India: The Politics of Accommodation and Reform

By Pratap Bhanu Mehta
Carnegie Endowment
12 April 2007

India’s “Great Transformation” seems to be finally underway. During the last four years it has experienced growth rates of almost eight percent, and many analysts believe that this growth is sustainable. India has averaged a growth rate of six percent for almost two decades. While this seems less impressive in comparison to China, it is a considerable achievement in light of India’s own recent history. There is some dispute over the data, but it is generally agreed that the number of people living below poverty line fell to about twenty six percent and are expected to further fall by a percentage point each year. India’s human development achievements have been less impressive: it lagged behind China considerably in both health and education indicators. Although the state of public health remains a cause for concern, India may finally be on the verge of a transformation in primary education. India always had a significant tertiary education sector, but its primary education enrollments are now up to ninety three percent. Although the quality of education remains a concern, India is finally waking up to the need to create human resources. But in many other respects, India’s economy is extremely dynamic: the rise of India’s service sector, particularly, Information Technology, has been spectacular. While India has not yet made its presence felt in mass scale manufacturing of consumer goods, there are signs of progress in this sector too, particularly automobiles. India’s private sector capital output ratios are extremely impressive. India’s economy has become considerably globalized. While the total share of FDI remains low, foreign institutional investment is rising pushing the stock market to dizzying heights; peak tariff rates are down from 155 percent in 1991 to less than 15 percent, and there is more openness to trade. Its foreign exchange reserves, though not spectacular, stand at a comfortable one hundred and fifty billion dollars. But India is firmly committed to globalizing its economy. India’s saving rate has also been creeping up to thirty percent. But perhaps the most important change is aspirational: India finally has come to believe that it can compete with the best in the world, and its identity is increasingly going to be premised upon that aspiration.