India’s economic outlook & perspectives on international development

Prime Minister’s speech at Columbia University

New York,
September 24, 2003

Professor Bollinger,
Professor Sachs,
Distinguished Guests,

I am honoured to be here in the oldest institution of higher learning of the State of New York, as it enters its 250th year. I thank Professor Jeffrey Sachs for his invitation to me. When he wrote to me, I was particularly struck by his reference to the Global Development Dialogue, which I have been advocating for the last few years. The Earth Institute, which he heads, has done valuable work on issues of the greatest concern to developing countries. It is now pioneering a major programme of policy research on the Indian economy.

Much has been written and said about the Indian economy in recent years. We have seen positive appraisals of our progress, as well as impatience at the pace of our reforms. Investment Fund managers and credit rating agencies have shown a cyclical pattern of “thumbs up” or “thumbs down” to sectors of our economy over the last decade. Our reforms have often been compared with those of others, with both flattering and critical conclusions.

I would like to focus today on this theme of where the Indian economy is, and where we would like to take it in the foreseeable future.

Since our economic reforms were launched just over a decade ago, the Indian economy has sustained an annual average growth of over 6%. This average actually masks much faster progress in the west and south of India, where the growth in the nineties was comparable to that of the Southeast and East Asian Tigers in their prime. Even though last year was a drought year, GDP growth exceeded 4%. This year we expect to touch nearly 7%.

Our foreign exchange reserves are nearly US$ 90 billion and fast moving towards the 100 billion mark. The current account deficit turned into a surplus over the last three years. This was achieved through non-debt creating flows, so that our external debt has remained virtually static in nominal terms. The debt servicing and debt GDP ratios have fallen sharply. We are now repaying foreign debt ahead of schedule. This year alone we have prepaid about US$ 3 billion.

From a food deficient country, India has moved to a self-sufficient one. During the current year, close to 7 billion dollars of agricultural produce was exported. India is the world’s largest producer of milk and among the largest producers of sugar, eggs and fish.

Though impressive, these aggregate figures do not fully capture the quiet transformation that is taking place at the level of enterprises and individuals. Indian enterprises are reaching global scales in quality and output. Corporations from all over the world are coming to India for manufacturing or services.

India is becoming a production base and an export hub for diverse goods, from agricultural products to automobile components to high-end services. Indian firms are now part of global production chains – importing sub-assemblies, adding value to them and re-exporting them. Taking advantage of its pool of high-quality scientific talent, international corporations have established large R & D centres in India.

All these strengths have resulted in a greater integration with world trade and our trade has risen from 21 per cent to 33 per cent of our GDP in a decade.

Information technology is transforming rural lives. In a quiet revolution that has linked rural credit with modern technology, 30 million farmer credit cards have been issued in the past five years.

Our strong economic growth is succeeding in bringing people out of poverty. 60 million people emerged from the ranks of the poor in a six year period. We have still a long way to go before we can eradicate poverty in our country. However, it increasingly appears that the ingredients of rapid poverty eradication are falling into place.

From roads to telecommunication, we are seeing the beginning of a qualitative change and growth in infrastructure. In the last three or four months, India has been adding nearly 2 million mobile connections every month. The enormous successes of our IT professionals and the new successes of IT enabled services have been made possible by the fact that the data and voice carrying capacity in India today is 75 thousand times what it was just 4 years ago. We have launched an ambitious project for a highways network, which would link our major metropolitan centres and provide improved connectivity to our rural areas. These roads are already transforming our economy, as your freeways did to your economy many decades ago. Upgradation of facilities has sharply reduced the turn-around time in Indian ports.

We have taken many steps towards energy security. There have been 7 major finds in 4 areas in India. We have invested in oil fields abroad – in Sakhalin in Russia with an investment of $ 2 billion; in Sudan with an investment of about $ 1 billion; in Vietnam, Libya, Syria and other countries.

In the field of science, India is one of only three countries which have indigenously built super computers and one of the six countries in the world that builds and launches satellites. Two years ago, we launched a satellite into geo-stationary orbit. We plan to send a spacecraft to the moon in the next five years.

Today, India has the confidence that the basic fundamentals of the Indian economy are sounder than they have been for several decades. A young, better-educated, more confident, and increasingly impatient Indian population is driving India’s progress and demanding from government the conditions to fulfil its aspirations.

