The purpose of this paper is to examine the current macro economic situation in India along with a survey of the factors that have led to the present position and the prospects for further growth on the premise that what has been will be. Since the decade of Nineteen Nineties is characterised by astounding changes in the Economic Policy of India, growth of Indian Economy between 1950 and 1990 may be viewed as a prelude.

SECTION-I

The average annual growth rate of Gross Domestic Product (G.D.P) and real per capita income in the pre independence era that is prior to 1947, were around 0.9% and 11% respectively with in the geographical boundaries of the present day India1. The annual average growth rates of N.N.P at factor cost and per capita NNP at constant prices were as follows up to 19902

Growth Rates

From the foregoing data it is clear that while the average annual growth rate between the first plan and the fourth plan was hovering between 3%, to 4% growth luring the 80's was at an annual average rate of 5.9%. This was higher than the world output growth rate of 3.3% and that of developing countries at 4.3% during the same period.

The annual growth rate in per capita GDP in the Nineteen Eighties was over 3.5% in spite of the average population growth rate of 2.0%. However the aim of doubling the per capita income in the country in 25 years of planning - i.e. by 1975, could be achieved only by the end of 1980's. Further the percentage of population that could not get an average intake of 2400 calories per day in rural areas and 2100 calories in Urban areas remained at 38.9% even in 1987-883.

Thus if we examine the impact of 40 years of planning from 1950 to 1990, we find that the economy was at its best in 1980's. But even then there were structural imbalances. An important factor propelling growth during this period was the enormous rise in Govt. expenditure, which led to deficits even in the revenue budget. Public enterprises created with borrowed money also did not yield adequate returns. The high fiscal deficit also was reflected in the emergence of current account deficit in the external sector, which was around 3.2% of the GDP in 1991. Further external debt of short duration on commercial terms also increased. The high growth of 1980s that was largely financed by internal and external debt shook the confidence of the creditors. The gulf crisis and a severe balance of payments problem ultimately led to a mortgage of Gold reserves abroad and an over all gloom on the prospects of the Indian economy. In 1991 exports were valued at Rs.32,553 crores as against imports of Rs.43,196 crores and foreign exchange reserves just Rs.5,541 crores in July 1990. The economy was in deep crisis along with weakening of international confidence. But this adversity had its own uses.

SECTION -II

The adverse economic situation made the Government of India review the polices followed in the preceding four decades, take a "U" turn and try to pull the economy from the brink of disaster and the verge of bankruptcy. In fact the growth rate of NNP (at factor cost in 93-94 prices) in 1991-92 was just 0.5% and that of per capita NNP - 1.5% (negative). Dr. Manmohan Singh presenting the Budget for 1991-92 asserted - there is no time to lose. Neither the Government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time does not exist any more. Macro economic stabilisation and fiscal adjustment alone cannot suffice. This must be followed by essential reforms in economic policy and economic management4.

The terms liberlisation, privatisation and globalisation (the new LPG) amply summarise the crucial aspects of the reforms started in 1991. The statement of the Union Finance Minister, made on the floor of the Parliament on 16/12/1991 highlighted the problems that confronted the Nation and the steps taken or to be taken by the Govt. of India. The Finance Minster claimed that the new Govt. moved swiftly, to the task of pulling the economy back from the brink of disaster and setting it once more on the path of rapid and sustainable growth5. Confidence of the creditors was restored and the fear of default was dispelled. The exchange rate was adjusted in July 1991 to a new level deemed credible. While ensuring competitiveness of exports without the need for large export subsidies trade policy witnessed major changes which included schemes for strengthening of incentives for exports and moving away from the system of import control. Export subsidies were abolished, fertiliser subsidy was reduced and defence expenditure was restrained. Monetary policy was also tightened reflecting the urgent need to control inflationary pressure in the economy.

