A Vision for 2010
Guest column for a special issue of India Today, February 19, 2001. Where are we likely to be in 2010? Our growth rate during the next 10 years is likely to average 6 to 7 per cent. This is the same rate I had predicted in 1994 for the decade of the 1990s. With growth rate in 1993-94 at a measly 3.8 percent, the prediction was viewed as hugely optimistic at the time; today, with the economy already growing at 6 per cent, it is likely to be viewed as pessimistic.
'India could be a superpower in a decade -
if it wants to'
Let me begin with an excerpt from the special issue of INDIA TODAY dated February 4, 2010: "At the turn of the millennium, the country had an annual per-capita income of $450. A quarter of the country's population lived below the poverty line. Infant mortality rate was 70 per 1,000 live births. Two out of every five individuals aged 15 or more were illiterate. Annual per capita electric power consumption was 450 kw/h. For every 1,000 people, there were 22 phone lines, two cell-phone subscribers and less than three personal computers.
"Though trade liberalisation and delicensing of investment had led to a healthy growth of 6 per cent per annum during the 1990s, the economy was still performing well below its true potential. For example, at 12 per cent of GDP, exports of goods and services remained low when compared to countries such as China. The New Economy had rapidly risen from nothing to account for almost 10 per cent of total exports but many sectors of the Old Industry performed miserably. The financial sector, specially banking, suffered from proverbial inefficiencies.
"Aware of the true potential of the economy, at the advent of the 21st century, Prime Minister Atal Bihari Vajpayee set the ambitious target of doubling his country's per-capita income in the following 10 years. With the population growing 2 per cent annually, this required a GDP growth rate of 9 per cent per annum. In view of China's experience during the decade just ended, and of many east Asian tigers prior to that, this was an achievable goal.
"Vajpayee knew that there was no alternative to speeding up economic reforms if he was to achieve his objective. He rapidly reformed labour laws, giving all workers uniform rights that conformed to the international practice. He also restored employers the right to retrench workers upon payment of a reasonable compensation.
"Vajpayee then proceeded to put an end to the reservation of products for small-scale enterprises thereby permitting the dynamic and successful entrepreneurs to grow big irrespective of what they produced. Simultaneously, he liberalised trade, privatised public-sector units (PSUs) engaged in manufacturing and commercial banks, built wider and better roads, modernised and expanded ports and railways, undertook massive power-sector reforms to ensure adequate power supply, put an end to subsidies to fertiliser companies, opened higher education to the private-sector, encouraged the states to expand primary and secondary education, and gave foreign investors the same rights as domestic investors.
"Thanks to the acceleration of growth, combined with a slowdown in population growth, India's annual per capita income today stands at $1,000. The proportion of those living below the poverty line has come down to 15 per cent, with their absolute number declining by 70 million. Only one out of five Indians aged 15 years or more is now illiterate and the infant mortality rate is down to 50 per 1,000 people. The number of phone lines has risen to 150 and computers to 30 per 1,000. Electricity consumption has doubled.
"Exports have grown to 20 per cent of GDP, with information technology and pharmaceuticals accounting for 35 per cent of total exports. Annually, India receives approximately $25 billion in direct foreign investment and sends out 1,00,000 information technology personnel around the world. On the trade policy front, all tariff rates are down to 10 per cent or less. In a nutshell, India is well on its way to becoming a developed country."
This is, of course, a fantasy. Not because it cannot happen but because it will not happen. On the one hand, there are reforms whose roadmap has been well known for years but successive governments have lacked the courage to move boldly. On the other, there are reforms on which thinking is either muddled or entirely lacking.
Reform of labour laws prohibiting exit of large companies had been seriously discussed at the time of the July 1991 reforms. Yet no action has been taken in this area till today. Likewise, there is broad intellectual agreement on privatisation.
But the Government faces opposition from within-the ministries that stand to lose their PSUs, workers who receive their salaries without having to work, and bureaucrats who fear losing the perks that come with serving on PSU boards.
On an issue such as fertiliser subsidies, our thinking defies economic logic. Few would object to selling fertiliser to poor farmers at subsidised prices. But what economic theory justifies subsidies to fertiliser manufacturers at rates that rise with the degree of inefficiency? Yet, that is precisely what the Expenditure Reforms Committee has recommended recently.
As for higher education, systematic thinking seems to be entirely missing. The Central and state governments lack resources to either expand the availability or arrest the declining quality of university education.
At the same time, the inexhaustible pool of talent and the information technology revolution offer unprecedented opportunities for investment in high-quality universities. Nevertheless, we refuse to consider ending the state monopoly on university education and allow private investment in it.
So where are we likely to be in 2010? Forecasting is a risky business. Fifteen years ago, no one could have predicted the rise of the Net and the impact it is having on the world economy. Similar inventions could happen in the future.
For instance, if new discoveries make the handling of soft material by robots possible, the garments industry will migrate back to developed countries. Similarly, if a charismatic leader comes along and succeeds in pushing far-reaching reforms through Parliament, what I have called fantasy may turn into reality.
Also critical to the validity of any economic forecast is the course the AIDs epidemic could take. According to some estimates, almost 5 per cent of our population may become HIV-infected by 2005. If inexpensive cures do not become available, fighting the epidemic may eat up a sizeable chunk of our resources.
Yet another factor that will be important is our ability to preserve access to markets in developed countries under the rising threat of the link between trade and labour standards.
Leaving aside these considerations, our growth rate during the next 10 years is likely to average 6 to 7 per cent. This is the same rate I had predicted in 1994 for the decade of the 1990s. With growth rate in 1993-94 at a measly 3.8 percent, the prediction was viewed as hugely optimistic at the time; today, with the economy already growing at 6 per cent it is likely to be viewed as pessimistic.
Assuming my growth forecast proves right, however, our per capita income in 2010 will only be one and a half times its current level. The decline in poverty and infant mortality rates, rise in the literacy rate, and the expansion of telephone services and personal computers will be correspondingly smaller.
The author is a professor of economics at University of Maryland, College Park.