GDP Growth Rate- Business Economics Case Study

Question: Describe about the Business Economics for the Terms of GDP Growth Rate. Answer: Comparison of Australian and Indian economy in terms of GDP growth rate: Table: GDP growth rate of India and Australia YEAR AUSTRALIA GDP GROWTH RATE (%) INDIA GDP GROWTH RATE (%) 2006 3.0% 9.3% 2007 3.8% 8.6% 2008 3.7% 3.9% 2009 1.8% 8.5% 2010 2.0 % 10.3 % 2011 2.4 % 6.6 % 2012 3.6 % 5.1 % 2013 2.4 % 6.9 % 2014 2.5 % 7.3 % 2015 2.2 % 7.5 % 2016 3.0% - (Source: Data | The World Bank, 2016). Figure: Comparison of GDP growth rate (Source: Created by author) As per the diagram and table, it is visible that India is better in terms of GDP growth rate than Australia. This shows that the economic performance of India is better than that of Australia. GDP growth rate is the percentage change in the growth of the economy over a certain period. India is ranked in eighth position and Australia in eleventh position in terms of GDP growth rate. In 2008, the GDP growth rate of Australia and India as same while in 2012 when the GDP growth of Australia was rising the GDP growth rate of India was falling. However, after 2012 the GDP growth rate of both India and Australia is rising. The Gross domestic product is accounted for 1.45 trillion dollars and that of India is 2.07 trillion dollars in the world. Between India and Australia, India has the higher GDP growth rate. The GDP growth rate has been falling in Australia after 2013 while in India it is rising (Dholakia, 2015). The GDP growth is different for both the countries due to differences in the contours of the country and the economic condition. Management of the economy is also one of the factors for differences in the GDP growth rate. Reasons for the variation in the growth rates Various factors affect the GDP growth rate of a country. GDP growth rate depends on factors such as inflation rate, interest rate, unemployment rate, geographical areas, and regional areas. The average economic growth rate of Australia is 3.5 percent per year. The economic growth rate was increasing before 2012. This was so because the unemployment rate was low, public debt was low, the financial system was stable and the inflation rate was sustainable in nature. The economy experienced twenty years of continuous growth rate. The reason for growth in economy was high demand in Australian resources from Asia and China. The foreign investment had increased in the economy creating a channel for growth in the exports of the countries (Lewis, 2013). The revenue of the economy was high, due to which the economy grew positively. The service sector of the Australian economy is developed and contributes to seventy five percent of the GDP. The major part of the Australian population is engaged in service sector. The manufacturing sector showed negative growth due to the Australian dollar. Australia is rich in natural resources due to which the economy has benefited from trade and commerce. The country encourages free trade and has minimal restrictions on the imports. The financial crisis did not affect the economy due to the strong financial system in the economy (Meade, 2013). The average economic growth rate of India is 7 percent per year. India is a diverse economy where the entire population is engaged in various sectors and trade. Major part of Indias population is engaged in agriculture. Agricultural sector has the major contribution towards the economic growth. It is a mixed economy where both the private and government sector operate together. The dependency ratio is low while the youth population is high in the Indian economy. This is the major contributing factor for the growth in the Indian economy. Service sector is also a major contributor in the economic growth of the nation (Bhagwati et al., 2013). However, the economic growth began slowing in 2011 due to decrease in the government expenditure and low investment. There are many challenges that the economy faces. The growth rates of both the economies are different. Indias population is higher than that of Australia. The major part of the population in Australia is engaged in service sector while the major part of population is engaged in agricultural sector. This is one of the reasons for variation in the economic growth rate. In 2008, the GDP growth rate had declined steeply. This was so because the corporate investment had slowed in the economy by ten to twelve percent. The reasons for the drastic fall in the investment were corruption and rise in debt. The global crisis largely affected the economy of India due to which the economic growth rate of the country declined (Bhagwati et al., 2013). The main reason for economic growth in Australia was the rise in the exports and the values of the goods and services that was domestically produced within an economy. The export contributed to the rise on the GDP growth of the economy but the term of trade fell. The other major contributor of the gr owth of the economy was the mining boom of iron ore that helped the economy export abundant of its iron ore to china. The investment of the economy was down but the prices of the housing and construction was up. The labor productivity is constantly decreasing in the economy that is leading the standard of living of people to fall. The inflation rate is higher in India than that in Australia. The unemployment rate in Australia is higher than that of India. This is one of the major reasons for the variation in the economic growth of both the countries. The reasons for the variations in the economic growth rate are as follows: Differences in the quality of governance: Governance and management of the economy play an important role in deciding the future of the economy. A good quality of governance leads to a growth in the economy. Government of the economy is responsible for providing the basic amenities and infrastructure that is required for the development of the economy. It is