South Asia Program

 

As one of the most important emerging markets in the world with tremendous potential for sustained high rates of economic growth, India is increasingly becoming a key player in the world economy.  In response to a fiscal and balance of payments crisis in 1991, India launched a program of economic policy reforms. The program sought to implement stabilization and structural adjustment measures to attain macroeconomic stability and higher rates of economic growth.  Planning to reform Indian economic policy had begun in the early 1980s, when the limitations of import substitution, public sector dominance and extensive government control over private sector activity became evident, but the policy response was limited to only liberalizing particular aspects of the control system.

The reforms in the 1990s of the industrial, trade, and financial sectors, were much more substantial, contributing to significantly higher rates of growth. Five different governments have been in office since the reforms began in the early 1990s, and despite political differences, it is evident that there is consensus regarding the necessity, direction and progress of the economic reforms instituted in 1991.

Almost 20 years of opening the economy has produced a new economic dynamism, most dramatically in the information technology sector. Competition is driving growth in many other sectors as well, particularly in steel, textiles, pharmaceuticals, automobiles, home appliances, packaged food, banking and insurance. New technologies (especially information technology and biotechnology) give new opportunities for economic and social development.

The reforms implemented so far have helped India attain more than 8% growth. Stronger growth should attract more foreign savings, especially foreign direct investment, raising rate of investment. To sustain and even surpass these rates of economic growth, is important for India to implement the remaining reforms and re-orient governmental spending away from inessential expenditures towards high priority areas of health, education and infrastructure development. If India grows consistently at around 9% per year, domestic savings will increase even more in the next few years.

Between the years 2003/04 to 2006/07, India’s GDP has grown at an average rate of 8.6 percent a year. In particular, in 2006/07 the GDP grew at a rate of 9.4 percent. All the indicators are looking positive. Gross Domestic Capital Formation (GDFC) as a proportion of GDP is estimated at a little over 35 percent. Inflation measured by the wholesale price index (WPI) is 3.3 percent. Foreign exchange reserves stand at nearly US $ 230 billion.

India’s current high growth is essentially being driven by domestic consumption. The annual growth in real consumption expenditure over the past four years has been, on average, 6.3 percent. With easy liquidity conditions spurring demand for personal loans, and adequate capacity in the manufacturing sector, there has been a consumption boom. Also, rising investment is contributing to India’s growth. The consumption boom that started at the beginning of this decade has triggered an investment boom. Real investment has grown at a robust rate since 2002-03, averaging 17 percent a year in the past four years. During this period, the contribution of investment to growth has exceeded the contribution of final consumption expenditure. The current investment rate, as a proportion of GDP, is 35.1 percent. And, of course, the increase in productivity of both capital and labor is also a major factor in India achieving high rates of economic growth. India has clearly attained high rates of growth, but the challenge really is to sustain it overtime and spread the benefits of growth into smaller towns and villages and making it more inclusive.

India could not insulate itself from the adverse developments in the international financial markets, despite having a banking and financial system that had little to do with investments in structured financial instruments carved out of subprime mortgages, whose failure had set off the chain of events culminating in a global crisis. Economic growth decelerated in 2008-09 to 6.7 percent. This represented a decline of 2.1 percent from the average growth rate of 8.8 percent in the previous five years (2003-04 to 2007-08). Per capita GDP growth grew by an estimated 4.6 percent in 2008-09. Though this represents a substantial slowdown from the average growth of 7.3 percent per annum during the previous five years, it is still significantly higher than the average 3.3 percent per annum income growth during 1998-99 to 2002-03.

The effect of the crisis on the Indian economy was not significant in the beginning. The initial effect of the subprime crisis was, in fact, positive, as the country received accelerated Foreign Institutional Investment (FII) flows during September 2007 to January 2008. There was a general belief at this time that the emerging economies could remain largely insulated from the crisis and provide an alternative engine of growth to the world economy. The argument soon proved unfounded as the global crisis intensified and spread to the emerging economies through capital and current account of the balance of payments. The net portfolio flows to India soon turned negative as Foreign Institutional Investors rushed to sell equity stakes in a bid to replenish overseas cash balances. This had a knock-on effect on the stock market and the exchange rates through creating the supply demand imbalance in the foreign exchange market. The current account was affected mainly after September 2008 through slowdown in exports. Despite setbacks, however, the BoP situation of the country continues to remain resilient.

Nirupam Bajpai with His Excellency Dr. APJ Kalam, President of India, in New Delhi on August 5, 2004.

