreage in the US is planted with genetically modified herbicide-tolerant plants.[70]

With the increasing use of herbicide-tolerant crops, comes an increase in the use of glyphosate-based herbicide sprays. In some areas glyphosate resistant weeds have developed, causing farmers to switch to other herbicides.[71][72] Some studies also link widespread glyphosate usage to iron deficiencies in some crops, which is both a crop production and a nutritional quality concern, with potential economic and health implications.[73]

[edit]Insect-resistant GMO crops

Other GMO crops used by growers include insect-resistant crops, which have a gene from the soil bacterium Bacillus thuringiensis (Bt), which produces a toxin specific to insects. These crops protect plants from damage by insects; one such crop is Starlink. Another is cotton, which accounts for 63% of US cotton acreage.[74]

Some believe that similar or better pest-resistance traits can be acquired through traditional breeding practices, and resistance to various pests can be gained through hybridization or cross-pollination with wild species. In some cases, wild species are the primary source of resistance traits; some tomato cultivars that have gained resistance to at least 19 diseases did so through crossing with wild populations of tomatoes.[75]

[edit]Costs and benefits of GMOs

Genetic engineers may someday develop transgenic plants which would allow for irrigation, drainage, conservation, sanitary engineering, and maintaining or increasing yields while requiring fewer fossil fuel derived inputs than conventional crops. Such developments would be particularly important in areas which are normally arid and rely upon constant irrigation, and on large scale farms. However, genetic engineering of plants has proven to be controversial. Many issues surrounding food security and environmental impacts have risen regarding GMO practices. For example, GMOs are questioned by some ecologists and economists concerned with GMO practices such as terminator seeds,[76][77] which is a genetic modification that creates sterile seeds. Terminator seeds are currently under strong international opposition and face continual efforts of global bans.[78]

Another controversial issue is the patent protection given to companies that develop new types of seed using genetic engineering. Since companies have intellectual ownership of their seeds, they have the power to dictate terms and conditions of their patented product. Currently, ten seed companies control over two-thirds of the global seed sales.[79] Vandana Shiva argues that these companies are guilty ofbiopiracy by patenting life and exploiting organisms for profit[80] Farmers using patented seed are restricted from saving seed for subsequent plantings, which forces farmers to buy new seed every year. Since seed saving is a traditional practice for many farmers in both developing and developed countries, GMO seeds legally bind farmers to change their seed saving practices to buying new seed every year.[71][80]

Locally adapted seeds are an essential heritage that has the potential to be lost with current hybridized crops and GMOs. Locally adapted seeds, also called land races or crop eco-types, are important because they have adapted over time to the specific microclimates, soils, other environmental conditions, field designs, and ethnic preference indigenous to the exact area of cultivation.[81] Introducing GMOs and hybridized commercial seed to an area brings the risk of cross-pollination with local land races Therefore, GMOs pose a threat to the sustainability of land races and the ethnic heritage of cultures. Once seed contains transgenic material, it becomes subject to the conditions of the seed company that owns the patent of the transgenic material.[82]

[edit]Modern agriculture
This section has multiple issues. Please help improve it or discuss these issues on the talk page.

Modern agriculture is a term used to describe the wide majority of production practices employed by America's farmers. The term depicts the push for innovation, stewardship and advancements continually made by growers to sustainably produce higher-quality products with a reduced environmental impact. Intensive scientific research and robust investment in modern agriculture during the past 50 years has helped farmers double food production.[83][84]

[edit]Safety

The agriculture industry works with government agencies and other organizations to ensure that farmers have access to the technologies required to support modern agriculture practices. Farmers are supported by education and certification programs that ensure they apply agricultural practices with care and only when required.[clarification needed]

[edit]Sustainability

Technological advancements help provide farmers with tools and resources to make farming more sustainable.[85]

New technologies have given rise to innovations like conservation tillage, a farming process which helps prevent land loss to erosion, water pollution and enhances carbon sequestration.[86]


[edit]Affordability

The goal of modern agriculture practices is to help farmers provide an affordable supply of food to meet the demands of a growing population.[87] With modern agriculture, more crops can be grown on less land allowing farmers to provide an increased supply of food at an affordable price.

