experts and various studies conducted across the globe envisage India
and China to rule the world in the 21st century. For over a
century the United States has been the largest economy in the world but
major developments have taken place in the world economy since then,
leading to the shift of focus from the US and the rich countries of
Europe to the two Asian giants - India
rich countries of Europe have seen the greatest decline in global GDP
share by 4.9 percentage points, followed by the US and Japan with a
decline of about 1 percentage point each. Within Asia, the rising
share of China and India has more than made up the declining global
share of Japan since 1990. During the seventies and the eighties, ASEAN
countries and during the eighties South Korea, along with China and
India, contributed to the rising share of Asia in world GDP.
is slated to become the third largest economy with a share of 14.3 per
cent of global economy by 2015 and graduate to become the "third
pole" and growth driver by 2035.
the share of USA in World GDP falls from 21 to 18 per cent and that of
India rises from 6 to 11 per cent in 2025, the latter emerges as third
pole in the global economy, according to ADB India Economic Bulletin.
which is now the fourth largest economy in terms of purchasing power
parity, will overtake Japan and become third major economic power within
growth rate of above 8% was achieved by the Indian economy during the
year 2003-04 and in the advanced estimates for 2004-05, Indian economy
has been predicted to grow at a level of 6.9 %. Growth in the
Indian economy has steadily increased since 1979, averaging 5.7% per
year in the 23-year growth record. Many factors are behind this
robust performance of the Indian economy in 2004-05. High growth
rates in Industry & service sector and a benign world economic
environment provided a backdrop conducive to the Indian economy.
Another positive feature was that the growth was accompanied by
continued maintenance of relative stability of prices. There is a
paramount need to move Indian agriculture
beyond its centuries old dependency on monsoon. This can be
achieved by bringing more area under irrigation and by better water
spite of measures taken to attract Foreign
Direct Investment (FDI), the inflow was below expectations in the
last five years. A significant achievement of the economy in the
external sector has been the steady and sustained improvement in the
balance of payment position. Another notable development was the
decline in the inflation rate during the five years.
Tax (VAT), one of the most radical reforms to be proposed for the Indian
economy, has been approved by 21 Indian States. Over 120 countries
worldwide have introduced VAT over the past three decades and India is
amongst the last few to introduce it.
Government has set up several
committees with a view to pursue economic reforms that enable higher
economic growth and generate more employment, while making the Indian
economy more globally competitive. The Government has also taken several
steps to revitalize the public sector and increase public investment.
Two important institutional innovations have been the creation of the
National Committee on Infrastructure, chaired by the Prime Minister, and
the Investment Commission, chaired by Shri Ratan Tata.
economy is expected to grow at close
to 7 per cent. To step up the rate of growth further, requires more
investment in infrastructure and in agriculture and an improvement in
costs continue to exert pressure on the price front. While work on
the national highways project has been speeded up, port and rail
modernization has acquired a much higher profile recently. Public
and private investment in both areas has been stepped up sharply.
A financial Special Purpose Vehicle has been created to channelize
funds for investment in the infrastructure sector.
reforms began in earnest only in July 1991. The reforms of the
last 10 years have gone a long way toward freeing up the domestic economy
from state control. Progress has also been made in many areas that
were previously off limits to reforms. Insurance has been opened
to private investors, both domestic and foreign. Diesel oil and
gas prices have undergone some increases. At least symbolic
reductions have also been made in fertilizer and food subsidies.
The value-added tax has undergone substantial rationalization.
These reforms have paid handsomely. The economy has grown at more
than 6 percent coupled with full macroeconomic stability.
reforms of the last decade have virtually bypassed agriculture.
Besides fertilizers among others, farmers need adequate supply of water
and electricity. Financial sector reforms, particularly the reform
of banking, remain a distant goal.
foreign banks are now allowed freely to open branches in India, they
have not yet moved in aggressively. Banking sector privatization
will take time but large efficiency gains could be achieved if labor
laws are reformed to restore the hire and fire policy.
most important area of reforms is perhaps India’s
power sector. Virtually no sector of the economy — industry,
agriculture, or services — can achieve successful transformation
without adequate supply of power. Infrastructure is another
important area of reforms. Roads, railways, and ports all need
expansion as well as improvement in the quality of service.
Fertilizer and food subsidies pose yet another challenge. As much
as 0.7 percent of GDP goes into fertilizer subsidies. Finally, the
reform of bureaucracy is essential.
The problem of a bloated bureaucracy and the need for downsizing it is
well recognized. Moreover, the success of the reforms in
delivering growth and poverty
reduction must make the road to future reforms less bumpy.
India for almost four decades the country was pursuing a path of development
in which public sector was expected to be the engine of growth.
However, the public sector had overgrown itself and their shortcomings
started manifesting in the shape of low capacity utilization and low
efficiency due to over manning and poor work ethics, over capitalization
due to substantial time and cost overruns, inability to innovate, take
quick and timely decisions, large interference in decision making
Government started to
deregulate the areas of its operation and subsequently, the
disinvestment in Public Sector Enterprises (PSEs) was announced.
The process of deregulation was aimed at enlarging competition and
allowing new firms to enter the markets. The market was thus
opened up to domestic entrepreneurs / industrialists and norms for entry
of foreign capital were liberalized.
to the current revenue expenditure on items such as interest payments,
wages and salaries of Government employees and subsidies, the Government
is left with hardly any surplus for capital expenditure on social and
physical infrastructure. While the Government would like to spend on
basic education, primary health
and family welfare, large amount of resources are blocked in several
non-strategic sectors such as hotels, trading companies, consultancy
companies, textile companies, chemical and pharmaceuticals companies,
consumer goods companies etc. Additionally, the continued
existence of the PSEs is forcing the Government to commit further
resources for the sustenance of many non-viable PSEs. The
Government continues to expose the taxpayers' money to risk, which it
can readily avoid. To top it all, there is a huge amount of debt
overhang, which needs to be serviced and reduced before money is
available to invest in infrastructure. All this makes
disinvestment of the Government stake in the PSEs absolutely imperative.