India Economy Analysis
India has experienced reductions in the annual population growth and fertility rate over the past few years. At the same time, the government of India has increased expenditure on education. However, this does not automatically lead to the rise of educational attainment due to high level of poverty among the population. Microfinance provides an economical alternative to the poor despite lack of interest of large financial institution in providing loans to the poor. Thus, the rise in the economy in India depended on the cooperation between financial institutions, insurance agencies, and the poor.
Low-income families are usually big because having many children are believed to give a sense of security when people reach old age. India does not provide social security or pension benefits; hence, children come in to help their parents when the latter grow old. Moreover, in India, grandchildren and children are legally required to provide accommodation, food, and medical care to their parents at old age if the latter cannot afford taking care of themselves. At the same time, high mortality rate for children has been recorded due to poor living conditions. For instance, India has 48 child deaths in every 1,000 births. Moreover, there is limited access to education and contraceptives in India to help in controlling birth rate.
Family planning improves living standards of citizens through ensuring that people give birth to the number of children they can care for appropriately. Family planning raises the economic situation of the household through safeguarding that the annual income does not exceed the living income that results in loaning money or cutting necessary expenses. India has improved gender equality through raising the status of women to reduce fertility rate. The government ensures employment of women who do not require many children in India as compared to men. Hence, empowering women guarantees a significant step in reducing fertility rate. The increase in population results in a reduction in GDP per capita and the population density increase.
Thus, cash transfer helps in improving education in India through increasing the returns of education. For instance, if the child is a girl, more money is transferred to motivate females to work hard to attend secondary schools. However, this cash transfer should be conditional to motivate women more to help in empowering women in India to acquire secondary education.
Private schools can do better in India through reducing teachers’ absenteeism and ensuring that students attend classes. Moreover, private schools improve parents care towards making sure that their children go to school because they pay for education. Increasing the rewards for education through ensuring the presence of jobs in India will motivate students, increase labor productivity, and improve education attainment.
In India, 51% of the workforce are self-employed individuals despite many Indians preferring monthly salary jobs. Only 15.6% workers have salary jobs. The increase of self-employment in the country results from a decrease in employment growth rate. Thus, labor productivity is low among low-waged employees. At the same time, high-waged employees have high labor productivity. Hence, they become successful. The poor choose rural places because, despite lack of formal employment, there is some job security in the countryside. Workers in India consider job security over income. Hence, most of them choose to stay in rural areas as farmers instead of seeking industrial jobs.
The businesses, owned by the poor, require little capital, they are highly flexible with less risk. Therefore, having a higher percentage of entrepreneurs in developing countries does not guarantee to have great entrepreneurs like in rich countries. The increase in investment raises marginal return on total return on investment. In other words, marginal return is directly proportional to investment. Therefore, growth in investment by $1 results in an increase in total investment return, while the reduction in the investment by $1 causes a decrease in the total investment. However, the marginal return for the poor India is high, but the overall return is low. Therefore, the country does not have a large percentage of entrepreneurs but individuals look for a means to survive due to circumstances. On the other hand, high marginal returns with low overall return could mean that the entrepreneurs in India lack capital to expand their business.
The Indian rural areas do not have a high rate of diversification in employment due to low labor productivity. In these areas, farmers work in agriculture, and their work significantly depends on the weather, which implies the risk of total loss during poor weather conditions. Therefore, people should diversify labor and look for industrial jobs.
Microfinance and Savings
Microfinance in India helps in reducing the gap between the poor and financial institutions. Thus, microfinance institutions, such as Grameen Bank, assist in improving the economy through fighting poverty. Therefore, microfinance helps the poor to safeguard their savings, receive remittance, and seek small loans. Since they lack security required to borrow funds from financial institutions, they borrow from wholesalers who charge high interest rate due to the risk they take in giving small loans. Moreover, gathering information about borrowers in banks result in increased borrowing rates. Therefore, the poor borrow from wholesalers who already know them. The Indian subsidizing lending program has made the banks poorer due to high default rates of 40%. Microfinance is useful for providing financial services to the poor. Thus, in such institutions, default rates in payment are low. Furthermore, their lower default rate results in the low-interest rate for the poor. However, the borrowers pay in intervals, and the loaning is provided to a group where all the members ensure that each borrower pays.
Risks have a higher degree of damage because of the possibility of suffering 100% loss without insurance. Thus, 50% of Indians work in farms where they depend on the weather for a desirable outcome. Moreover, inflation in prices of raw material affects farming operations, thus resulting in risks of low productivity. The poor receive little financial assistance from big financial institutions to help in reducing farming risks. On the other hand, Indians suffer from high mortality rate due to poor living conditions. However, the majority of them still do not go for medical insurance because people fear uncertainty. Most risk experienced by the poor cannot be measured or it occurs as a result of some catastrophic effects.
The poor take risk measures despite not using insurance companies. Thus, they use small financial groups that provide money during risks. These groups have daily, weekly, or monthly contribution policies that ensure timely contributions. However, diversification in income generating activities helps in reducing the risks, occurring due to dependence on agricultural activities as the only key source of income in rural India. Thus, the mitigation strategies to help in reduction of poverty face challenges. There are few or no investments in opportunities that favor diversification with particular skills.
Insurance in India accounts for 3.9 percent that is about 50 percent below the average of 6.3 percent. Insurance companies fear to reach out to the poor due to moral hazards of inflated prices for services that make insurance cater for more than the insurance policy. At the same time, pulling risk among the poor becomes challenging. Hence, the insurance companies have to charge more from such people. Moreover, outright fraud exists among them due to inadequate monitoring of risks. The poor do not go for insurance because creditability issues and insurance only cater for catastrophic events.
Improvement of education requires positive shifts in the overall living standards to ensure good results. Family planning and sterilization policy have reduced the sizes of big families in India to guarantee better care for children. At the same time, empowerment of women helps in reducing fertility rate and population growth. Many Indians remain in the rural areas due to job stability. However, the increase in self-employment results from rising unemployment. India experiences reduction in savings because of high living standards. Microfinance provides financial assistance to the poor because default rates are low. Insurance companies do not offer their services to the poor due to moral risks and outright fraud.
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