Professional Documents
Culture Documents
New Delhi
Hideki Esho
1
Rostow's argument was a typical one (W. W. Rostow, Stages of Economic Growth: A
Non-Communist Manifest, London: Cambridge University Press, 1960). I slightly remember my
childhood in India. Jawahalral Nehru presented us an elephant named Indira when the Japanese
economy was still in the doldrums soon after the end of the Second World War. It was a silver lining
for us. Nehru was definitely one of the most popular political leaders for Japanese at that time. Even
today I have a sweet memory of the gentleness of the Indian people.
2
Mahalanobis was a star in the age of high expectations for economic development. Sir Hans Singer
tells us that "P. C. Mahalanobis became the prophet (or guru) of the development economics in this
[development planning] respect, and Calcutta became their Mecca". (H. W. Sineger, "The Terms of
Trade Controversy and the Evolution of Soft Financing: Early Years in the U.N." in Gearld M. Meier
and Dudly Seers eds., Pioneers in Development, Published for the World Bank: Oxford University
Press, 1984. See also Ashok Rudra, Prasanta Chandra Mahalanobis: A Biography, Delhi: Oxford
University Press, 1996.)
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introduced to regulate private sector companies. A mixed economy system, under which the share of
public sector was predominant, was formulated in such a manner.
3
Francine R. Frankel, India's Political Economy, 1947-1977: The Gradual Revolution, Princeton:
Princeton University Press, 1978, Chapters 7-8. See also a classical analysis by Bhagwati and
Srinivasan on this first liberalization episode (Jagdish Bhagwati and T. N. Srinivasan, Foreign Trade
Regimes and Economic Development: India, New York and London: Columbia University Press,
1975.
2
minister concentrated power, and ad-hoc political intervention to economic management increased.
Beginning in the mid-1960s, the Indian economy began to suffer a long period of stagnation, and it
was said that the economy could not exceed growth of 3.5 percent per annum. This was called the
barrier of the "Hindu growth rate". The main reason for this long-term stagnation was
macro-economic management under India’s closed economy, and during this era, the FERA
regulations were strengthened and the MRTP Act was introduced. American capital such as IBM
and the Coca-Cola left India. Japanese investors also almost pulled their interests from India, and
what Professor Bhagwati called "a rentier society" or "directly unproductive, profit-seeking
activities" were embedded4.
In 1974, the annual inflation rate exceeded 20 percent, hit by the first oil crisis and an insufficient
monsoon. In India, when the inflation rate exceeded 10 percent, political unrest was often fostered
and followed by a change in government. In 1974 too, an anti-Indira Gandhi government movement
arose. The Prime Minister declared a state of emergency and a dictatorial regime appeared for the
first time in the contemporary Indian history. Against this regime, J. P. Narayan organized a mass
movement against Indira Gandhi that ended with her imprisonment. Under a slogan of the revival of
democracy, the Janata Party formed a new government. However, under the Janata government, the
economy was not able to recover, and with the second oil crisis of 1979, India again faced serious
inflationary pressures, a foreign exchange crisis, and a food crisis. The Janata government
experienced a miserable collapse and in the general election of 1981, Indira Ghandi miraculously
regained power.
4
Jagdish Bhagwati and Padma Desai, "Socialism and Indian Economic Policy," World Development,
Vol.13 No. 4, 1975; Jadgish Bhagwati, "Directly Unproductive, Profit-Seeking (DUP) Activities,"
Journal of Political Economy, Vol.50 No.5, 1982.
3
South-East Asian countries also enjoyed the fruits of this technological innovation by actively
accepting FDI. India, however, failed to embrace the new technology. India stuck to the old
engineering technology under the closed economy system. When Indian leader Indira Gandhi was
assassinated in 1984, her first son Rajib Gandhi became Prime Minister, further promoting
deregulation and opening up of the country. He believed that modernizing the electronics industry
was key to the development of society and as such, launched a modernization program for goods like
consumer electronics and software. Despite these changes, though, throughout the 1980s, India’s
liberalization measures did not change the fundamental regulation system that had dominated the
Indian economy since the Nehru era.