The biggest challenge that our economy faces is our fiscal deficit. To remedy this, we have embarked on a transformation of the tax regime, improving the tax collection machinery and introducing a simple and rational tax code. We are moving towards implementation of a value added tax. We are working towards more accurately targeted subsidies and full recovery of user charges for infrastructure. To underline our commitment to this endeavour, we recently passed fiscal responsibility legislation, whereby we are required to bring down our revenue deficit to zero within the next five years. This is a daunting task, but we are hopeful of achieving it.

I have dwelt on India’s economic achievements in some detail because many of these do not capture news headlines. These achievements also show that there is no weakening in India’s resolve to continue with the reform process. Expanding the role of market forces is an imperative of globalization and will remain the central theme of our reforms.

Of course, there has been a keen debate in our country on the pace and sequence of reforms. This is both inevitable and desirable. Our effort has consistently been to cushion the impact of reforms on the poorer sections of our society. We have tried to reconcile competing interests and to avoid sudden disruptions in our economy. We believe that reforms following a democratic consensus are enduring, as all constituencies are carried along with us.

It is also my conviction that the new experience of successful coalition governments in India has been ideal for democratic governance, balancing divergent views and accommodating regional and sectoral interests more effectively. India is a rare multi-cultural, multi-religious, multi-ethnic and multi-lingual democracy in the world. We have an open and vibrant press, free and fair elections and an independent judiciary. This imparts stability and consistency to economic policy-making.

Where will the Indian economy go in the future? Looking at opportunities and challenges, I see an ever-brightening horizon.

Our software industry has been growing from strength to strength. The competitive edge of our IT industry will be enhanced by value-addition in software and by our rapid advances in our hardware industry. The balance between volumes and value will add strength to the IT industry.

Opportunities are also multi-fold in biotechnology. Research & Development has opened a wide avenue of growth in health support systems. Clinical research is breaching new frontiers in medicine. Advances in biogenetics reach out into agriculture and food-processing chains, which will provide livelihood security for our masses.

The architecture of our financial institutions is now comparable to the best in the world. The securities markets are a major success story. On-screen trading has brought security and speed to share market transactions. Other products like interest rate derivatives, equity and commodities futures provide a range of trade opportunities, not available in many countries. Since India is well positioned in the time zone between New York and Tokyo, I see India emerging as a centre of financial transaction and intermediation. We are developing strategies and strengthening structures to enable this. The sound regulatory framework and availability of skilled manpower make this goal achievable.

I have already mentioned that Indian industry is today globally competitive. We will expand the areas of its manufacturing excellence and widen their reach.

Finally, it is my dream that the capabilities of knowledge that India possesses should be converted into products of universal use. To secure positions of excellence through a service-oriented economy and to provide products and solutions for human need would be the growth vision for India.

Distinguished Guests,

While documenting India’s economic achievements and articulating its goals and aspirations, I am conscious that we do not function in a vacuum. As a developing country, India is profoundly affected by trends in international trading and investment regimes, developments in the agenda of globalisation and realisation of the goals of sustainable development.

We were therefore deeply disappointed by the lack of positive outcome on the Doha development agenda at Cancun recently. India has over a half billion people dependent on agriculture for their food security, livelihood security and rural development. Along with other developing countries, we had hoped that the distortions caused by domestic support and export subsidy in developed countries could be corrected. The developing countries are also severely affected by the asymmetries and imbalances of the Uruguay Round which have not been addressed. The headlong march towards market access by the industrialised countries denies the necessary policy space for developing countries seeking to industrialise. At the same time, the developing countries have been denied free access for their trained manpower to the developed economies.

The uneven spread of the benefits of globalisation continues to accentuate disparities. The resources for development available to developing countries remain far short of the needs. The Convention on Biodiversity has failed to transfer technologies to developing countries in return for their biodiversity resources.

As the Indian economy motors on towards further growth and versatility, India will also work along with developing countries to remedy the inequities of the international economic system. We firmly believe that in the inter-dependent world of today, it is no longer possible to sustain islands of development surrounded by underdevelopment and deprivation. The world needs to recognize this and take corresponding measures.

Thank you.