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archive: Take a Better Look at the Work of a Rebounding India

Take a Better Look at the Work of a Rebounding India

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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