Last week India became the 11th trillion dollar economy in the world. News came that riding the weakening US dollar, India’s GDP had just about touched, and marginally crossed, the one trillion dollar mark. While the weakening dollar had helped quicken this achievement, it was something which would have happened sooner or later. What is really remarkable about this is that India’s economy was just US $ 462 billion in 2000 and US $ 316 billion in 1991 when the present phase of economic policies were initiated.
India today is considered a leading member of the emergent economies and, along-with China, is supposed to be the future of the global economy. In fact, as many observers have pointed out, in purchasing power parity terms (which calculates the strength of the economy based on actual purchasing power of the currency inside the domestic economy rather than on nominal exchange rates), India is the world’s fourth largest economy.
This has, understandably, led to much pat-on-the-back comments and self-congratulatory opinion making among those who have led India’s turn towards liberalisation, privatisation and globalisation (henceforth LPG) since 1991. This includes, among others, India’s present Prime Minister,Manmohan Singh, who as finance minister under Prime Minister P.V. Narasimha Rao had initiated these LPG reforms. It also includes the present Finance Minister, P. Chidambaram, as well as the vice chairman of India’s Planning Commission, Montek Singh Ahluwalia, who was the top bureaucrat in the finance ministry in 1991.
This economic surge is being led by India’s private sector, which suddenly seems to have come of age. For the first four decades after independence, India’s economic policy was marked by heavy public investment by the State in all sectors of the economy. The private sector, though well developed for colonial conditions, was still too weak to invest heavily in capital goods industries and infrastructure when the country became independent and therefore this role was played by the Indian State.
The economic policy was marked by protectionist trade barriers, heavy investment in capital goods industries, strong State control of the private sector and a policy of import substitution. This economic policy was complimented by a foreign policy which astutely leveraged the cold war to get technology transfers, development aid and investments while at the same time insulating the Indian State from international pressures. Domestically, the Indian State’s political strategy was composed of passionate leftist verbiage coupled with some economic measures to blunt the worst effects of poverty and oppression.
When India began with the LPG experiment, most people on the left of the political spectrum warned that this policy direction would lead to India becoming a client State of the West, with the economy becoming more vulnerable and the people poorer. It was pointed out that the Indian private sector was very weak compared to the multi-national corporations and the Indian State would also lose its insulation against the political, economic and military might of the Western powers. These economic reforms were widely perceived to have been forced by the Western powers and the Bretton Woods institutions and would eventually lead to a take-over or domination of the Indian economy by the corporations and Governments of the West. At least so went the left critique of the economic policies.
After 16 years of these neo-liberal economic policies India today presents a somewhat different picture. Not only has the economy not been swamped by foreign capital, India today is slated to emerge as one of the world’s leading economies. The Indian private sector has emerged stronger and more pro-active today than ever in its history.
In the previous financial year, April 2006 to March 2007, India received US $ 16 billion in foreign direct investments while Indian entitites invested about US $ 24 billion outside India. This capital outflow was almost entirely to acquire companies and industries in North America and Europe, though some investments also went to Africa and Asia. According to an estimate by the Confederation of Indian Industries, a representative body of the Indian private sector, Indian companies acquired about 150 companies abroad or about three each week of the past year.
A Boston Consulting Group study last year listed 21 Indian companies as global challengers and said that these companies were in a position to dominate their fields in the near future. While software companies are well represented in this list of 21, it has a fair share of manufacturing, energy, automobile, automobile components, steel, consumer goods and pharmaceutical companies. Only one out of these 21 is a Government owned company while the rest are private players. Domestic investments too are growing exponentially. A report last year noted that just the top 25 domestic investment announcements equalled about 50% of the country’s GDP.
This economic take-off, as it was described by the Prime Minister some months back, is evident in the explosion of cellphones (with more than 200 million cellphones the market is growing at about 5 million per month), consumer durables, real estate and services generally.
India’s finance minister, P. Chidambaram, announced last year that he was confident that India would join the “club of developed nations” by 2020. The manner in which the economy is growing seems to lend credibility to his assertion.
Unfortunately, though, India’s economic success is only one part of the story. If India today is ranked 8th in the world in the number of dollar millionaires it is also ranked 126th in the UNDP’s Human Development Index. Date indicates that 47% of children below five years age are malnourished while 80% of women are anemic. Nobel prize winning economist, Amartya Sen notes that endemic hunger in India is comparable to sub-Saharan Africa. The Government accepts that about 300 million people still live under the poverty line which it defines at a ridiculously low US $0.40 a day per person. If one takes the globally accepted definition of poverty at income less than US $2 per day per person, estimates suggest that almost 650 million people in India live in abject poverty. In fact, economist Utsa Patnaik has argued that per capita availability of foodgrain is lower in 2002 than it was in 1942 pre-colonial India; a year which was marked by the infamous Bengal Famine which killed millions. Moreover, one out of three Indians still cannot read and write and half of them have practically no access to medical facilities.
Which is the “true” picture of India in the 21st century. One which sends satellites to space, is a resurgent economy and global power and which is the fastest growing luxury goods market in the world, or is it the country where hungry women still sell their children for Rs. 20 to save them from starvation, where each year a few thousand farmers commit suicide to escape debts and where a few lakh children die at childbirth each year? More importantly, is this collage of contrasts sustainable? I would use this column in the coming few weeks to seek answers to some of these questions.
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This was published in The Post on 2 May, 2007.