Macroeconomic convergence, economic growth and financial development Dissertation

Macroeconomic convergence, economic growth and financial development of India - Dissertation Example India is an emerging country that has developed into an open market economy. In 2010, CIA World Fact Book ranks India as 5th in the world economy having $4.06 trillion gross domestic product (GDP.). However, same source indicates there are still traces of its past autarkic policies because of the social democratic policies that have governed the country since 1947 to 1991. At that time, the economy was characterized by extensive regulation, slow growth, protectionism, and corruption. Reforms introduced in early 1990s that included trade and industry liberalization, removal of government control from the industries, and transfer of control of government resource to private business sector accelerated economic growth. Vernani (n.d.) estimated India’s economic growth since 1951 up to 1971 stayed at 3%, and in 1995 went up to 5%. Since 1997, India’s expansion has been more than 7%. India’s growth comes from farming, cultivation, craft, new industries and other ser vices (CIA). Total labor force is 478 million; 52% is in agriculture, 34% is in services and 14% for other industries. India boasts of a large educated English-speaking population that becomes its asset for its export of information technology and software workers. The economic growth slowed down to 6.7% in 2008-2009 but has improved to 7.4% for the rest of 2009 to 2010 (Virnani) Due to big local demand  in 2010, the country recovered strongly from the economic meltdown and has charted over 9% growth. (Virmani,) At this time too, investment growth rate doubled as well as private consumption and imports accelerated; however, government consumption slowed down. Vernani explained that in 2007, investments were over 35%; demands were much higher than previous years; investment rate grew to 18%; domestic demands climbed to 60.1% and a negative rate for exports. However, despite the pronounced growths, CIA showed problems of India that include extensive privation, insufficient infra structures, limited employment opportunities in non-agriculture sector, inadequate way in to quality education, and accommodation of â€Å"rural-to-urban migration†. Financial development in India The process of financial system in India according to Sandhya (2009) †is an interaction of financial institutions, financial markets, financial instruments/assets/securities and financial services which are controlled by the government† . The Indian financial system is also parallel in the role of other governments in the financial markets. Cihak (2011) said the role of governments in finance was less before the global crisis because empirical studies showed harmful effects of government interventions. The crisis changed the minds of the people and thought that it is time for the government to adopt policies to maintain stability, drive growth and create jobs. As such, clearer roles emerged for the government to adopt direct interventions such as ownership, credit gua rantees and liability guarantees. Government has to regulate and supervise economic activities and to promote competition, infrastructure and technology, Cihak said. Empirical results of macroeconomic convergence theories. Economic convergence starts with simple cooperation on agreed upon aspects from among member countries that often lead to integration or merger of these countries. Maruping (2005) defines macroeconomic convergence as a local assimilation that requires joining of two or more states, basically thru a Privileged Agreement, sometimes done thru Bilateral Trade Agreeements.  He describes economic convergence as an organized plan intended for the easy access of service and goods as well as coordination of foreign economic policies of these states in the same region. According to the Dictionary of Trade Policy Terms of WTO, regionalism is described as â€Å"actions by governments to liberalize or facilitate trade on a regional basis, sometimes through free-trade are as or