South Asia Program

 

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.

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 consisting of stabilization-cum-structural adjustment measures was put in place with a view to attain macroeconomic stability and higher rates of economic growth.  Some rethinking on economic policy had begun in the early 1980s, when the limitations of the earlier strategy based upon import substitution, public sector dominance and extensive government control over private sector activity had become evident, but the policy response was limited only to liberalizing particular aspects of the control system.

By contrast, the reforms in the 1990s in the industrial, trade, and financial sectors, among others, were much wider and deeper. As a consequence, they have contributed more meaningfully in attaining higher rates of growth. Five different governments have been in office since the reforms began in the early 1990s - the Congress government which initiated the reforms in 1991, the United Front coalition (1996-98) which continued the process, the BJP led coalition which took office in March 1998 and then again the BJP led National Democratic Alliance (October 1999-April 2004) and then the Congress led United Progressive Alliance from May 2004 until the present. In short, it seems that India's political system is more than ever in consensus about the basic direction of reforms.

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

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.

Prof. Jeffrey Sachs, Director of the Earth Institute at Columbia University, and Dr. Nirupam Bajpai, Director of the South Asia Program at CGSD, with the Honorable Dr. Manmohan Singh, Prime Minister of India, on June 18th, 2004.

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.

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.

CGSD's work on the Indian economy and India's economic reforms is a continuation of the work begun at the Harvard's Center for International Development (CID), Harvard University. Led by Columbia economists Nirupam Bajpai and Jeffrey Sachs, this is a major program of policy-oriented research on the Indian economy. While CGSD's professional staff are predominantly engaged in the India-related research and advisory work, other centers of the Earth Institute, and more generally other schools at Columbia University also actively participate in the activities of the Program. The details of CGSD's India projects can be found here.

Details of the India Program at Harvard University (from 1995 to 2002) can be found at http://www.cid.harvard.edu/archive/india/index.html

For more information, please contact Dr. Nirupam Bajpai