[edit]Food safety, labeling and regulation

Food security issues also coincide with food safety and food labeling concerns. Currently a global treaty, the BioSafety Protocol, regulates the trade of GMOs. The EU currently requires all GMO foods to be labeled, whereas the US does not require transparent labeling of GMO foods. Since there are still questions regarding the safety and risks associated with GMO foods, some believe the public should have the freedom to choose and know what they are eating and require all GMO products to be labeled.[88]

The Food and Agriculture Organization of the United Nations (FAO) leads international efforts to defeat hunger and provides a neutral forum where nations meet as equals to negotiate agreements and debate food policy and the regulation of agriculture. According to Dr. Samuel Jutzi, director of FAO's animal production and health division, lobbying by "powerful" big food corporations has stopped reforms that would improve human health and the environment. The "real, true issues are not being addressed by the political process because of the influence of lobbyists, of the true powerful entities," he said, speaking at the Compassion in World Farming annual forum. For example, recent proposals for a voluntary code of conduct for the livestock industry that would have provided incentives for improving standards for health, and environmental regulations, such as the number of animals an area of land can support without long-term damage, were successfully defeated due to large food company pressure.[89]

[edit]Environmental impact

Main article: Environmental issues with agriculture

Agriculture imposes external costs upon society through pesticides, nutrient runoff, excessive water usage, and assorted other problems. A 2000 assessment of agriculture in the UK determined total external costs for 1996 of £2,343 million, or £208 per hectare.[90] A 2005 analysis of these costs in the USA concluded that cropland imposes approximately $5 to 16 billion ($30 to $96 per hectare), while livestock production imposes $714 million.[91] Both studies concluded that more should be done to internalize external costs, and neither included subsidies in their analysis, but noted that subsidies also influence the cost of agriculture to society. Both focused on purely fiscal impacts. The 2000 review included reported pesticide poisonings but did not include speculative chronic effects of pesticides, and the 2004 review relied on a 1992 estimate of the total impact of pesticides.

Agriculture accounts for 70 per cent of withdrawals of freshwater resources.[92] However, increasing pressure being placed on water resources by industry, cities and the involving biofuels industry means that water scarcity is increasing and agriculture is facing the challenge of producing more food for the world's growing population with fewer water resources. Scientists are also realising that water resources need to be allocated to maintain natural environmental services, such as protecting towns from flooding, cleaning ecosystems and supporting fish stocks. In the book Out of Water: From abundance to scarcity and how to solve the world's water problems, authors Colin Chartres and Samyukta Varma of the International Water Management Institute lay down a six-point plan of action for addressing the global challenge of producing sufficient food for the world with dwindling water resources. One of the actions they say is required is to ensure all water systems, such as lakes and rivers, have water allocated to environmental flow.[93]

A key player who is credited to saving billions of lives because of his revolutionary work in developing new agricultural techniques is Norman Borlaug. His transformative work brought high-yield crop varieties to developing countries and earned him an unofficial title as the father of the Green Revolution.

[edit]Livestock issues

A senior UN official and co-author of a UN report detailing this problem, Henning Steinfeld, said "Livestock are one of the most significant contributors to today's most serious environmental problems".[94] Livestock production occupies 70% of all land used for agriculture, or 30% of the land surface of the planet. It is one of the largest sources of greenhouse gases, responsible for 18% of the world's greenhouse gas emissions as measured in CO2 equivalents. By comparison, all transportation emits 13.5% of the CO2. It produces 65% of human-related nitrous oxide (which has 296 times the global warming potential of CO2,) and 37% of all human-induced methane (which is 23 times as warming as CO2. It also generates 64% of the ammonia, which contributes to acid rain and acidification of ecosystems. Livestock expansion is cited as a key factor driving deforestation, in the Amazon basin 70% of previously forested area is now occupied by pastures and the remainder used for feedcrops.[95] Through deforestation and land degradation, livestock is also driving reductions in biodiversity.

