Reviewing India Economy – Progress and Prospects

A nice speech by Deepak Mohanty of RBI. A nice snapshot of the progress so far (focusing on 1990s crisis and progress from then) and challenges ahead.

In the end he says:

Envisioning India’s emergence as a major economic power in the world, Dr. Manmohan Singh in his Union Budget 1991-92 speech that launched wide ranging economic reforms had quoted Victor Hugo’s saying, “no power on earth can stop an idea whose time has come”. Ever since, there has been no looking back as India launched wide ranging structural reforms and has made significant economic progress over the past two decades. India’s industrial environment has become more competitive and open, infrastructural gaps have been sought to be bridged through public-private initiatives with both domestic and foreign sources of funding, current account has become fully convertible while capital account is virtually free for non-residents.

The policy environment has become more enabling with rule-based commitment on fiscal policy and considerable instrument independence for operation of monetary policy. As statutory preemptions were reduced and interest rates were deregulated, banks gained operational autonomy for commercial lending. As a result, India’s per capita income, which had taken four decades to double by 1991, doubled thereafter in 15 years and is likely to double again in 10 years by 2017-18. If India could maintain the current pace of growth it will lift millions out of poverty and enrich the global economy. While India has come a long way, maintaining the current pace would itself be challenging and require continued reform efforts.

2 Responses to “Reviewing India Economy – Progress and Prospects”

  1. Ramesh Kumar Nanjundaiya Says:

    My comments below in response to a study on the current Indian Economy in a World Bank blog on India titled – The India Paradox: Promoting Competitive Industries in a High-Growth Country.

    I hope it should make an interesting response to above speech as well.

    What is the current state of the Indian Economy and where is it headed – While I fully understand and appreciate Hausmann’s views that diversification in the economic structure, and not necessarily specialization, may be a crucial factor for accelerating growth in India, his observation that rich economies produce many products whereas developing economies produce few products that are also made in rich economies calls for a discussion. It is true, that this relationship exists not only between countries, but also between cities within a country. What is therefore the secret of India’s economic growth rate in the past decade which has been nothing short of spectacular? With its GDP growth around 7 to 9 percent per year, India is the second-fastest-growing large economy in the world. Who is the driver for this. Before we answer this, one needs to revisit the American Economic Historian W.W. Rostow who in the sixties had suggested that countries passed through 5 stages of economic development as Traditional Society, Transitional Stage, Take-off, Drive to Maturity and High Mass Consumption., Would this today apply to India. Many development economists argue that Rostows’s model was developed with Western cultures in mind and not applicable to developing countries as India as it is generalised and policy makers are unable to identify the various stages as they seem to overlap each other. It depends how you look at it. It is a growth model and we should examine if there is actual all round development to witness the 9% GDP growth. One of the contributors for this is the growing “Indian Middle Class”. While the reasons are varied, but one which has really propelled up the Indian economy ( I would say, in the last 6 years) is the growing buying power of people in the so called “Middle Income Group” which in the case of India, per my estimation, represents almost 300 million people. This is a huge market to cater to and is growing. This group is the one which is pushing demand locally and thus giving a boast to the economy. It is a life cycle change in the population group. This is the group which is spending on all goods and related services. Because of such a growth demand for goods/services, banks will certainly witness increase in their lending in the next couple of years. This fuels continuous economic growth (notwithstanding inflation) The rosy side is that when the economy grows, the equity markets become much more active and again adds for the economy growth with more people coming into the “Middle Income Group of People” or the people with buying power or cash to spend. Thus going back to W.W. Rostow, we are somewhere in between stage 3 and 4. But at this stage, one needs to be very careful. While India seems to be embarking on a high-growth strategy today, it must guard and overcome some global trends which include global warming, the falling relative price of manufactured goods and rising relative price of commodities, including energy; swelling discontent with globalization in advanced and some developing economies, the various ongoing “scams” which could eat upto 2% of the GDP, the growing “young population” which should not become a struggle to cope with and the ongoing mismatch between global problems—in economics, health, climate change, and other areas—and weakly coordinated international responses. Notwithstanding the challenges, the support of the global economy remains central for the current Indian growth story or as they call it the – The India Paradox: Promoting Competitive Industries in a High-Growth Country.

  2. mining asia Says:

    mining asia…

    […]Reviewing India Economy – Progress and Prospects « Mostly Economics[…]…

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