| India Facts
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A unique moment This is a unique moment in Indian history. Never in a thousand years have we been in a position which allows us to lift millions out of poverty and to change the economic face of this country. First some facts India is the 2nd largest country in the world, measured by population and arable land. |
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However behind this shining face lies the other side of the coin:
 There are two Indias that have to be brought closer together. One highly visible and growing the other unseen and largely forgotten. The first India is represented by the rich and the rising middle class and is rapidly rising to become an economic first-world country. The second India consists of the poor millions who seem to have no way, under the present political dispensation, to reach the level of the richer India, even in a hundred years.
And, even though the period of reforms, 1990-2005, has led to a decline in India's poverty rate by 19 %, the figure of global poverty reduction for the same period was 38 %. The story of the India that is shining In the 1970's and 80's, we Indian's were reconciled to living in an economy which was fated to grow at "the Hindu rate of growth". A derogatory term for the growth rate of 3.5% which India was destined never to grow out of, hemmed in as it was by "a vicious circle of poverty". Low growth, leading to low savings and therefore low capital deployment leading to low growth, and so on ad infinitum. And this fact was reflected in our everyday world. Everything was in short supply even in the 1980's. It took years of waiting to get a two wheeler, a gas connection or even a phone line. Eventually the socialist economic model that was being followed took its economic toll. By 1990, the country was economically bankrupt. Compelled by circumstances it was forced to introduce drastic economic reforms. Now, 15 years later, it has finally reaped the benefits of the reform measures. There is a growing consensus that India, along with a few other emerging economies such as China, Russia and Brazil will be the new growth engines for the world in the 21st Century, replacing the US, Europe and Japan, which have dominated the world economy in the last 50 years. Witness some of the changes that have altered the Indian economic landscape so dramatically since the reforms:
These are remarkable achievements for an economy that was tightly protected and controlled for nearly five decades. What are most noticeable are the intangibles: the feel good factor, the "can do" attitude and the increasing amount of young managers that are turning entrepreneurs.
Sector composition As with any growing economy the sector composition of GDP has been changing with the services sectors showing an increased share and that of agriculture declining. The fastest growing sector in the economy has been the Services Sector, which now accounts for 54% of GDP. Industry accounts for 28.4% and agriculture 16.6% Principal industries are textiles, chemicals, food processing, steel, transportation equipment, cement, mining and petroleum. Main agricultural crops are - rice wheat, oilseeds, cotton, jute, tea, sugarcane, potatoes and livestock. India is the largest tea producer in the world. Growth Pangs The process of liberalisation had its growth pangs. While it led to faster growth, it also resulted in a painful restructuring process for Indian industry, which continues to this day. Industry responded to the challenge of domestic and global competition by going through a phase of restructuring, consolidation, mergers and acquisitions. Due to archaic labour and land laws some industries have not been able to weather the storm. However, the rest have emerged leaner, meaner and globally competitive. Any growth leads to shifts in the existing economic dispensation and wealth holdings. Among the major problems being faced by the country today are problems in acquisition of land for industrial purposes and for the planned special economic zones. Savings The economy traditionally enjoys a high savings rate primarily because of the contribution of the household sector. Gross Domestic Savings are a high 33 % of GDP. This can go up if public sector savings are pushed up. The process of privatisation and reforms that has been launched for the public sector should facilitate the savings rate. Household financial saving approximates 10% of GDP.