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There are quite a large numbers of evaluations on Indian NEP, the most notable of which are: Amit
4
2-2 Economic Performance after the NEP: Some Emerging New Trends
Since the NEP era began, we have seen an unusual combination of an "unstable political situation"
and "remarkable economic recovery and growth". While the economy has smoothly revived, general
elections were held four times in an eight-year period since 1991.
There have been some notable features of economic performances since the introduction of the
NEP, giving evidence that the Indian economy has entered a new phase.
Bhaduri and Deepak Nayyar, Intelligent Person's Guide to Liberalization, Penguin Books, 1996;
Isher Judge Ahluwalia and I. M. D. Little eds., India's Economic Reforms and Development: Essays
for Manmohan Singh, Delhi: Oxford University Press, 1998; Jeffrey D. Sachs, Ashutosh Varshney,
and Nirupam Bajpai eds., India in the Era of Economic Reforms, Delhi: Oxford University Press,
1999; Jean Dreze and Amartya Sen eds., India: Development and Participation, Oxford: Clarendon
Press, 2002. Shankar Acharya, "Macroeconomic Management in the Nineties," Economic and
Political Weekly, April 20,2002.
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economic agents. On the savings side, although the household sector has been a major saver as usual,
the conspicuous phenomenon is that the savings rate of the private corporate sector increased since
the inception of the NEP. It increased up to 5.0 percent in 1995-96. On the contrary, that of the
public sector remained stagnant and even worsened during the same period. It shows that the public
sector reform has not progressed at all.
On the investment side too, we can see a remarkable change before and after the NEP. After the
NEP period there is a clear trend that the share of private sector investment supersedes that of the
public sector investment. During the 1980s, especially in the latter half of the 1980s, India enjoyed
relatively high economic growth. That growth, however, was realized by depending on massive
public sector investment, which in turn was only made possible by depending on domestic as well as
foreign loans. As a result of this financing pattern, both the fiscal deficits and foreign debt
accumulated. Hence, relatively high growth was attained only at the cost of the rising
macro-economic imbalances, which led to the 1991 crisis. Economic recovery and growth under the
NEP, however, is quite different from this pattern. This is really a notable change. Private sector
investment is the driving force of high economic growth in the NEP period, another favorable new
phenomenon made possible by economic liberalization.
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(5) Accumulation of Foreign Exchange Reserves
The increase in exports under the period of the NEP was not unsatisfactory. Invisible trade also
improved a lot, so that the current account deficits as per GDP decreased (see Table 6). One notable
development was that foreign exchange reserves accumulated so dramatically (see Table 7), and this
rising trend of foreign exchange continues to today. As of June 2003, the total surpassed US$83
billion.
6
The Economic Times, January 28, 2001.
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(8) ICT Industry -- A Flag-bearer of the New Economy
The most important factor supporting the consumption boom of Southern India is the conspicuous
development of the ICT industry located in major Southern Indian cities. As the ICT industry is a
typical knowledge-intensive industry, its development changes the international image of the Indian
people and society. These days, many of my Japanese friends who used to have no interest in India,
know tell me that Indians are geniuses in mathematics and extremely good at English. They say that
the Indian learning reaches an incredibly high level, citing that Indians can memorize 100 by 100
multiplication!
The developmental core of the Indian ICT industry is software, which has been growing 50
percent every year since 1991 (see Table 10). Especially notable development has been occurring in
the export sector. Accounting for three-fourths of total software revenue, the value of exports was
US$8.5 billion. It also accounted for 8 percent of total Indian exports from in 20017.
It is estimated that the software industry’s share of the total GDP was about 2 percent. A
NASSCOM and McKinsey study projects that in 2008, Indian IT exports will total US$50 billion
and comprise 35 percent of total exports. The study also projects that employment will increase to
2.2 million by 2008, compared with 280,000 in March 19998. Although the Indian share of total
world software production is a meager 2 percent, India held 18.5 percent of the world customer
software market in 19999.