The statement added that these measures of short term economic management were accompanied by far reaching structural reforms in the area of industrial policy aimed at enhancing productivity and strengthening competitiveness in the industrial sector and promoting an employment oriented pattern of industrialization. The policy towards foreign investment was restricted to attract foreign investment especially in priority areas including critical infrastructure sectors such as power. Govt. also proposed to use supply management in critical commodities and accordingly state Govts., were allowed direct import of edible oils for supply to the public distribution system.

Regarding reforms in the field of Public Finances, the statement added - The burden of achieving reduction in fiscal deficit will fall heavily on the expenditure side. There is an urgent need to restructure and rationalise our tax system. Maintenance of fiscal discipline also means that plan expenditure cannot depend as heavily as in the past on ever increasing budget support. The budget cannot afford a continual drain on account of permanently loss making public sector units which are only preventing us from investing our resources where they are most needed such as in power, in agriculture, rural development, poverty alleviation, education, health and control of environmental degradation where acute scarcities are already evident.

The statement added that the decade of Nineteen Nineties would be a decade of scarce resources both domestically and externally. But we are determined to pursue with renewed vigour the goals of a rapidly expanding economy, a socially just and technologically advanced self reliant society. Scarcity of resources must be reflected in a premium on efficiency whether in the public or in the private sector. That must be the watchword of economic policy in the years ahead. There must be an all-round recognition that a higher standard of living can be ensured only on the basis of rising productivity and there are no short cuts to it. The fear of large-scale unemployment and closures resulting from these policies are wholly unfounded. On the contrary we envisage that these policies will lead to greater dynamism and a larger growth in total employment.

Presenting the Budget for 1991-92, the Union Finance Minister (July 1991) declared that employment creation and poverty eradication would continue to receive the highest priority.: He also wanted the state Govts. to improve their fiscal performance and stream line the working of their public enterprises. Further in his foreword to the eighth five year plan (1992-97) which followed the launching of the new economic policy, the Prime Minister asserted that the strategy adopted in the plan was not one of choice between market mechanism and planning but of dovetailing the two so that they become complementary to each other. The Ninth plan documents (1997-2002) also reiterates that the reforms involve a major reorientation of the state. It will no longer be a pervasive controller of the private sector or a direct producer in many areas, but a facilitator a path breaker and a promoter. Thus a reorientation of the role of the Govt. as well as the process of planning was undertaken. The Ninth five year plan document states that a vigorous private sector operating under the discipline of competition and free markets will encourage efficient use of scare resources and ensure rapid growth at least cost. Indian Industry must be unshackled from unnecessary bureaucratic and governmental control. It was also stated that a thorough revamp of the controls and procedures involved at the state govt. level could help to create a climate in which Indian industry can flourish. The process of dis-investment of government equity from public sector, enterprises, that however, envisaged the minimum of Govt. equity at 51% originally will be reduced to 26% as early as possible where national security is not involved. In respect of external trade the declared policy was one of removing quantitative restrictions on imports and phased reduction of import tariff. Globalisation also meant an explosion of financial integration in world markets. Further reforms in the real economy, need to be supported by an efficient financial sector capable of mobilising the savings of the community and allocating them to the most productive users. A strong well functioning capital market is an important part of the financial system and is an important source of funds for both the public and private sectors in future. The insurance and pension sector is particularly important for the financing of infrastructure which needs long term funds.

Regarding Agricultural sector, the Ninth plan document stated that Indian agriculture had always been based on individual farmers with a predominance of small and marginal farmers. So the development strategy must focus special attention on this sector which requires a unique combination of private sector and public support.

There was a general recognition of the fact that there can be mistakes and errors in public policy formulation and inefficiency in its implementation. Earlier the rationale for the dominant role of the government was the concept of "market failure:" and inadequacies of the market mechanism. But subsequent experience exploded the Myth of the infallibility of governmental action and led to the recognition of the fact of the possibility of governmental failure. All this led.to a greater appreciation of the respective roles of the public and private sectors in the pursuit of economic growth. Further more market does not mean less Govt. but only a different Government with an eye on capabilities. The prime aim of these measures was to bring about increased competition, both domestically and externally and reduce rent-seeking activities. All these reforms had their own impact on the macro economic scenario of India and on the lives of the people at large. So, now let us examine the results of these multifarious reforms introduced since 1991 either because of choice or of necessity.