[edit]Land transformation and degradation

Land transformation, the use of land to yield goods and services, is the most substantial way humans alter the Earth's ecosystems, and is considered the driving force in the loss of biodiversity. Estimates of the amount of land transformed by humans vary from 39–50%.[96] Land degradation, the long-term decline in ecosystem function and productivity, is estimated to be occurring on 24% of land worldwide, with cropland overrepresented.[97] The UN-FAO report cites land management as the driving factor behind degradation and reports that 1.5 billion people rely upon the degrading land. Degradation can be deforestation, desertification, soil erosion, mineral depletion, or chemical degradation (acidification and salinization).[49]

[edit]Eutrophication

Eutrophication, excessive nutrients in aquatic ecosystems resulting in algal blooms and anoxia, leads to fish kills, loss of biodiversity, and renders water unfit for drinking and other industrial uses. Excessive fertilization and manure application to cropland, as well as high livestock stocking densities cause nutrient (mainly nitrogen and phosphorus) runoff and leaching from agricultural land. These nutrients are majornonpoint pollutants contributing to eutrophication of aquatic ecosystems.[98]

[edit]Pesticides

Pesticide use has increased since 1950 to 2.5 million tons annually worldwide, yet crop loss from pests has remained relatively constant.[99]The World Health Organization estimated in 1992 that 3 million pesticide poisonings occur annually, causing 220,000 deaths.[100] Pesticides select for pesticide resistance in the pest population, leading to a condition termed the 'pesticide treadmill' in which pest resistance warrants the development of a new pesticide.[101]

An alternative argument is that the way to 'save the environment' and prevent famine is by using pesticides and intensive high yield farming, a view exemplified by a quote heading the Center for Global Food Issues website: 'Growing more per acre leaves more land for nature'.[102][103]However, critics argue that a trade-off between the environment and a need for food is not inevitable,[104] and that pesticides simply replace good agronomic practices such as crop rotation.[101]

[edit]Climate change

Climate change has the potential to affect agriculture through changes in temperature, rainfall (timing and quantity), CO2, solar radiation and the interaction of these elements.[49][105] Agriculture can both mitigate or worsen global warming. Some of the increase in CO2 in theatmosphere comes from the decomposition of organic matter in the soil, and much of the methane emitted into the atmosphere is caused by the decomposition of organic matter in wet soils such as rice paddies.[106] Further, wet or anaerobic soils also lose nitrogen throughdenitrification, releasing the greenhouse gases nitric oxide and nitrous oxide.[107] Changes in management can reduce the release of these greenhouse gases, and soil can further be used to sequester some of the CO2 in the atmosphere.[106]

[edit]International economics and market reports

See also: Agricultural subsidy

Differences in economic development, population density and culture mean that the farmers of the world operate under very different conditions.

A US cotton farmer may receive US$230[108] in government subsidies per acre planted (in 2003), while farmers in Mali and other third-world countries do without. When prices decline, the heavily subsidized US farmer is not forced to reduce his output, making it difficult for cotton prices to rebound, but his Mali counterpart may go broke in the meantime.

A livestock farmer in South Korea can calculate with a (highly subsidized) sales price of US$1300 for a calf produced.[109] A South American Mercosur country rancher calculates with a calf's sales price of US$120–200 (both 2008 figures).[110] With the former, scarcity and high cost of land is compensated with public subsidies, the latter compensates absence of subsidies with economics of scale and low cost of land.