Indian software exports are mainly destined for the U.S. and Europe. In 1999, 62 percent of such
exports went to North America, 23.5 percent to Europe was, and only 3.5 percent to. Japan.
Can the Indian ICT industry continue to enjoy such remarkable growth? The above-mentioned
projection by NASSCOM and McKinsey will be realized only if some pre-conditions are met. The
first precondition is to supply sufficient infrastructure. Looking at Bangalore, the "Silicon Valley of
India", one can question why it holds such a title. The road conditions are quite bad and electrical
blackouts are an everyday affair. The second condition is to supply a sufficiently talented workforce.
It is true that India has a fairly large number of people with suitable mathematics and English ability,
yet the number of the English-speaking Indians occupies only 5 percent of the total population.
Indians who are working in the U.S. are so to speak the elite of the elite, so without overcoming such
fundamental bottlenecks, the Indian ICT industry will remain in a new kind of enclave in the future.
7
Nagesh Kumar, "Indian Software Industry Development: International and National Perspective,"
Economic and Political Weekly, Vol. 36 No. 10, 2001.
8
NASSCOM, The IT Software and Services Industry in India: Strategic Review 2000, 2000, New
Delhi: NASSCOM.
9
Kumar, op.cit.
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3. Future of India and Our Expectations
3-1 Problems to be solved
Needless to say, today's India still has a lot of difficulties to solve, one of the most serious being
the absolute deficiency infrastructure supply such as electricity, transportation, and roads. Another
difficulty is India’s huge fiscal deficits. There is a strong possibility that the Indian government will
fall into a debt trap. Thirdly, the annual growth rate for food grain production in 1990s stagnated at
1.7 percent; a much lower figure compared to the annual growth rate of 3.5 percent of the 1980s.
Since the 1980s, there has appeared the so-called new middle class, who has enough income to
buy cars, home electronics goods, and houses or flats. Moreover, the development of the Indian
software industry is a well-known success story across the world and it can be said that India will be
a big ICT power in near future. Nevertheless, India’s new middle class makes up only 10 percent of
the total population at best, and the country still has the absolute poor who account for more than
one fourth of the total population. If the ICT revolution further proceeds without resolving the
problem of poverty, income disparities among Indian people or states will increase. As well, there is
a strong possibility that environmental degradation and energy shortages would become more acute
due to the population pressures.
To sum up, the full-scale liberalization launched in 1992 is certainly changing the scenery of the
Indian economy, but that change is checkered. Some very important reform programs in fields such
as labor, agriculture, and the public sector have been left untouched, and as a result, the impacts of
liberalization have also been checkered. Agenda and non-agenda economic reforms will
continuously be the main issue that determines the future trajectory of Indian economic development,
with the most difficult problem being the fight against the backwardness of society in order to
expand social opportunities for the people10.
10
Jean Dreze and Amartya Sen, India: Development and Participation, Oxford: Oxford University
Press, 2002.
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India into the category of a lower middle-income country, but coupled with factors such as the
country’s huge population and excellent diplomatic ability, India would become a large Asian
political and economic power, next to China.
In 1998, the TIFAC (Technology Information, Forecasting and Assessment Council) report
chaired by the Honorable Dr. Abdul Kalam, the President of India, outlined the vision of building "a
strong India, a developed India and proud India" by establishing a technological basis.11 This vision
is the same as ours. When Japanese started reconstruction and development following World War
, we believed that technological development was the key to re-establishing the Japanese
economy12. The Kalam report also projects the Indian income level for 2020, as presented in Table
12. According to this projection, per capita income of the poorest 10 percent will be US$569, and for
the top 10 percent, it will be US$4,369. The national average is projected to be US$1,539 in 2020.
11
A. P. J. Abdul Kalam with Y. S. Rajan, India 2020: A Vision for the New Millennium, New Delhi:
Penguin Books.