essential for the government to utilize the money efficiently in order to ensure growth in the economy (Dholakia, 2015). It is the responsibility of the government to provide and fulfill the basic needs of the citizens. If government is corrupt free and good in management of the country then the economy is likely to experience a good growth in the economy. Differences in the technology and technological progress- Both India and Australia are technologically advanced. A rapid technological progress leads to progress in the economy as industrial developed is directly linked with technology. Advancement in technology leads to creation of employment and jobs improve standard of living and help the government run the economy efficiently. Industrial revolution in India showed advancement in technology. India is labor-intensive country where the major work is done by labor while Australia is capital intensive where the operations is done through machines and capital. This is the reason why the unemployment rate is higher in Australia than that in India (Dholakia, 2015). Differences in the population growth- India are the second most populous economy after China while Australia is the fifty third largest populous country. Differences in the population growth are the major factor for the differences in the economic growth rate of a country. The youth dependency ratio is higher in Australia than that in India. This is the reason why economic growth rate is higher in India than that in Australia. Since India is populous country the production of goods and services is higher than that of Australia. Larger population helps in fulfilling the demand of the consumers. It also helps in generating economies of scale and supplying the labor at low cost and wages. This leads to a fall in cost of production and hence generates positive profit for the economy. Differences in the per capita income and standard of living are also one of the reasons for the variations in the economic growth. Challenges that the countries face to enhance economic growth Various factors and challenges hinder the economic growth. The author analyzes each country specifically and specifies the challenges that India and Australia face to enhance its economic growth. Challenges that India face Challenges that India face to enhance its economic growth are as follows: Inflation: Rise in the prices of food and property is one of the major problems that the Indian economy faces. This is one of the major reasons for hindrance in the economic growth rate of a country. Inflation currently is rising at a rate of eight to ten percent. High-rise in the rate of inflation indicates that there is not just excess demand in the economy but the cost of production is also rising due to which the prices of goods are rising in the economy. High-rise in rate of inflation reduces the standard of living of people in the country that in turn reduces the economic growth in the economy (Ray, 2012). Poor educational standards- India is not a hundred percent literate country. Major part of the population is not given the proper education. Hence their contribution to the economy is negligible that causes a problem for the economy. The economic developed is limited as there is scarcity of skilled and trained professionals. Poor infrastructure: Poor infrastructure is a major challenge for enhancing the economic growth. Many people lack the basic amenities such as water supply and electricity. This leads to a problem as it puts constraints in supply (Dholakia, 2015). Balance of payment deterioration: the imports in India are higher than the exports that lead to an increase in the current account deficit. Economic growth falls due to inefficient foreign exchange reserve. It is essential for India to attract maximum capital inflows in order to increase the rate of economic growth. Rise in inequality: The edge between the rich and poor is continually rising. Rich are becoming richer while poor the poorer. Economic growth has been spread disproportionately (Thorpe Leito, 2014). Inefficient agriculture: agriculture is the major sector where the maximum of Indias population is engaged in. slow growth in the agricultural sector is one of the major challenges that India faces to enhance its economic growth. Challenges that Australia face Low demand for goods: the major trading partner for Australia is china. Slowdown in the economy of china has increased the challenge for the Australian economy as the demand for the goods has decreased. High unemployment rate: the youth depend ratio is high due to the unemployment of youths. This is because the structural changes and the lack of proper skills and knowledge that is required by the employer for the job (Shahiduzzaman Alam, 2014). High cost of production: the cost of production is high in Australia. Fluctuations in the Australian dollar: The Australian dollar is fluctuating in nature. The appreciation in the value of Australian dollar puts major challenge in the enhancing the economic growth. Conclusion Various factors distinguish the economic growth between the two countries. The growth rate in India is higher than that of Australia. Both the country faces many challenges to enhance the economic growth rate. Factors such as inflation rate, interest rate, monetary and fiscal policies affect the growth rate of the economy. References Bhagwati, J., Bhagwati, J. N., Panagariya, A. (2013).Why growth matters: How economic growth in India reduced poverty and the lessons for other developing countries. PublicAffairs. Data | The World Bank. (2016). Data.worldbank.org. Retrieved 8 September 2016, from https://data.worldbank.org/ Dholakia, B. H. (2015). The Sources of Economic Growth in India. Lewis, W. A. (2013).Theory of economic growth(Vol. 7). Routledge. Meade, J. E. (2013).A Neo-Classical Theory of Economic Growth (Routledge Revivals). Routledge. Ray, S. (2012). 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