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 Das piece also discusses the impediments to India's economic performance imposed by the state-socialist policies of Jawaharlal Nehru and Indira Gandhi.
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.
India's rise poses questions about the future of the international balance of capabilities. C. Raja Mohan, in "India and the Balance of Power," discusses India's growing power and the role of the Indian state in the struggle for mastery in international politics:
After disappointing itself for decades, India is now on the verge of becoming a great power. The world started to take notice of India's rise when New Delhi signed a nuclear pact with President George W. Bush in July 2005, but that breakthrough is only one dimension of the dramatic transformation of Indian foreign policy that has taken place since the end of the Cold War. After more than a half century of false starts and unrealized potential, India is now emerging as the swing state in the global balance of power. In the coming years, it will have an opportunity to shape outcomes on the most critical issues of the twenty-first century: the construction of Asian stability, the political modernization of the greater Middle East, and the management of globalization.The triumphalist tone of the Foreign Affairs series is not universally adopted among analysts of India's economic performance. Pankaj Mishra's got a piece up at the New York Times suggesting that India's neoliberal economic reforms have been unable to alleviate the poverty and suffering of millions of Indian citizens:
Although India's economic growth has been widely discussed, its new foreign policy has been less noted. Unlike their U.S. counterparts, Indian leaders do not announce new foreign policy doctrines. Nonetheless, in recent years, they have worked relentlessly to elevate India's regional and international standing and to increase its power. New Delhi has made concerted efforts to reshape its immediate neighborhood, find a modus vivendi with China and Pakistan (its two regional rivals), and reclaim its standing in the "near abroad": parts of Africa, the Persian Gulf, Central and Southeast Asia, and the Indian Ocean region. At the same time, it has expanded relations with the existing great powers -- especially the United States.
India is arriving on the world stage as the first large, economically powerful, culturally vibrant, multiethnic, multireligious democracy outside of the geographic West. As it rises, India has the potential to become a leading member of the "political West" and to play a key role in the great political struggles of the next decades. Whether it will, and how soon, depends above all on the readiness of the Western powers to engage India on its own terms.
Since the early 1990's, when the Indian economy was liberalized, India has emerged as the world leader in information technology and business outsourcing, with an average growth of about 6 percent a year. Growing foreign investment and easy credit have fueled a consumer revolution in urban areas. With their Starbucks-style coffee bars, Blackberry-wielding young professionals, and shopping malls selling luxury brand names, large parts of Indian cities strive to resemble Manhattan.Time Magazine also ran a symposium on India a couple of weeks back. The lead article in that series also discussed India's difficulties in allieviating poverty. The Time article compared India's growth to China's, but also stressed India's democratic status. India is one of the Third World's most established democracies. India's state, with its democratic structures and norms, will likely have a more peaceful impact on international politics than China. As noted by Mohan in the Foreign Affairs piece cited above, the potential emergence of a U.S.-India alliance may be critical to managing future security challenges in the international sytem.
Indian business tycoons are increasingly trying to control marquee names like Taittinger Champagne and the Carlyle Hotel in New York. "India Everywhere" was the slogan of the Indian business leaders at the World Economic Forum in Davos, Switzerland, this year.
But the increasingly common, business-centric view of India suppresses more facts than it reveals. Recent accounts of the alleged rise of India barely mention the fact that the country's $728 per capita gross domestic product is just slightly higher than that of sub-Saharan Africa and that, as the 2005 United Nations Human Development Report puts it, even if it sustains its current high growth rates, India will not catch up with high-income countries until 2106.
Nor is India rising very fast on the report's Human Development index, where it ranks 127, just two rungs above Myanmar and more than 70 below Cuba and Mexico. Despite a recent reduction in poverty levels, nearly 380 million Indians still live on less than a dollar a day.
Malnutrition affects half of all children in India, and there is little sign that they are being helped by the country's market reforms, which have focused on creating private wealth rather than expanding access to health care and education. Despite the country's growing economy, 2.5 million Indian children die annually, accounting for one out of every five child deaths worldwide; and facilities for primary education have collapsed in large parts of the country (the official literacy rate of 61 percent includes many who can barely write their names). In the countryside, where 70 percent of India's population lives, the government has reported that about 100,000 farmers committed suicide between 1993 and 2003.
Feeding on the resentment of those left behind by the urban-oriented economic growth, communist insurgencies (unrelated to India's parliamentary communist parties) have erupted in some of the most populous and poorest parts of north and central India. The Indian government no longer effectively controls many of the districts where communists battle landlords and police, imposing a harsh form of justice on a largely hapless rural population.
The potential for conflict — among castes as well as classes — also grows in urban areas, where India's cruel social and economic disparities are as evident as its new prosperity. The main reason for this is that India's economic growth has been largely jobless. Only 1.3 million out of a working population of 400 million are employed in the information technology and business processing industries that make up the so-called new economy.
No labor-intensive manufacturing boom of the kind that powered the economic growth of almost every developed and developing country in the world has yet occurred in India. Unlike China, India still imports more than it exports. This means that as 70 million more people enter the work force in the next five years, most of them without the skills required for the new economy, unemployment and inequality could provoke even more social instability than they have already.