SECTION-III
IMPACT OF ECONOMIC REFORMS

Presenting the central Government's budget for the year, 2001-02, the Union Finance Minister on 28/02/2001 said, "it is now 10 years since economic reforms began in 1991. During this period the economy has grown at an average rate of 6.4% per year since 1992-93 compared to the 5.8% recorded in the 1980s. Poverty has fallen from 36 percent in 1993-94 to 26 percent or less now. Summarising the impact of the decade old reforms, the Minister, asserted" while economic reforms have placed the country on a much more secure and sustainable growth path, we still have sonic, serious concerns and can not afford to be complacent6.

Investment is the driving force of economic growth. When investment with in the country is not adequate to accelerate economic growth. foreign direct investment (FDI) has a crucial role to play. The cumulative F.D.I in flows since 1991 increased to $ 26.89 billion Rs.1,03,636 crores, while approvals were at $ 72.98 billion - Rs. 2,67,798 crores till August 2001. India has received foreign direct investment of US $ 2 to 3 billion last year while China got $ 40 bilion in FDI7. This is one of the salutary effects of liberalisation and globalisation. Apart from Delhi, major recipients of FDI had been the states of Maharastra, Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu. However the flow of FDI at US$ 2.26 billion into India in 1998 was far lower than into countries like Singapore (U.S.$ 7.22 billion) China ($ 45.5 billion) and Mexico ($ 7.24 billion). While foreign investment, as a percentage of GDP was almost zero in 1990-91 and 0.1% in 1991-92, its average during 1992-2000 was 1.2 %7.1. At the confederation Of Indian Industry partnership summit 2002 held in Bangalore European Commissioner said - with total Indian Software exports of $ 6.300 billion in 2000-2001 of which European Union accounts for 23 percent - a mere 0.42 % of the total European IT Market. India has still long way to go and areas of mobile communications C.R.M. back office management S.C.M. Solutions and e-learning segments. require Indian expertise. The growth of the Indian Economy in the post reform era in several sectors in quantitative forms is shown in the table given below;

Savings and investment rates have remained more or less stable around 22/23 percent. Further these rates are lower than the comparable rates in Singapore at 51.4% and 34.5% and in China at 42.5% and 38.8% respectively. Moreover the negative rate of savings in the Govt. sector because of revenue deficits is a matter of concern.

For the year 2000, in respect of current competitiveness index (prepared by the World Economic Forum) India's rank was 37 out of 58 countries, in respect of Growth competitiveness index (GCI) India was in the 49th position out of 59 countries, in respect of Emerging Market Index (that measures the market openness of a country) India's rank at 46 was higher than China. In the case of Globalisation Index (that measures integration with the rest of the world) the rate of integration during 1993-97 was about 2% per annum. The inference from all these measures is that India is a fairly stable economy8. Transport, power, telecommunication, water, sanitation etc., are the principal constituents of infrastructure, which is essential for sustained economic development. Indictors of development in this sector also are presented in the table given here.

Section-IV

Assessment

The foregoing account indicates the success and failure (short fall) of the Indian Economy in achieving measurable progress in quantitative terms relating to macro economic variables. The question whether the progress is satisfactory or not, whether the prospects are rosy or gloomy for the Indian economy depend not only on quantitative factors, but also the qualitative factors / the imponderables that influence the work ethos of Indians themselves. For long, Indians have been largely described as those that work very hard every where excepting in India (with exceptions). Punctuality, abiding interest in the work assigned, dedication and sincerity have an important role to play in increasing productivity, particularly in the services sector.

