Indian Economy: Current Problems and Future Prospects

Topics: Investment, Economics, Macroeconomics Pages: 23 (8070 words) Published: February 20, 2012
Indian Economy: Current Problems and Future Prospects ms and rethinking of the pre-crisis policy regime, and even more importantly our development strategy, were called for. This realization led Dr. Singh to initiate systems reforms. In my view, these reforms would not have been initiated but for two external events. First was the collapse of the Soviet Union and its economy, whose central planning was the model for our own development. Second was the phenomenal success of China since the opening of its economy to foreign trade and investment in 1978. It brought home the message that, unless there was a systemic change in economic policies and management, India would be

*Samuel C. Park, Jr. Professor of Economics, Yale University, New Haven, CT, USA. This is a revised and extended text of a lecture delivered on January 3, 2003 under the auspices of the ICFAI Business School, Chennai, India, and to appear in ICFAI Journal of Applied Economics. I thank Nicholas Hope, Mohsin Khan, Venugopal Reddy, Shankar Acharya and Suresh Tendulkar for their valuable comments.


left behind by its chief economic and political adversary in Asia, namely China. My emphasis on the contribution of external events to the initiation of systemic reforms is not to suggest that there was no rethinking earlier of our economic policies. Indeed, several high level committees had reviewed some of the policies (for example, the Abid Hussein Committee on Trade Policy in 1984, the Narasimham Committee on Controls in 1985). Of course, Rajiv Gandhi and some young economists from the World Bank he recruited for his staff did attempt to relax some of the most irksome controls. It is possible that he might have introduced systemic reforms had he not been stymied by his own party and not been distracted by the Bofors scandal. But I think it is unlikely since there was no push for system reforms from any quarter then. It so happens that a number of reports on important economic policy have been published in the last year. The National Development Council very recently adopted the Tenth Five-Year Plan. The Consultative Group on direct and indirect taxes, chaired by my friend Vijay Kelkar, circulated its reports for comments. The Second Labour Commission came out with its report a few months ago, and so did the N. K. Singh Committee on Foreign Capital. A mid-year review on the developments in the economy, with a particular focus on central government finances for the first half of the fiscal year 2002-03, has just appeared. The Planning Commission has just published a National Human Development Report (HDR). Several states had issued their own HDRs earlier. There is a wealth of data, information, some analysis, and many policy recommendations. With these as background, I thought the best use of the opportunity to speak to you is for me to reflect on where the Indian economy is, and where it is likely to go in the near and medium term1. Since one of the major objectives of reforms was to reintegrate the Indian economy with the world economy by drastically reducing, if not dismantling altogether, the barriers to foreign


trade and investment that we had erected during the four decades of pursuit of our inwardoriented development strategy, I will comment on our achievements in this regard2. In doing so, I will note that we are trying to reintegrate India with the world economy at a time when the rest of the world is also attempting the same thing. Indeed, this process, dubbed “globalization,” has been underway for over a decade and a half or so. Economic historians point out that the current wave of globalization is in many ways similar to and a resumption of, the earlier wave of the late-nineteenth century that ended at the outbreak of the first World War. Be that as it may, given that many developing countries are trying to globalize at the same time, we have to compare our achievements in this regard with those of our competitors. Among our...

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Swamy, Subramanian. 2000. “Can India Catch Up with China?,” Frontline, 17(15), 22 July-04 August, 2000. World Bank. 2003. Global Development Finance, Vols. 1 and 2. Washington, DC: World Bank. WTO. 2002. International Trade Statistics. Geneva: World Trade Organization. ---. 2003. Press Release No. 339, 2 May 2003.
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