India shining: Myth or reality?, by Najam Gilani

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India shining: Myth or reality?

By Najm Gilani**, London


Since the past few years India is attracting immense attention all around the world because of its new phase of economic development. So much has been the attention that in the last parliamentary election ruling Bhartiya Janata Party tried to capitalize on this new found fondness for India by using the phrase “India Shining” throughout the election campaign. Quite obviously this phrase was coined by political strategists based on perceived ignorance and lack of intellect of Indian electorate, but for strategists and to everybody surprise, result was the outcome of most intelligent and informed voting in the history of Indian parliamentary elections. 

All around urban India there is a ” feel good factor” about the economic development of the country. There is no denying the fact that (urban) India is shining but this sheen has got some black underlining-for instance.

The Transparency international India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores. India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared to China, the average time taken to secure the clearances for a startup or to invoke bankruptcy, is much greater.


However, there is some better news at economic front.

India's reliance on external assistance and commercial borrowings has decreased since 1991-92 and since 2002-03, it has been repaying them. Declining interest rates and reduced borrowings have decreased India's debt service ratio to 14.1% in 2001-02 from 35.3% in 1990-91.

Tax revenue was 88% of total union government revenue in 1950-51 and has come down to 73% in 2003-04, as a result of increase in non-tax revenue. 

Indirect taxes were 84% of the union governments total tax revenue and have come down to 62% in 2003-04, mostly due to cuts in import duties and rationalization.


India's foreign currency reserves stood 141 billion USD as on 2005-06 largely on account of increased foreign direct investment and deposits from non-resident Indians.

There has been some serious growth in the service sector. It is providing employment to 23% of the work force, is the fastest growing sector, with a growth rate of 7.5% in 1991-2000 up from 4.5% in 1951-80, and has the largest share in the GDP, accounting for 48% in 2000 up from 15% in 1950.

Business services (including information technology (IT) and IT enabled services), communication services, financial services, hotels and restaurants, community services and trade (distribution) services are among the fastest growing sectors contributing to one third of the total output of services in 2000. 

The growth in the service sector is attributed to increased specialization, availability of a large population of highly-educated and fluent English-speaking workers on the supply side and on the demand side, increased demand from domestic consumers resulting from growth in personal incomes and from foreign consumers interested in India's service exports or those looking to outsource their operations. 

But how much better?

Because although Indian IT industry has seen phenomenal growth over the past few years but its earnings accounted for only about 1% of the total GDP or 1/50th of the total services.

Is India shining in real sense of the word or is it just an exaggerated enthusiasm and political rhetoric like “Garibi hatao”? (congress government of Indira Gandhi used this in the larger interest of retaining power by exploiting the sentiments of desperately poor) lets try to understand this at micro level in comparison with China and Brazil, other two major emerging economies of the world along with India. 

In comparison to all three, there is much similarity between India and china in economic and political matters. 

They are neighbors, have fought a military battle (1962) and are Asian giants. They both have massive population of more than a billion people and together consists one fifth of humanity. The only difference is that, India has a Hugh population of English speaking youth ready to serve the world market whereas China because of its “one child” policy is a rapidly aging country in the world.

Politically they both gained their independence around same time one from the English colonialism and other from the internal feudalism. Since independence India and China both opted for soviet style centrally planned economy though India opted for democratic and China for autocratic way of governance. 

The socialist form of economy of both the countries has not done much initially. The sluggish, inefficient and monopolistic way of economic development has created social disparity and inconceivable corruption. Chinese government since late seventies and Indian since late eighties have opted for liberal market oriented system and so far results for both the country has been rewarding. 

Brazil on the other hand because of its large and well developed agriculture, mining, manufacturing and service sectors is an economic giant among all other South American countries. So far it has absorbed series of domestic and international economic shocks without collapsing financially which shows that it is on the right path and following passionately it’s newly placed economic policies.

At a glance some major economic comparisons between India, China and Brazil:

GDP of India at purchasing power parity is $ 3.319 trillion as compare to china $7.262trillion and Brazil $1.492 trillion

GDP real growth rate of India is 6.2% as compare to china 9.1% and Brazil 5.1%

GDP per capita of India is $ 3,100 as compare to china $5,600 and Brazil $ 8,100

GDP of India by individual sectors is, agriculture 23.6%, industry 28.4% and services 48% as compare to China 13.8%, 52.9%, 33.3% and Brazil 10.1%, 38.6%, 51.3% respectively.

Labor force is India is 482.2 million as compare to china 778.1 mn and Brazil 89million (45%of population)

In India labor force involved in agriculture is 57%, industry 17% and services 23% as compare to China 50%, 22%, 28% and Brazil 20%, 14%, 66% respectively 

Unemployment rate of India is 7.32% as compare to China 9.8 %( urban area) over all including rural areas estimated to be 20% and Brazil 11.5%.

In India population living below poverty line is 25% (2002) as compare to China 10% and Brazil 37.5 %( 2003 est)

Inflation rate (consumer prices) 4.2% as compare to China 4.1% and Brazil 7.6%
.
Industrial production growth rate of India is 7.4% as compare to China 17.1% and Brazil 6%

Revenue of India is $67.3bn as compare to China $317.9 bn and Brazil $140.6bn

Expenses of India stands at $104bn as compare to China $348.9 bn and Brazil $172.4bn

Exports of India is worth $69.18billion f.o.b as compare to China $583.1bn f.o.b and Brazil $95bn f.o.b

Import is worth $89.33 bn f.o.b as compare to China $552bn f.o.b and Brazil $61bn f.o.b

In the case of India, reserves of foreign exchange and gold is $ 137 bn as compare to China$609.9bn and Brazil $52.94bn

External debt of India is $ 117.2 bn as compare to China $233.3 bn and Brazil 219.8 bn

Note: Unless specified the above mentioned figure are for year 2004.


The above comparison shows us that in GDP real growth rate India is ahead of Brazil by 1.1%, but behind China by 2.9%. 

In industrial production growth rate, India is behind China by 9.7% but ahead of Brazil by 1.4%

In India, agriculture sector employs 57% of the work force- 7% ahead of China and 43% ahead of Brazil.

Service sector employs 23% of the work force- behind China by 8% and with Brazil by 43%.

Industrial sector employs 17% of the work force- behind China by 5% and ahead of Brazil by 9%

In India, GDP of agriculture sector is 23.6%-ahead of China by 9.8% and by Brazil 13.5%

GDP of service sector is 48%-ahead of China by 14.7% and behind Brazil by 3.3%

GDP of industrial sector is 28.4% -behind China by 24.5% and by Brazil 10.2%.

In order to become a truly global player there are many more battles at economic and social front which India needs to fight and win, but for now to decide that the phrase “India shining” is perfectly in sync or is just a pre-mature exaggerated youthful enthusiasm, I leave this for the readers to decide.

References 

http://www.j-bradforddelong.net/Econ_Articles/India/India_Rodrik_draft1.html

 http://en.wikipedia.org/wiki/Economy_of_India 

www.indiabudget.nic

Confederation of Indian Industry

 National Association of Software Companies

 National Sample Survey Organisation

 National Statistical Organisation

http://www.china.org.cn/e-company/index.htm 

http://www.china.org.cn/english/eng-shuzi2003/index.htm 

Economic Statistical Data from China's National Bureau of Statistics,

Chinese Economic Review, 

CIA World Factbook, 

International Monetary Fund 

**Najm Gilani is a descendant of Maulana Monazir Hasan Gilani (RA), and an active member of Bihar Anjuman

 

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