Macro Economics Impact of Product

Question: Discuss about the Macro Economics Impact of Product. Answer: Introduction: The subject, which looks at the economy through a broader lens, is known as Macroeconomics. This gives us a general view of the happenings of the economy. There are several aspect through which the economy can be defined. Few of them are gross domestic product (GDP), public debt, inflation rate, unemployment rate, the imports and exports of the country and government expenditure[1]. Through this report, the performance of the chosen country is going to be discussed based on the above-mentioned macroeconomic variable. India has been chosen as the country whose performance is going to be measured. The reason behind choosing India for this project is that India ranks second in terms of its population and are among the oldest place where traces of civilization have been found. Along with it the country has been the home of people from different religious and cultural group[2]. The report has been divided into three sections whereby through section 1 the present scenario of the country has been developed through the help of macroeconomic variable. The second part specifies two major problems of the economy and the factors that led to this problem. The third and final section speaks about the ways in which the government of the chosen nation can minimize the problems stated in section 2. Background of the country: India is one of the largest countries in the South Asian region. Prior to judging the country on macroeconomic factors there is a need to know about the rich history, geographical location and demographical background of this nation. This country has been the homeland of the oldest yet scientifically constructed Indus Valley civilization. The two tribal groups namely, the Dravidians and Aryans shaped the culture of the country. With water bodies on three sides and land on the fourth side, the country has been geographically benefitted. According to statistics, the country ranks second after China in terms of population. Macroeconomic performance: According to the statement of IMF and CSO, India is amongst those economy which shows fastest growth rate. Their prediction suggests that the country is going to grow at a rate of around 7% for the next few years. The country ranks 6th in term of its GDP when measured at nominal price and 3rd when measured by the PPP indicator. Agriculture contributes around 16.5% of the countrys GDP, whereas the service sector contributes around 45.4% of the nations GDP[3]. The industrial sector of this huge nation contributes only around 29.8% of the total GDP. Though agricultures contribution is the least in GDP but in terms of service this sector provides occupation to around 49% that is almost half of the work force. This clearly indicates that India is an agro based economy. The present unemployment rate as of 2016 is 8.4% whereas the inflation rate as measured by the CPI is around 5.6%[4]. Data retrieved from IMF shows that the nation earned around US$ 480 billion as revenue in the year 2016. On the same year the country has incurred an expense of US$ 570 billion. These imply that the country is facing budget deficit of around 3.9% of its total GDP[5]. The country has been associated with few large trade organizations like SAFTA, G8+5, WTO, BRICS, SAARC, IMF and East Asia Summit. These factors when accessed together suggest that the nation is still in its stage of development with high performance and has the scope of being amongst the largest economies in terms of both power and population. Therefore, the next section of this report concentrates on the macroeconomic factors that have been creating a hindrance in the growth of the economy. India, being a developing nation faces drawbacks in generating employment for its large mass of people and also faces the problem in curbing the inflation. Hence, it can be said that the macroeconomic factors namely unemployment and inflation are the drawbacks of Indian economy. The situation where people are not getting jobs even after being qualified to get one and are in the constant procedure of job search, then they are called unemployed. However, no matter how big the economy is there is going to be existence of minimal rate of unemployment within the economy. On other hand, the trend in continuous rise in the price level within an economy has been termed as inflation. Like unemployment, all nations in the world is going to have some rate of inflation. Both these two factors are in inverse relation to one another. The increase in one of them leads to the decrease in the second factor. The reasons behind the existence of these two factors are discussed in the next two paragraphs . Unemployment: The current unemployment rate in India is 8.4%[6]. The reasons behind this scenario are: Economic Growth: Until recently, India has faced slow pace in its growth rate. This has been one of the main reasons for unemployment of the nation. Lack of Scope: India being such a vast nation has very few industries. Also, there is mismatch between the system of education parted to the Indians and the requirements of any industry. This creates a gap between the learnt things and the required things and results in unemployment. Investment: The people of India save less and as a result there is shortage in the money required for investment. This low investment level causes reduction in the possibility of creating employment scope[7]. Other factors: The other factors, which cause unemployment in India, are lack of opportunity, use of machines within the industry, mismatch between the jobs demanded and the jobs available, lack of information and spread