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It is a privilege to be invited to The Australian National University. ANU has had a long association with India. Sir John Crawford, one of your former Chancellors, played a key role in the 1960s in making the green revolution possible in India, and we are grateful for that. Few institutions around the world have a centre dedicated to research on South Asia. This University has set an example by establishing the Australia South Asia Research Centre (ASARC). I have no doubt that the seed that was sown in 1994 will grow into a huge tree, providing opportunity to hundreds of scholars to study the unfolding South Asian drama.
There could have been no better occasion for me to visit here — which is also my first visit to your beautiful country — than to deliver the K R Narayanan Oration. It is my privilege to have known Mr Narayanan personally for many years. Mr Narayanan is a distinguished son of India and has impeccable intellectual and moral credentials. He has served his country with commitment and far-sightedness. His rise to the high office of President is a modern-day version of ‘log cabin to the President’s House’, and throughout his life he had no assets other than hard work, integrity and humility. I hope I can measure up to the great honour attached to a lecture that bears his name.
India is a large and diverse country and its development has many dimensions. A population of nearly a billion people is just one aspect that sets it apart from most developing countries. True, China makes a good comparison. But China does not have the religious, ethnic, social or cultural variations and diversities that mark India. No other nation has such a large underclass — of backward castes and classes — that seeks empowerment. We cannot also forget that, unlike in many other developing countries, democracy has flourished in India for over five decades now and has struck deep roots. Its federal polity and the division of political power make the nature of State intervention in the economy somewhat different from other systems. Therefore, while comparisons with East Asia and China could certainly help in analysing India’s economic trajectory and the success or failure of its policy responses, such an approach suffers from obvious limitations. India’s development problem has to be probed on its own and solutions found that are specific to its needs. The theme that I have chosen for my lecture today rests on this premise. My endeavour would be to look at both the political and economic aspects of the development challenge in India.
Soon after India launched its reforms in 1991, its economy responded strongly to the bold initiatives taken by the government. The foreign exchange crisis of 1991 had brought down the GDP growth rate to a mere 0.8 per cent in 1991–92. The rebound thereafter was strong and, during the five years ending 1996–97, GDP growth rate averaged 6.9 per cent, the highest ever for a five-year period. This was accompanied by a turnaround in macro-economic balances. The current account deficit improved from a high of 3.5 per cent in 1991 to 1.2 per cent in 1996–97 and the debt-service ratio declined from 32.4 per cent to 23 per cent. External debt as a percentage of GDP fell to 25 per cent in 1996–97 from a high of 37 per cent a few years earlier. Fiscal deficit of the Centre declined from 8.6 per cent in 1990–91 to 5.1 per cent in 1996–97. Foreign exchange reserves improved dramatically, rising from a mere billion dollars to over 27 billion dollars now. And this has happened despite substantial liberalisation of the trade regime and reduction in tariffs.
While the improvement in the macro economy has been remarkable, no less remarkable have been the changes that have taken place at the grass roots. Let me give you a flavour of the impact of economic reforms on the rural population of India who constitute the bulk of our poor, illiterate and deprived. Between the National Sample Survey 46th round (July 1990 — June 1991) and the 53rd round (January 1997 — December 1997), the total number of employed in rural India increased from 268 million to 294 million, a gain of 26 million in the space of six years. While no accurate estimates are yet available for changes in rural per capita income, an indication can be had from the changes in real wages of unskilled agricultural labour. After a sharp decline in 1991–92, the first year of reform, real wages increased at an average annual rate of 3.6 per cent in the next six years. Gross capital formation in agriculture, another useful indicator, shows a 50 per cent rise at constant prices in the six years between 1991–92 and 1996–97. What is more remarkable is that there is a clear shift in favour of private investment in agriculture, and the share of private investment has increased from 75 per cent to 83 per cent. These changes are also reflected in the social indicators for rural India. Infant mortality rate for rural areas has declined from 86 per thousand live births to less than 80 per thousand (the national average is 71). Literacy in rural areas has improved from 44.7 per cent to 56 per cent (the national average is 62 per cent). The birth rate for the whole country has declined from 29.5 per thousand to 27.2 and the death rate from 9.8 per thousand to 8.9. These tentative trends are consistent with the view that rapid economic growth has brought about an improvement in the living standards of the people in general.
During the last two years, however, while macro-economic balances have not deteriorated, growth rate of GDP has tended to slow down to about five per cent. The IMF’s forecast for the current year (1999–2000) is that the GDP growth would once again be only 5.1 per cent. The sector responsible for the slowdown is manufacturing, where growth has slipped from a peak of 15 per cent in 1995–96 to less than four per cent in 1998–99. What has also raised concern is that during the nineties, as a whole, trend growth rate in agriculture has been lower than it was in the eighties.
Recent researches have confirmed that economic growth has contributed much more to reduction of poverty in India than subsidies or the government’s anti-poverty interventions targeted at the poor. The rate of decline in the poverty ratio in the late 1980s and early 1990s has been double the rate achieved in the 1970s. This happened because the average growth rate of GDP improved from 3.5 per cent in the 1970s to 5.3 per cent in the 1980s and even higher to seven per cent during 1994–95, 1995–96 and 1996–97. Clearly, India needs to sustain GDP growth rates of seven per cent plus to eliminate poverty over the next fifteen to twenty years. What is also required is some sort of balanced growth across sectors because of the pivotal role of agricultural growth in poverty alleviation.