Similarly the linkage between increase in productivity and increase in wages should never be under estimated. Possible pursuit of incomes policy about which we were talking in 1970s along with the recommendations of Bhoothalingam Committee needs to be examined afresh. The query of the Eleventh Finance Commission (EFC) whether periodic appointment of pay revision commissions is warranted in view of the financial difficulties experienced by the union and state governments after the submission of the fifth pay commission, needs careful examination before such. Commissions are appointed in future. It should also be examined whether the "tyranny of the ten percent" in the Indian Economy namely the work force in the organised sector that resists all changes unfavourable to it has been a stumbling block in the pace of economic reform and growth.

Another factor that reduces the utility and productivity of large investments in India is the extent of leakages and the so called all pervading corruption for which India got 46th rank among 54 countries in 1996 surveyed by the Transparency International and GOTTINGEN UNIVERSITY. It is this that made Rajeev Gandhi, the former Prime Minister, to draw attention to the abysmally low percentage of benefits that reach the targeted groups - beneficiaries, out of every rupee spent by the government. A number of persons of every description think that they are entitled to a share in the Governmental expenditure deprive the deserving of the benefits meant for then and rob the utility of public expenditure meant for development or reconstruction or social welfare. As a result the returns cannot be expected to be equal to the full value of the expenditures incurred by the Government while the objective of public expenditure is to make the governmental rupee go the farthest in terms of utility in practice in several cases it turned out to be futile and infructious expenditure.

Further limited government capacity and individual ingenuity in manipulating public programmes for private gain discredited the post war view that governments could directly replace the private sector to correct market distortions8. It has to be recognised that the governments in India are neither omnipotent nor vigorous (hard) in the pursuit of declared state policies. Having recognised the limits of markets and the limitations of the government, the strategy for accelerating economic development has to be worked out. In his address to the FICCI on 05/12/2001 the Union Finance Minister himself admitted that the government was not always the best and most efficient spender of national resources9.

It should also be noted that growth alone is not enough. It is not the be all and end all of all economic activity. Poverty anywhere in the world is a danger to prosperity every where. Over the past 40 years - (say between 1960 and 2000) the gap between the rich and the poor al lover the world has doubled - with incomes of the richest 20 countries now averaging 31 times, that in the poorest. In India the percentage share of income or consumption of the lowest 10 percent was 3.5% in 1997 where as the share of the highest was 33.5%10. The Gini index was 37.8 in 1997.

Good Governance matters very much for economic growth and poverty reduction. Good governance also means the absence of corruption, which can subvert the goals of policy and undermine the legitimacy of the public institutions that support market. Good governance in fact is broadly the ability of the state to provide those institutions that support growth and poverty reduction. SMART Govt. advocated in Andhra Pradesh may be taken as a concrete expression of good governance. Above all, public enthusiasm is the lubricating oil of planning and petrol for economic development. So how far the public at large is enthusiasm for participation in development activities initiated by the government is a moot question. Among the 162 counties listed in the Human Development Report 2001, India ranks 115 with Norway topping the list and Sierra Leone occupying the last rank.

India therefore has to develop its own strategy for planning and development. In the race for economic development every country has to keep running even to stand where it is, that is, even to protect its relative rank among the comity of nations. To improve the rank, naturally, hard work, right policies effective governance, sincere implementation of programmes, transparency and accountability are essential. India has to distinguish itself increasingly as a leader in the services sector particularly in the IT Software, just as China has made a mark in the manufacturing sector and the Hardware segment of IT.

The Associated Chambers of Commerce and Industry (ASSOCHAM.) in a recent paper says that what the country needs to day is good institutions to nurture its human capital. It has also warned that a sustained, accelerated economic growth will not be possible with out a significant improvement in the integrity and effectiveness of the governmental financial and other institutions on which the economy depends. it also emphasizes that governance is the key to India's future economic growth and lays emphasis on the need for strengthening the expenditure framework11. It is to be noted that even in 1999-2000 and 2000-01 about one percent of GDP (1.32% & 1.04%) has been the estimated share of subsidies and more than 4.6°/o of the GDP was the estimated expenditure on interest payments in the central governments total expenditure of around 15.5% of GDP while total revenue expenditure was nearly 13% of the GDP. Plan expenditure, capital expenditure developmental expenditure. Expenditure on social and economic, infrastructure need to be increased significantly to achieve durable and sustainable growth.