12
Kalam cites an interesting story that was told by an elderly Indian businessman staying in a
Japanese hotel. "In the room where he [that businessman] stayed there was a leaking tap disturbed
his sleep. He complained. Two people came to made it right. They apologized for the convenience
caused to him and informed him of the hotel management's decision not to charge room rent. And
then they showed the tap piece to him and said, 'Sir! Please see, the trouble caused to you is not by a
Japanese product but an imported. We will continue to do better, Sir!" Dr. Kalam resumes this story
that "the message is that most Japanese are proud of their country's capability. They want to excel in
their work. If each of us attempts to do so in our spheres of work the status of developed India will
arrive sooner than we expect." (A. P. J. Abdul Kalam and Y. S. Rajan, op.cit.)
10
Table 1 Trends of Real Economic Growth Rates Percent : At 1993-94 prices
Year Growth Rate of GNP Growth Rate of Per Capita NNP
1991-92 1.1 - 1.5
1992-93 5.1 3.1
1993-94 5.9 3.4
1994-95 7.2 4.9
1995-96 7.5 5.2
1996-97 8.2 6.1
1997-98 4.9 2.6
1998-99 6.4 4.4
1999-2000 6.2 4.3
2000-01* 4.3 2.4
2001-02** 6.0 4.3
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Table 3 Composition of GDS and GDCF (Percent of GDP at current market prices)
Gross Domestic Savings Gross Domestic Capital Formation
------------------------------------------------------------- ----------------------------------------
Year Household Private Public Total Public Private Total***
Sector Corporate Sector Sector Sector
Sector
1991-92 17.0 3.1 2.0 22.0 8.8 13.1 22.6
1992-93 17.5 2.7 1.6 21.8 8.6 15.2 23.6
1993-94 18.4 3.5 0.6 22.5 8.2 13.0 23.1
1994-95 19.7 3.5 1.7 24.8 8.7 14.7 26.0
1995-96 18.2 4.9 2.0 25.1 7.7 18.9 26.9
1996-97 17.0 4.5 1.7 23.2 7.0 14.7 24.5
1997-98 17.6 4.2 1.3 23.1 6.6 16.0 24.6
1998-99 18.8 3.7 -1.0 21.5 6.6 14.8 22.6
1999-2000 20.8 4.4 -1.0 24.1 6.9 16.7 25.2
2000-01* 21.6 4.1 -2.3 23.4 6.4 16.1 24.0
2001-02** 22.5 4.0 -2.5 24.0 6.3 16.1 23.7
*Provisional estimates **Quick estimates ***Adjusted total
Source: GOI Economic Survey 2002-2003
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Table 5 Increases of Market Size for Major Consumer Durables Rs. Crores
――――――――――――――――――――――――――――――
1991 2001
――――――――――――――――――――――――――――――
Washing machines 8 1,829 228 times
PCs/Peripherals 719 9,684 13.5 times
Cars 2,058 16,443 8 times
Television 1,382 7,420 5.4 times
――――――――――――――――――――――――――――――
Source: "Flying High," India Today International, August 11, 2003.
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Table 8 Foreign Investment Inflows (US$ million)
―――――――――――――――――――――――――――――
Year Direct Investment Portfolio Investment Total
―――――――――――――――――――――――――――――
1991-92 129 4 133
1992-93 315 244 559
1993-94 586 3567 4153
1994-95 1314 3824 5138
1995-96 2144 2748 4892
1996-97 2821 3312 6133
1997-98 3557 1828 5385
1998-99 2462 -61 2401
1999-2000 2155 3026 5181
2000-01 2339 2760 5099
2001-02 3904 2021 5925
―――――――――――――――――――――――――――――
Source: GOI Economic Survey 2002-2003, p. 119.
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Table 10 Development of Indian Software Industry US$ million
――――――――――――――――――――――
Year Total Domestic Exports
――――――――――――――――――――――
1989-90 197 97 100
1994-95 835 350 485
1995-96 1224 490 734
1996-97 1755 670 1085
1997-98 2700 950 1750
1998-99 3900 1250 2650
1999-2000 5700 1700 4000
2000-01 8260 1960 6300
2001-02* 11200 2700 8500
――――――――――――――――――――――
* Projection
Source: Nagesh Kumar, "Indian Software Industry Development".
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