Two sides of Indias economic miracle

Updated: Apr 21 2005, 05:30am hrs
India is very much in the news in the global economic press. Its consistent high growth, stable prices and burgeoning foreign exchange reserves are well acknowledged. In IT and ITes, India is a recognised world leader. The World Bank, IMF and institutional investors have praised Indias economic management in the past two decades. Several economists are projecting China and India to be the super economic powers by the end of this century, even surpassing the USA.

There are reasons to feel proud and happy. India has come a long way since the economic crisis of 1991. What is more creditable is that the reform programme launched in 1991 has been steadfastly adhered to by all governments that have came to power. The growth momentum has also contributed to a significant reduction in poverty rates. India has successfully withstood all major global shocks, including the recent hike in oil prices. It has emerged as a proactive player in the Doha Round, in sharp contrast to the Uruguay Round negotiations in the early 1990s, where Indias stance was a defensive one, aimed at safeguarding its national interests at all costs. India is pushing for liberalisation of services, which is inducing protective reactions on the part of the industrialised powers. Many developing countries are interested in our reform program and economic progress. I was in Damascus last month to explain the details of our reform package to the Syrian government who are keen to follow it up with our policymakers. Several important countries are keen on engaging in an FTA with India.

Our performance may make some of us believe we have just a few years to go before India becomes a developed country. The same feeling is manifested when industrialised countries feel India should not be accorded Special and Differential Treat-ment at the WTO. But they forget there are two sides to Indias development. The strong economic performance still leaves India with the distinction of having 267 million people below the poverty linethe highest in the world. Indias per capita income is still below $500. A sustained GDP growth rate of 8% a year is needed to increase per capita income to $1,500 (average for a lower middle income country) by 2020. We need to accelerate the process, by stepping up growth to 10% a year. It will take India several decades of sustained high growth to reach the threshold of per capita income of a developed nation and eradicate poverty. There is really no room for complacency. We should not be overwhelmed with the praises showered on our performance.

High growth, stable prices, increasing forex reserves mark our performance
Yet, India still plagued by poverty, below-average logistics, corruption
We need to reverse several adverse trends. We are ranked 124th as per the Human Development Index. We still have poor infrastructure, cumbersome administrative procedures that breed corruption and below-average logistics. The latter problems explain our dismal rank of 90th out of 146 countries in the Corruption Perception Index of Transparency International. Exporters need 29 forms and 257 signatures before they can export.It takes an average of six to eight days to clear import cargo at Indian ports, against less than a day elsewhere. According to a recent World Bank study, it takes a company about 89 days to clear all the procedures and start a business in India, which is about double the average time in most South Asian countries.

In terms of attaining the Millennium Development Goals, the progress across states is very uneven. This makes the achievement of goals for India very difficult and uncertain. About half of Indias poor (133 million) live in three states Uttar Pradesh, Bihar, and Madhya Pradesh which considerably lag Indias overall growth pattern. In China, there are disparities in income levels across provinces, but the poorest ones have recorded a significant per capita income growth in the past three decades and are on their way to eradicating poverty.

The bottom line is that we need to accelerate our growth momentum to at least 10% a year in the coming decades, by making administrative procedures transparent and simple, stamping out corruption, developing a world class infrastructure with public-private partnership and focusing on the economic performance of the poorer states. China has shown this can be done. We just need strong political will to address these problems.

The writer is principal advisor, CII. These are his personal views