In the Peoples Republic of China, a rural household's productive asset may be one hectare of farmland.[111] In Brazil, Paraguay and other countries where local legislature allows such purchases, international investors buy thousands of hectares of farmland or raw land at prices of a few hundred US$ per hectare.[112][113][114]

To promote exports of agricultural products, many government agencies publish on the web economic studies and reports categorized by product and country. Among these agencies include four of the largest exporters of agricultural products, such as the FAS of the United States Department of Agriculture, Agriculture and Agri-Food Canada (AAFC), Austrade, and NZTE . The Federation of International Trade Associations publishes studies and reports by FAS and AAFC, as well as other non-governmental organizations on its websiteGlobalTrade.net.

[edit]List of countries by agricultural output

Main article: List of countries by GDP sector composition
Global agricultural output in 2007 by value.
Global agricultural output in 2005.

Below is a list of countries by agricultural output in 2009. Output is in millions ofUS$.

Rank↓ Country↓ Output↓
1  China 520,352
—  European Union 312,498
2  India 210,116
3  United States 171,075
4  Brazil 96,016
5  Japan 81,089
6  Russia 57,774
7  Spain 48,313
8  France 48,167
9  Australia 40,885
10  Italy 38,129

[edit]Energy and agriculture

Since the 1940s, agricultural productivity has increased dramatically, due largely to the increased use of energy-intensive mechanization,fertilizers and pesticides. The vast majority of this energy input comes from fossil fuel sources.[115] Between 1950 and 1984, the Green Revolution transformed agriculture around the globe, with world grain production increasing by 250%[116][117] as world population doubled. Modern agriculture's heavy reliance on petrochemicals and mechanization has raised concerns that oil shortages could increase costs and reduce agricultural output, causing food shortages.

Agriculture and food system share (%) of total energy
consumption by three industrialized nations
Country Year Agriculture
(direct & indirect)		 Food
system
United Kingdom[118] 2005 1.9 11
United States of America[119] 1996 2.1 10
United States of America[120] 2002 2.0 14
Sweden[121] 2000 2.5 13

Modern or industrialized agriculture is dependent on fossil fuels in two fundamental ways: 1) direct consumption on the farm and 2) indirect consumption to manufacture inputs used on the farm. Direct consumption includes the use of lubricants and fuels to operate farm vehicles and machinery; and use of gas, liquid propane, and electricity to power dryers, pumps, lights, heaters, and coolers. American farms directly consumed about 1.2 exajoules (1.1 quadrillion BTU) in 2002, or just over 1 percent of the nation's total energy.[122]

Indirect consumption is mainly oil and natural gas used to manufacture fertilizers and pesticides, which accounted for 0.6 exajoules (0.6 quadrillion BTU) in 2002.[122] The energy used to manufacture farm machinery is also a form of indirect agricultural energy consumption, but it is not included in USDA estimates of U.S. agricultural energy use. Together, direct and indirect consumption by U.S. farms accounts for about 2 percent of the nation's energy use. Direct and indirect energy consumption by U.S. farms peaked in 1979, and has gradually declined over the past 30 years.[122]

Food systems encompass not just agricultural production, but also off-farm processing, packaging, transporting, marketing, consumption, and disposal of food and food-related items. Agriculture accounts for less than one-fifth of food system energy use in the United States.[119][120]

In 2007, higher incentives for farmers to grow non-food biofuel crops[123] combined with other factors (such as over-development of former farm lands, rising transportation costs, climate change, growing consumer demand in China and India, and population growth)[124] to cause food shortages in Asia, the Middle East, Africa, and Mexico, as well as rising food prices around the globe.[125][126] As of December 2007, 37 countries faced food crises, and 20 had imposed some sort of food-price controls. Some of these shortages resulted in food riots and even deadly stampedes.[17][18][19]