The challenges that confronted the Indian economy in 2008-09 and continue to do so in 2009-10 fall into two categories - the short-term macroeconomic challenges of monetary and fiscal policy and the medium-term challenge of attaining and sustaining high rates of economic growth. The former covers issues such as the trade-off between inflation and growth, the use of monetary policy versus use of fiscal policy, their relative effectiveness and coordination between the two. The latter includes the tension between short- and long-term fiscal policy, the immediate longer term imperatives of monetary policy and the policy and institutional reforms necessary for restoring high growth.

With a GDP growth of 6.1 percent in the first quarter and 7.9 percent in the second quarter (July-September) of 2009-10, an economic recovery seems well underway. India’s Q2 GDP growth rate is very satisfactory, given the current economic scenario in which manufacturing and demand creation is still a challenge. When compared to countries across the world, India stands out as one of the best performing economies. Although there is a clear moderation in growth from 9 percent levels to 6+ percent, the pace still makes India the fastest growing major economy after China. Timely interventions with counter-cyclical fiscal and monetary measures are helping the economy recover from the global crisis.

Despite a marked reduction in poverty, about 26 percent of the population of India still lives in extreme poverty. A larger proportion of the population is affected because of the inadequacy or absence of many public goods and services such as clean drinking water, sanitation, schools, basic healthcare, electricity and roads. While the government has been increasing the outlays for all these sectors over the last several years, there is not yet in place a mechanism that will ensure that the deliverables are indeed delivered or that the public goods and services are of acceptable quality and have reached the intended beneficiaries.

The Center for Globalization and Sustainable Development’s work on the Indian economy and India's economic reforms seeks to assist in addressing these observed gaps with evidence-based intervention and policy.

In his address to Columbia University in 2003, former Indian Prime Minister Atal Bihari Vajpayee spoke of the current state of India's economy and future economic directions. He commented on the significance of Jeffrey Sachs' invitation extended to India to participate in the global development dialogue at Columbia University, and said that the Earth Institute "pioneer[s] a major program of policy research on the Indian economy." Shree Vajpayee concluded by acknowledging the valuable connections of the Earth Institute's work on "issues of the greatest concern to developing countries."

Left to Right: Lalit Mansingh, India's former Ambassador to the United States; Jeffrey Sachs, Director of the Earth Institute; The Honorable Atal Bihari Vajpayee, former Prime Minister of India; Nirupam Bajpai, Director of the Earth Institute's South Asia Program; Parmesh Godrej; Lee Bollinger, President of Columbia University; and India's former Consul General in New York, Pramathesh Rath.

In light of India’s economic progress and the growing worldwide interest in India, The Center for Globalization and Sustainable Development’s work leads a major policy research program aiming to deepen understanding of the Indian economy, policy, and society among U.S. academics, policy makers in India and abroad, and the international business community. Led by Columbia economists Nirupam Bajpai and Jeffrey Sachs, CGSD's work on the Indian economy and India's economic reforms is a continuation of the work begun at the Center for International Development (CID) at Harvard University.

More than a decade-and-a-half of opening up of the economy has produced new dynamism, most dramatically in the information technology sector, but in others as well. Competition is driving growth in many other sectors: steel, textiles, pharmaceuticals, automobiles, home appliances, packaged food, computer hardware and software, banking and insurance. The new technologies (especially information technology and biotechnology) give new opportunities for economic and social development. The reforms implemented so far have helped India attain 8 plus percent growth; however, should India be able to implement the remaining reforms and re-orient governmental spending away from inessential expenditures towards high priority areas of health, education and infrastructure development, then it is very likely to attain and sustain even higher rates of economic growth. If India does grow consistently at around 9 percent per year, this is likely to push up its domestic savings even further in the next few years. Besides, stronger growth should attract more foreign savings, especially foreign direct investment, and thus raise the investment rate.     

Between the years 2003/04 to 2006/07, India’s GDP has grown at an average rate of 8.6 percent a year. In particular, in 2006/07 the GDP grew at a rate of 9.4 percent. All the indicators are looking positive. Gross Domestic Capital Formation (GDFC) as a proportion of GDP is estimated at a little over 35 percent. Inflation measured by the wholesale price index (WPI) is 3.3 percent. Foreign exchange reserves stand at nearly US $ 230 billion.

Specifically, this program focuses on strategies to address regional income inequality; fiscal consolidation and its challenges; comparative studies of the Chinese and Indian reform experiences; foreign direct investment; outsourcing and issues of costs and quality; challenges of state government finances; regional growth patterns; impact of geography and demography on Indian states; and achieving the Millennium Development Goals.