It should be noted that in the post reform era, though the consumer has not become the "king" his importance has increased. He has a wide variety of goods, particularly consumer durables to choose among competing products at fairly competitive prices. In several cases the service attached to the products has also improved. The exhibitions and "melas" that are organised for most part of the year in several parts of the country is proof positive of the effort to woo the consumers, who were earlier confronted with a sellers market. But then the importance of sovereignty of the consumer depends on the quantum of the purchasing power he commands. While those who are fortunate to have a job to sustain themselves are in a fairly comfortable position, for those who expected to get a secure and stable government job of any description, life seems to have become a nightmare. On a rough estimate for every 100 persons that are employed in the organised sector, more than 142 persons are waiting to be employed without any guarantee that even when posts fail vacant (on account of retirement or other reasons) they would be filled because of the policy of the right sizing the government. Unemployment is the one word that no one in the Govt. dared to utter in recent months.

The Task force on employment opportunities under the chairmanship of Sri Montek Singh Ahiuwalia appointed by the Planning Commission, in its Report, submitted in June 2001, furnished the following facts regarding unemployment and employment. Its conclusions are depressing.

Regarding the quality of employment the Task Force said 'Large Numbers of those currently employed according to the N.S.S. definition, earned income levels which are insufficient to take them above the Poverty line. About 8.7 million persons enter the market for employment every year but the Employment - G.D.P elasticity is 0.22 only. So what is needed is a G.D.P. growth rate of 8 to 9 percent over the next 10 years if we want to see a significant improvement in the employment situation. It was Jobless growth and Joyless growth.

Prolonged unemployment leads to unemployability and frustration and misery lead to hatred of the lucky ones, if not militancy. In a fast changing technological society where acquired skills become irrelevant and obsolete very soon, the challenge is to keep oneself ready to change and learn newer skills. Knowledge is power.

For producers, the days of complacency and sellers markets seem to be disappearing. To produce properly and wisely, quality goods at competitive prices or to perish seem to be the choice open to them. The days of protectionism are almost over. Buyers are no longer passive and are more knowledgeable than at any time. Markets have become global. Trading environment, power and expectations of buyers have changed. So the producers and traders should be willing to take up the challenges or else will be pushed to the wall. As Dr. Y.V. Reddy wrote tomorrow's problems cannot be solved with yesterday's strategies and can not be even understood with day before yesterday's knowledge. Hence the need for "Vivekavardhini" & "Vivekavyapti". Similarly we must remember that "Sparadhaya Vardhate Vidya" - Cut throat competition and not all round altruism is the characteristic of business. If education is the basis for empowerment and prosperity it is necessary to discriminate between good and bad and take the right decisions at the right time ("Sadasadviveka Chatliuratha" is Education) with the help of strong institutions. Honesty is the best policy is not only an ethical proposition, but a business proposition.

That the economy is poised for growth and is on the road to prosperity are not in doubt. How high the rate of growth will be, depends on all of us governance, people and proper exploitation of resources. Even for 2001-02 the GDP growth rate is expected to be around 5% in spite of the known constraints. Given political stability and peace it should not be difficult to achieve growth rate of 7 to 9 percent in the next decade. But, Govt. should ensure (the old adage) that death and taxation are the only certainties in the world in the sphere of resource mobilisation through proper tax collection. Effective tax collection and expenditure management are the prerequisites for growth, among others.

In the context of the future of the Indian Economy we may recall what poet Shelley said namely that "we look before and after and pine for what is not". The imperative now is not to pine but try fine tune the economy think and implement vigorously an effective plan for the development of the country - Statesmen should think and act that they are trustees for the future not merely for the present or for themselves.

Prof. Kantha Rao is a member of the Indian Liberal Group. He teaches economics with specialisation in Public Economics. He has held senior administration positions in teaching institutions as Principal and later as Dean. He is a member of the Andhra Pradesh College Service Commission. He can be contacted on profmlkanth@hotmail.com