The biggest fossil fuel input to agriculture is the use of natural gas as a hydrogen source for the Haber-Bosch fertilizer-creation process.[127]Natural gas is used because it is the cheapest currently available source of hydrogen.[128][129] When oil production becomes so scarce that natural gas is used as a partial stopgap replacement, and hydrogen use in transportation increases, natural gas will become much more expensive. If the Haber Process is unable to be commercialized using renewable energy (such as by electrolysis) or if other sources of hydrogen are not available to replace the Haber Process, in amounts sufficient to supply transportation and agricultural needs, this major source of fertilizer would either become extremely expensive or unavailable. This would either cause food shortages or dramatic rises in food prices.[citation needed]

[edit]Mitigation of effects of petroleum shortages

In the event of a petroleum shortage (see peak oil for global concerns), organic agriculture can be more attractive than conventional practices that use petroleum-based pesticides, herbicides, or fertilizers. Some farmers using modern organic-farming methods have reported yields as high as those available from conventional farming.[130][131][132][133] Organic farming may however be more labor-intensive and would require a shift of the workforce from urban to rural areas.[134] The reconditioning of soil to restore nutrients lost during the use of monocultureagriculture techniques also takes time.[130][131][132][133]

It has been suggested that rural communities might obtain fuel from the biochar and synfuel process, which uses agricultural waste to provide charcoal fertilizer, some fuel and food, instead of the normal food vs fuel debate. As the synfuel would be used on-site, the process would be more efficient and might just provide enough fuel for a new organic-agriculture fusion.[135][136]

It has been suggested that some transgenic plants may some day be developed which would allow for maintaining or increasing yields while requiring fewer fossil-fuel-derived inputs than conventional crops.[137] The possibility of success of these programs is questioned by ecologists and economists concerned with unsustainable GMO practices such as terminator seeds.[138][139]

While there has been some research on sustainability using GMO crops, at least prominent multi-year attempt by Monsanto Company has been unsuccessful, though during the same period traditional breeding techniques yielded a more sustainable variety of the same crop.[140]

[edit]Electrical energy efficiency on farms

Main article: Electrical energy efficiency on United States farms

[edit]Policy

Main article: Agricultural policy

Agricultural policy focuses on the goals and methods of agricultural production. At the policy level, common goals of agriculture include:

[edit]See also

Main article: Outline of agriculture
Book icon Book: Agriculture
Wikipedia Books are collections of articles that can be downloaded or ordered in print.

[edit]Lists

[edit]References

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[edit]External links

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Farmer Power: The Continuing Confrontation between Subsistence Farmers and Development Bureaucrats by Tony Waters at Ethnography.com [4]


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The State's Long Apron Strings

China's multinationals, powerful as they seem, are still beholden to the Party. That's both a blessing and a burden


Online Extra: Lenovo's Long March

The acquisition of IBM's PC unit brings more than "management and synergy," says CFO Mary Ma, who sees a wide world opportunities


Online Extra: Dipping a Yankee Toe in China

John Bank runs a successful small manufacturer in Chicago -- but he feels compelled to stake out a future in Asia. Here's why


Online Extra: TCL Multimedia's Global Agenda

CFO Vincent Yan on how Beijing does -- and doesn't -- support it, the Thomson merger, and the marketplace's "extreme challenges"


Online Extra: "Survival of the Fittest" in China Netcom

CEO Edward Tian discusses the challenges of running the state-owned telco and the "50% business and 50% politics balance" it entails


It's Getting Hotter In The East

After years of frustration for U.S. companies, China starts to pay off


Online Extra: GE's Indian Adventure

The multinational's top exec in the country explains where it fits in the "One GE" strategy


Online Extra: Cendant Hotels Checks into China

CEO Rudnitsky says the chain's "woeful" global presence will change and thinks the burgeoning Chinese middle class offers "huge opportunities"


Online Extra: Sitting Pretty in Shanghai

Haworth Furniture made a ho-hum start of its China venture. When its approach to the market clicked, so did its fortunes


How Cummins Does It

The engine maker runs different game plans in India and China


The Great Bank Overhaul

Can a Chinese bank be a model for heroic reform?