CGSD's work in India is at the state level; the Center collaborates with local governments to achieve rapid economic growth via continued reforms that improve institutions and economic policies. CGSD also collaborates with research institutes in India, including The Energy and Resources Institute (TERI) and the Indian Institute of Management in Ahmedabad (IIM-A).

 

Current Research and Programs:

I. International Advisory Panel (IAP) for the National Rural Health Mission

An International Advisory Panel advise the Minister of Health & Family Welfare, Government of India, and senior officials of the Ministry on strategies to achieve key objectives of the National Rural Health Mission (NRHM).  Click here for the 2009 IAP Report.

The Center on Globalization and Sustainable Development (CGSD) of the Earth Institute at Columbia University, works closely with NRHM leadership on issues related to the Mission. In 2006, the former Union Minister of Health & Family Welfare (MOHFW),  Dr. Anbumani Ramadoss, requested that the Earth Institute to assemble an international group of experts on various aspects of the NRHM to provide broad advice on some of the key issues and challenges facing the Mission.  Through the support of the Bill and Melinda Gates Foundation, the International Advisory Panel met six times between 2006 and 2009.  to discuss strategies to address the following areas:

1. Improving governance, district-level planning, demand-side financing and public-private partnerships focusing on core reproductive, maternal, newborn and child health issues.
2. Reducing infant mortality to 30/1,000 live births and reducing maternal mortality to 100/100,000 live births by 2012
3. Strengthening inter-sectoral linkages in the areas of nutrition, sanitation and safe drinking water for substantially improved health outcomes for maternal, and newborn and child health issues.
4. Improving health service delivery through the Accredited Social Health Activist (ASHA) for universal immunization, safe child delivery, and newborn care.
5. Preventing of water-borne and other communicable diseases.
6. Implementing public health training to enhance capacity of the Panchayati Raj Institutions (PRIs) to own, control and manage public health services in their districts.

Over the next two years, among other areas, the IAP plans to direct its efforts on the following priority areas with the Ministry of Health & Family Welfare in Delhi, now led by Shri Ghulam Nabi Azad:

1. Neonatal mortality, accounting for roughly 50 percent of under-5 deaths in India.
2. Under-5 deaths, including the significant proportion of which are vaccine-preventable. 
3. Improved performance of community health workers (ASHAs) in India;
4. Improved integration of health and nutrition sectors in India;
5. Improved availability of skilled birth attendants (SBAs) in India;
6. Improved availability of specialists services in rural areas;
7. Use of IT in the training and deployment of the ASHAs;
8. Effective and efficient management structures at the village, block and district levels;
9. Strategies to bring down deaths due to diarrhea, pneumonia and neonatal mortality; and
10. Work with the Ministry of Health and collaborating partners to establish five model districts in rural India.
    

II. NRHM Model District Project

CGSD at the Earth Institute at Columbia University along with its partners in the Indian Ministry of Health and Family Welfare (MOH) and the Government of India have decided to select five districts to serve as a “Model Districts” (MD) to help understand the challenges India faces to grapple with properly designing, managing, and implementing scaled-up health systems, particularly in its large rural areas.

A district, brought to full-scale, will serve as a research and demonstration program—testing how to deliver new intervention packages at the district-level by addressing the physical and human resource requirements for quality healthcare delivery.  This will be done both by challenging existing resources (both human and physical) to perform better, and by providing new inputs where these systems are already performing at maximum capacity.  Salient features of the Model District will include a public health model wherein training, surveillance, a health worker intervention strategy, and specific disease foci are addressed. 
The overall program goal is to help establish a comprehensive public health system in the MDs to offer a roadmap for other districts seeking to provide high-performance primary health care in the public sector.

III Earth Institute/UNICEF Partnership in India

The emerging importance of strategic international partnerships to address the needs of the rural poor in India has resulted in the proposed landmark initiative between UNICEF India and the Earth Institute (EI).  This collaboration will help to amplify the focus on the health needs of Indians in poor settings served by the work of the National Rural Health Mission (NRHM) and build upon existing efforts underway by both UNICEF India and the Earth Institute, along with other partners.  Specifically, this partnership focuses on maternal and child health in rural settings and seeks to assist the NRHM in strengthening community health worker systems, integrating the health and nutrition sectors, improvement of services in rural areas and increased access to skilled birth attendants.

For more information about CGSD’s work in South Asia, please contact Nirupam Bajpai.

 

Dr. Nirupam Bajpai, Senior Development Advisor and Director, South Asia Program, CGSD with the Honorable Dr. Manmohan Singh, Prime Minister of India in New Delhi on March 17, 2007.