Foreign Affairs - The India Model - Gurcharan Das

I have been to India five times since 1968. The last trip was about 7 years ago. The turnabout in India's economy has always been a bit of a mystery to me, given the pervasice beaurocracy and corruption. The author touches upon many aspects of the state of the current Indian economy. He feels that the key to the turnaround were modest liberal refroms initiated by Rajiv Gandhi in the 1980s. This increased economic growth markedly, but also brought India to the point of fiscal crisis in the early 1990s. This led to critical reforms, created by the current Prime Minister, Manmohan Singh, who was then finace minister.
India is a fascinating case study of economic development, and perhaps a model for other developing countries. The article is long, but a good read if you have interest in international economic development...
Foreign Affairs - The India Model - Gurcharan Das: "Although the world has just discovered it, India's economic success is far from new. After three postindependence decades of meager progress, the country's economy grew at 6 percent a year from 1980 to 2002 and at 7.5 percent a year from 2002 to 2006 -- making it one of the world's best-performing economies for a quarter century. In the past two decades, the size of the middle class has quadrupled (to almost 250 million people), and 1 percent of the country's poor have crossed the poverty line every year. At the same time, population growth has slowed from the historic rate of 2.2 percent a year to 1.7 percent today -- meaning that growth has brought large per capita income gains, from $1,178 to $3,051 (in terms of purchasing-power parity) since 1980. India is now the world's fourth-largest economy. Soon it will surpass Japan to become the third-largest.

The notable thing about India's rise is not that it is new, but that its path has been unique. Rather than adopting the classic Asian strategy -- exporting labor-intensive, low-priced manufactured goods to the West -- India has relied on its domestic market more than exports, consumption more than investment, services more than industry, and high-tech more than low-skilled manufacturing. This approach has meant that the Indian economy has been mostly insulated from global downturns, showing a degree of stability that is as impressive as the rate of its expansion. The consumption-driven model is also more people-friendly than other development strategies. As a result, inequality has increased much less in India than in other developing nations. (Its Gini index, a measure of income inequality on a scale of zero to 100, is 33, compared to 41 for the United States, 45 for China, and 59 for Brazil.) Moreover, 30 to 40 percent of GDP growth is due to rising productivity -- a true sign of an economy's health and progress -- rather than to increases in the amount of capital or labor.

But what is most remarkable is that rather than rising with the help of the state, India is in many ways rising despite the state. The entrepreneur is clearly at the center of India's success story. India now boasts highly competitive private companies, a booming stock market, and a modern, well-disciplined financial sector. And since 1991 especially, the Indian state has been gradually moving out of the way -- not graciously, but kicked and dragged into implementing economic reforms. It has lowered trade barriers and tax rates, broken state monopolies, unshackled industry, encouraged competition, and opened up to the rest of the world. The pace has been slow, but the reforms are starting to add up."