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With a liberal and market-oriented climate, the outlook for India over the next 25 years is optimistic. This article predicts a real rate of economic growth of 5.5% and a fall in population growth from 1.9% in the 1990s to 0.6% after 2020: India looks forward to per capita incomes over 2 1/2 times as high as now. India is also by now fully capable of taking advantage of global competition and will become a much bigger force in international trade and investment This is the third and last in the 1995 series of Stockton Lectures on the theme "The World Economy in 2020: the Rise of Russia, China and India". The first two lectures appeared in the last issue of Business Strategy Review (Summer 1995.)
It is indeed a great pleasure to be back at the school -- and for once I am not referring to the other school at Aldwycb! As a Governor of the London Business School, I was privileged to attend several Stockton Lectures in the 1980s; and it is a great honour now to be asked to deliver one in this year's series on the World Economy.
The task assigned to me is to reflect on the shape and size of the Indian economy in the year 2020 and to explore, among other things, what the economic transformation in India might imply for western capital markets, for trends towards regionalism in Europe and elsewhere, for the environment and for the opportunities for British business in general. There is now renewed interest in India in Britain, particularly after the series of economic reforms begun in 1991; and I should certainly try and respond to this interest.
But, on a deeper and more abiding plane, the primary focus in looking at India's future must be the well-being of millions of Indians for whom life is still an uphill struggle against utter destitution. Is there at least a glimmer of hope that the next 25 years will mark a decisive onslaught on Indian poverty and want? To look at the future without addressing this question would be largely an exercise in irrelevance.
Again, the question as to what India might be like in the year 2020 is not just one of forecasting or of knowledge for the sake of knowledge. Implied in the question must be another more relevant one: what can be done, both by Indians and their well-wishers abroad, to improve India's prospects? This too is something to which I will turn towards the end of my remarks.
A 20-20 vision about the distant future is, of course, never possible. But one should not be unduly troubled by this fact. The past carries the seeds of the future; and the recent past in India is well documented. We also have comparative knowledge of what has happened in many other parts of the world. In any case, we are concerned here with orders of magnitude and not with decimal point accuracy.
The Indian economy recovered remarkably quickly from the horrors of Partition, and by 1951, the country had begun to plan seriously for its economic future. The progress over the next 30 years, by India's own historical standards, was commendable. But it was not striking or spectacular. Indeed, at an average of 3.5% per annum in real terms, the rate of growth in national income between 1951 and 1981 may well be called lackluster, particularly when set against the growth in population. Population growth itself reflects modest improvements in conditions of life as a result of a significant decline in mortality. But it also makes the task of development more difficult and its fruits less beneficial in terms of individual well-being.
Inflation was rather low at 5% per annum in the 1950s, but accelerated somewhat during the sixties and the seventies. During the 1960s, the Indian economy also suffered from severe shortages of food and foreign exchange. In general, the 1970s were marked by some recovery, particularly in agricultural production.
In the 1980s, when Africa and Latin America took a downward plunge, the Indian rate of growth accelerated smartly to some 5.5% per annum. With hindsight, one can say that this rate of growth was unsustainable, based as it was on internal and external financial profligacy. But there was a solid base in the acceleration as well. It reflected the earlier progress in industry, agriculture and the social and economic infrastructure; and it would not be unrealistic to claim that the underlying sustainable rate in the 1980s was of the order of 4.5% per annum. During this decade, while the balance of payments fluctuated, inflation did not accelerate and, on an average, remained around 8 to 9% per annum. The fly in the ointment was, of course, the large increase in internal and external debt which precipitated the crisis of 1990-91.
After the introduction of far-reaching economic reforms in 1991 and in subsequent years, there was initially a setback with regard to growth and inflation. But it was nothing like the shock-effects of reform in Latin America or Eastern Europe; and there has been a distinct revival over the past two years. The rate of growth may well average 4% per annum in the first half of the 1990s; and in 1994-95, we have reached, once again, a rate of growth of just under 5.5% -- this time, without any balance of payments crisis and with some decline in budget deficits and the rate of inflation. Indeed, with the increase in foreign exchange reserves, which now stand at more than $20bn, the transformation in the payments position has been remarkable, even allowing for the fact that it reflects in part an inflow of capital and some sluggishness of imports which should pick up in the near future. But exports have been growing handsomely at more than 15% per year in dollar terms, so that the overall balance of payments is healthy. The growth in external debt has also been brought down significantly. With 30 million tons of food grains in government stocks, there is adequate insurance against one or two adverse monsoons.
Can such a rate of growth be sustained over the next 25 years? Can we even hope to approximate the much higher rates of growth of 8% per annum or more attributed to the Asian tigers? Equally important, will there be a significant increase in the rate of fertility decline to make this growth more meaningful than has been the case in the past? These are the vital questions. But they can only be answered by addressing a number of other issues on which growth -- whether of population or of national income -- depends.
There is now general agreement that a major factor responsible for India's comparatively weak performance so far has been mistaken economic policies. It is my firm belief that the road we have taken since 1991 is the right one and that this belief reflects by far the majority perception in India. But how sure can we be that these policies will be continued and extended and applied consistently and persistently? Equally important, is Indian industry ready to accept the challenge of internal and global competition and to benefit from it? Are …