of the same, political unrest, increase in population and existing flaws in the planning system within the economy. Inflation: According to the 2016 statistics, India faces around 5.6% inflation, which is quite above the natural rate of inflation expected for the economy. The reasons behind this scenario are as follows: Money Supply: Excess supply of money with the people is the primary cause of inflation. Statistical data reveals that on an average money supply in India varied between 15 to 18%. On other hand, the output varied between 4 to 5% only[8]. Henceforth, people had excess money in their hand that caused inflation. Rise in Price: There has been a continuous increase in the price or import commodities, which led to the increase in the price level of the economy. Increased Tax rate: The tax burdens are usually borne by general consumers and not the producers. Due to increase in tax rate there has been inflation. Uneven distribution: Though India shows a high level of GDP but there is existence of great amount of disparity in the income earned by the people of the country. Data suggests that 31.1% of the total income lies in the hand of the top 10% of the population whereas the lowest 10% of the population receives on 3.6%[9] Hence people having more money demand more goods which results in the upward escalation of prices. Since independence and establishment of the planning commission in India, the nation has been focused in reducing inflation and curbing the problem of unemployment. The ways in which the government of India can curb these two plagues of the economy are: Eradication of Unemployment: In order to reduce unemployment the only thing that government can do is to increase the scope of employment opportunity. The ways in which the employment can be generated are as follows: Restructuring of the current education system in a way such that people get to know the ways industry works. In other words, government can make vocational training compulsory. The government can attract foreign capital and industry within the territory of India, which in turn is going to increase the scope of employment[10]. Building up proper infrastructural set up is mandatory within the economy like proper power plants, roads and other structures, which induces the entrepreneurs to set up factories in different localities. Eradication of Inflation: Through the help of Central Bank, the government can reduce the money supply within the economy. A fall in the liquid money in the hands of the people implies that they are unable to demand goods at high price[11]. Again, the government can directly influence the inflationary pressure by their fiscal policy. Just by raising the tax imposed on income, the government can withdraw a lot of money thereby reducing the high demand of the people, which is the root cause of inflation[12]. Conclusion: The report clearly points out two facts that Indian economy has been in its stage of development and growing at a fast pace. Different statistical data suggests that India is having a healthy time and walking in the path of development. On other hand, through this report it has also been observed that the macroeconomic variables of the nation are showing good trend and predicts a healthy economic condition in near future. Still, there exists high rate of unemployment and inflation within the economy. The ways in which these two plagues can be curbed has been mentioned. Since, these two components are inversely related therefore the government must choose a balance between reducing the two components. References: Anand, R. and Khera, P., 2016.Macroeconomic impact of product and labor market reforms on informality and unemployment in India(No. 16/47). International Monetary Fund. Baker, S.R., Bloom, N. and Davis, S.J., 2016. Measuring economic policy uncertainty.The Quarterly Journal of Economics,131(4), pp.1593-1636. Cia.gov. (2017). The World Factbook Central Intelligence Agency. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html [Accessed 24 Jan. 2017]. Data.worldbank.org. (2017). India | Data. [online] Available at: https://data.worldbank.org/country/india [Accessed 24 Jan. 2017]. Gov.In. (2017). [online] Available at: https://data.gov.in/ [Accessed 24 Jan. 2017] Jain, M., 2016. Inflation in India.Indian Journal of Applied Research,5(7). Mohanty, D. and John, J., 2015. Determinants of inflation in India.Journal of Asian Economics,36, pp.86-96. Mokhova, N. and Zinecker, M., 2014. Macroeconomic factors and corporate capital structure.Procedia-Social and Behavioral Sciences,110, pp.530-540. Singer, H.W., 2015. Unemployment and the Unemployed. Mokhova, N. and Zinecker, M., 2014. Macroeconomic factors and corporate capital structure.Procedia-Social and Behavioral Sciences,110, pp.530-540. Data.worldbank.org. (2017). India | Data. [online] Available at: https://data.worldbank.org/country/india [Accessed 24 Jan. 2017] Gov.In. (2017). [online] Available at: https://data.gov.in/ [Accessed 24 Jan. 2017] Cia.gov. (2017). The World Factbook Central Intelligence Agency. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html [Accessed 24 Jan. 2017] Data.worldbank.org. (2017). India | Data. [online] Available at: https://data.worldbank.org/country/india [Accessed 24 Jan. 2017] Singer, H.W., 2015. Unemployment and the Unemployed Anand, R. and Khera, P., 2016.Macroeconomic impact of product and labor market reforms on informality and unemployment in India(No. 16/47). International Monetary Fund Jain, M., 2016. Inflation in India.Indian Journal of Applied Research,5(7) Baker, S.R., Bloom, N. and Davis, S.J., 2016. Measuring economic policy uncertainty.The Quarterly Journal of Economics,131(4), pp.1593-1636.