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Prasenjit Basu
International Herald Tribune
August 20, 1999
Title: Take a Better Look at the Work of a Rebounding India
Author: Prasenjit Basu
Publication: International Herald Tribune
Date: August 20, 1999
SINGAPORE - India recently passed two milestones: the 52d anniversary
of its independence and, by some estimates, the birth of its billionth
living citizen. The latter event was accompanied by a lecture from
Lester R.Brown and Brian Halweil (''The Billion Mark Should Be a
Sobering Feat for India,'' IHT, Aug. 11) about the need to spend on
health care and primary education rather than on defense.
Virtually unremarked on Independence Day, amid the focus on military
matters and next month's national election, was the fact that India's
real GDP has sustained a compound annual growth rate of 6.5 percent
for the last six years - a performance that makes its economy the
fastest growing among the world's democracies.
Indian software exports have increased at an annual rate of 65 percent
over the same period, and agricultural production by 4 percent - well
ahead of the 1.8 percent pace of population growth. Food grain output
has trebled in the last 30 years.
It is also worth celebrating what India is not. It is not seeking
handouts from the rest of the world. (Net inflows of foreign aid
amount to considerably less than $1 per person.) Nor is it among the
42 highly indebted poor countries for which debt forgiveness is now
being worked out. In fact, India has never had to undertake a
rescheduling of its external debt.
During 190 years of British colonial rule, India was regularly
afflicted by famine. Since independence it has had none. And despite
some serious religious and ethnic conflict, India has remained united.
In 1947, India inherited an economy that had grown at an annual pace
of 0.7 percent in the previous 50 years, less than the rate of
population increase. It had an adult literacy rate of 14 percent and
a higher education system oriented toward producing a narrow elite of
imperial bureaucrats.
By contrast, South Korea and Taiwan at that time had adult literacy
rates in excess of 50 percent (a level that India achieved only at the
beginning of this decade). They had, after all, been ruled by a
country, Japan, which was the first after the United States to achieve
universal literacy, and so paid special attention to education. That
difference in the initial endowment of human capital (plus massive
infusions of external aid per capita in the early years) goes most of
the way toward explaining the faster trajectory of their initial
growth.
But India can and must do better. The untapped potential remains
enormous, especially when you consider the talents and achievements of
India's diaspora in business, technology and the professions.
For approximately 200 years, India has had a larger number of
illiterate and poorly nourished people than any other country on the
planet. Presumably it was not always so. According to the Yale
historian Paul Kennedy, India accounted for about 24.5 percent of
world manufacturing output in 1750, a share that fell to 1.7 percent
by 1900 as the per capita level of industrialization declined
sevenfold.
Never before in human history has there been an attempt to lift a
population of even 150 million, let alone 400 million, out of abject
poverty within a democratic system. India is making that valiant
attempt and, ever so gradually, beginning to succeed.
The point is that in the case of India, the achievement of the whole
is greater than the sum of its flawed parts. Despite stresses, its
society remains secular. Its prime minister may be a Hindu, but the
creator of its nuclear bomb and its richest entrepreneur are Muslims,
the creator of its recent economic miracle is a Sikh, and its defense
minister is a Christian.
India's judiciary is lumbering and slow, but it maintains a genuine
check on both the legislature and the executive. Parliament appears
chaotic, but it unfailingly produces laws that are humane and faithful
to the country's secular tradition. The executive is overstaffed and
almost always poorly led, but it can never function arbitrarily
because of the checks and balances in the democratic system.
Despite a ponderous state, economic growth has accelerated from the
3.5 percent of the first three decades of independence to 5.5 percent
in the 1980s and 6.5 percent in 1990s. Inflation has rarely reached
double digits, while current account deficits have usually been less
than 2 percent of GDP. Only on fiscal policy have there been serious
slippages in the past two decades. Adult literacy has risen from 52
percent in 1991 to an estimated 65 percent today.
As a democracy with functioning institutions and a vibrant capital
market, India has been the great, if largely untold, success story of
the 1990s. Where Russia failed, India succeeded in completing a rapid
transition away from quasi-socialism. With its vast army of
professionals and its abundance of labor at every level of skill and
creativity, it can achieve more in the decade ahead.
What remains is for the talents of the vast rural population to be
effectively deployed in labor-intensive exports, and for urban
infrastructure to improve without further increasing the budget
deficit. Then, perhaps, a decade from now, India will begin to
benefit fully from the return of what the late Prime Minister Rajiv
Gandhi called its overseas ''brain deposit,'' and become again the
economic beacon that once attracted the European explorers Christopher
Columbus and Vasco da Gama.
The writer is chief economist, Southeast Asia, for Credit Suisse First
Boston in Singapore. He contributed this personal comment to the
International Herald Tribune.
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