Online Extra: The Riches of the Orient

Investors in China and India can benefit from a guide who knows the terrain. Here are a few tips from some old hands


THE EDUCATION GAP

Trying To Tame The Blackboard Jungle

As more Indian children flood into schools, educators struggle to boost quality


The Other MIT

Manipal Institute of Technology and other second-tier schools like it are India's real tech secrets


The Seeds of the Next Silicon Valley

How Indian tech companies are helping to incubate startups


No Peasant Left Behind

China has made great strides. Now can it fix its backward rural schools?


A Whole New School Of Thought

Shantou University offers a blueprint for education reform


Online Extra: Making Waves in Guangdong

Berkeley's Julia Hsiao discusses educational reforms being pioneered at Shantou University. "We are creating a ripple effect," she says


THE LEAP AHEAD

Scrambling Up The Development Ladder

By leveraging software wizardry and low-cost talent, India is eyeing the next level: Tech innovation


Online Extra: IBM's Passage to India

Big Blue is making a big play in the subcontinent's tech sector, partly by hiring more locals


Online Extra: India: An Agent of Change

That's how Infosys CEO Nandan Nilekani sees the country's impact on the U.S. economy, through globalization and outsourcing


Online Extra: A Brain Trust in Bangalore

Sarnoff and other big tech names are setting up research operations in India -- and not just because of the cheap labor


A New Lab Partner For The U.S.?

China's rapid rise in science could make it a valuable ally in breakthrough research


Online Extra: This Nano Whiz Is Thinking Big

Scientist Han Jie took his American training back to China to help create a world-class nanotech research center in Shanghai


China Ramps Up

It's adding massive factory capacity in tech-intensive industries such as autos and electronics


THE SOCIAL AGENDA

Waking Up To Their Rights

A grassroots movement of activists and lawyers is helping increasingly assertive workers get their due


Online Extra: Hard Labor in Guangdong

Not only must Huang Huiping find workers for local factories, she must defend their rights and conditions. That can be a tough brief


Online Extra: A New China for Organized Labor

A top official of China's only union discusses duking it out with Wal-Mart, recruiting migrants, and gearing up for labor arbitration


Online Extra: A Blacklisted Labor Leader Speaks Out

Lee Cheuk Yan of the Hong Kong Federation of Trade Unions talks about the challenges of protecting workers


A Big, Dirty Growth Engine

Pollution still chokes China, but green technology is starting to emerge


Slide Show: China's Dirty Face

As the Middle Kingdom's economy has grown, so have the environmental costs of largely unregulated growth


Online Extra: Winds of Change in Inner Mongolia

The windfarm at Huitengxile can't compete with coal-fired generators, but a global market in emission rights could change that


Online Extra: A Big Green Opportunity in China

Where some see pollution, Veolia's Jorge Mora sees $800 million worth of environmental projects, with lots more to come


India's Untold Story

For those at the bottom, standards of living are inching higher


WHAT IT MEANS FOR THE U.S.

America's New Competition

How the U.S. could beat the gloomy projections


Online Extra: Sucking the Life Out of Hoover

As rivals abroad continue to underprice it by huge margins, one factory worker tries to cope with her fading prospects for a job in Ohio


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1 comment:

  1. AnonymousApril 7, 2022 at 3:19 AM

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    Nandigramunited: India To Match Chinese Economic Growth By 2020! What Amusing Is The Idea! Despite China Opening Up Great Walls Has Succeded To Sustain Its Production System! Chines Growth Is Production Oriented Not Like India, Service And Fii Sensex Oriented! Moreov >>>>> Download LINK

    >>>>> Download Now

    Nandigramunited: India To Match Chinese Economic Growth By 2020! What Amusing Is The Idea! Despite China Opening Up Great Walls Has Succeded To Sustain Its Production System! Chines Growth Is Production Oriented Not Like India, Service And Fii Sensex Oriented! Moreov >>>>> Download Full

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