 Population In the 90's the population growth rate came down from 2.1 % ( recorded in the previous decade) to 1.9 %. Population control will have to be achieved through education and improving standards of living.This is the second most populous country in the world, with a higher growth rate than China. India's population has crossed the alarming billion mark. 70 % of the population still lives in rural areas that are yet to witness the benefits of the reform process. Inflation With increased stability and diversification of the economy, post- reforms, the rate of inflation had drastically come down to around 4%. The current year has seen a marked upward trend in inflationary pressures, part of a global phenomena but disconcerting nevertheless. The Govt. is hopeful of bringing this down to single digits by middle of 2009. The Rupee During the past few years, the rupee had been strengthening against the US Dollar. In July 2002, the rupee traded at 48.67 to the dollar. By the middle of 2008 it was trading much stronger , just below Rs.40. The recent meldown in global financial markets and outflow of FII and hedge fund dollars back to the US has seen it depreciating to the levels it was at in 2002 again. Areas of Concern
The infrastructure sector is creaking. Perennial power shortages exist. Roads in cities are potholed and not maintained. However, it has been noticed that if proper policies are followed then rapid improvements can happen in infrastructure too. One example is the telecom revolution. Just 12 years ago cell phones were launched in the country. At that time tele-density was 6.6%. This more than doubled to 15% in 2007. In just over a single year it has nearly doubled to 29% (August 2008). The mobile telephone has now become the highest selling consumer good in India, displacing the bicycle from the top slot. A few years ago, the Government had entrusted the National Highways Authority the job of developing expressways and four-lane highways. A grand expressway from Mumbai to Pune was the first of these to go on stream. They are now working on a National Highway project costing Rs.170,000 crore ( $ 42 billion). The deadline for widening of 50,000 km of road and constructing 1000 kms of expressways is 5 years. All major cities, state capitals, ports and strategically important centres are expected to be connected through this network. The economic stimulus expected from the backward and forward linkages is expected to be huge. While, the process of reforms in the Telecom sector has been dramatic, and roads, ports and airports are catching up, power continues to languish. Power shortages continue and will not be resolved till populist measures like free electricity offered to various sections are done away with. The primary area of concern is the fiscal deficit, which has been unchecked for too long. The Government's financial situation has been under strain and very little effort has been made towards long term structural reform. The task is now to increase revenues, reduce deficits in the public sector and reduce expenditure through appropriate policy actions. It remains to be seen whether political will can be mustered. The total budget deficit of centre and states combined exceeds 10 % of the GDP and total debt could be near 70% of GDP, or 400% of revenues.
Sleeping Elephant or Waking Elephant? A sleeping elephant has woken up. But a billion people wait to see if the benefits of liberalisation, modernisation and a free market will percolate down to the 70% of the population untouched by reforms. The fact of India's anticipated emergence as a Global Economic Superpower is now widely acknowledged. The emergence of China and India as major global players, riding on a crest of economic success over the next 15 years, will transform the geopolitical landscape, says a US National Intelligence Council (NIC) Report. It compares the trend to Germany's rise in the 19th century and the US's in the early 20th century. The NIC says that India, currently trailing China on most economic measures, could possibly overtake China as the fastest growing economy. It says India has several factors working for it. India possesses world class capital markets and some of the best firms in some important high-tech sectors, which China has yet to achieve. India's well-entrenched democratic institutions make it relatively less vulnerable to political instability. Amidst this upbeat mood, the flip side has to be kept in mind. In several Indian Economic surveys tabled in Parliament, the Finance Ministry had stated that fiscal consolidation has to be given a priority so that funding to the private sector is not crowded out. The Economic Surveys have called for a cut in untargeted subsidies and encouraging public investment in physical and social infrastructure. It has also recommended streamlining the tax system to shore up revenues. The areas earmarked for rationalisation of subsidies are food, fertilisers, and fuel. All these are areas where it will be politically difficult to implement cuts and is a huge area of concern to economists. However, slow reforms with no upheaval are preferable to social disruptions. The new found confidence in the Indian Economy have seen foreign currency inflows both in to the Indian Capital Markets as also in the form of Direct Investment. India now aims at emerging as an economic superpower in the coming decades. But this is expected to be a steady elephants pace and not a Chinese tigers pace. India will grow and become a superpower in the next two decades but for various sectors and sections of the economy, the journey will be in fits and starts. The creaky bureaucracy and vested interests entrenched over the last five decades now seem to be India's biggest stumbling block and will be the last to reform.
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Editor: Romola Butalia (c) India Travelogue. All rights reserved. |
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