Column: Abroad View
July 1, 1991 was a fateful day for India after independence. It was on this day that India reached zero foreign exchange reserves, with mounting debt. All economic policies of the preceding governments had failed; the country was technically bankrupt.
Nobody in the world would lend India a penny to finance its oil imports, raw materials and spare parts purchases. There was nothing in the country's industrial and agricultural base that it could export to earn foreign exchange quickly. Foreign debt at that time stood at US$69 billion and it could not be serviced. Hence foreign banks could seize Indian assets abroad. There was an urgent need to do something before the nation collapsed.
That is when the current prime minister, Dr. Manmohan Singh, arrived on the scene. He had to be persuaded to relinquish his comfortable job at the United Nations in favor of a cruddy job as India's finance minister. He took the challenge and almost immediately sold off US$200 million worth of confiscated gold (from smugglers) and then air lifted several tons of Indian gold stored at the Reserve Bank of India to the Bank of England to act as collateral. A $400 million line of credit allowed India to ride out its greatest credit crisis.
That was then. Today India's foreign reserves stand at US$240 billion with a $1 trillion economy, $150 billion in exports, $22 billion in foreign remittances and about $20 billion in foreign direct investment. All this is giving India a high 9-10 percent GDP growth.
Since that day in infamy in 1991, India learned the hard way to dump state controls. Liberalization began immediately. Singh stayed at the helm as finance minister for awhile and then left. Smart, business-oriented finance ministers succeeded him and built India into an economic powerhouse. Each succeeding prime minister since 1991 had only one thing on his mind -- speeding up economic progress. The alternative was to perish in social turmoil.
If one goes back to 1950 and compares the country the British left in a mess to the India of today, it is a great surprise. Here are some statistics:
In 1948, India's population was 360 million, GDP 47 billion, literacy rate 18 percent, and life expectancy 32 years. The poverty rate was 45 percent. Agriculture accounted for 56 percent of the economy, manufacturing for 15 percent and services, 28 percent. Annual food grain output was 54 million tons.
By comparison, in 2006, India's population was 1.1 billion, GDP 1 trillion, literacy rate 65 percent, and life expectancy 64 years. The poverty rate was 28 percent. Agriculture accounted for 20 percent of the economy, manufacturing for 20 percent and services, 61 percent. Annual food grain output was 215 million tons.
This is a phenomenal achievement. Even if we discredit successive governments from 1950 to 1991 as mindless socialist sycophants, they did keep India together. And in 1991 they handed it over to the new breed of managers as a moderate, ambitious and ready-for-new-technology nation. Much of the progress has occurred in the last 15 years. Prior to that progress was lackluster at 3.5 percent growth.
The future looks good for the country. India in 20 years will bypass Japan in GDP and will catch up to the United States in 35 years. China will stay ahead for awhile, depending on how much business the West conducts with it. One will never be sure that China is really ahead of India, for faulty statistics and a revalued yuan give its GDP a higher value.
China's progress is mostly on paper, especially if you consider that 62 percent of its output is exported. There is hardly anything left for the locals to share. The widely publicized Chinese progress is not people-oriented. It is all exports. The amount of goods and services left for local consumption in India and China is roughly the same, as India consumes 60 percent of its GDP and exports only 40 percent. That should make people in India and China at about the same level.
In spite of all this progress, the world identifies India with poverty, Gandhi and Taj Mahal. That is what a BBC survey of major European counties indicated. The Asian countries that participated in the survey had a different view, however. They identified India as modern and high on development and technology. The old stereotype, which the British had a hand in creating, never seems to go away.
A British-born reader of my columns with mixed heritage recently commented that his mother, an English woman, has been telling him that Indians are the lowest of the low races. She has been telling him that if the British had not reached India 200 years ago, the Indians would still be in the gutter. After reading my papers, he has changed his opinion and has been asking his mother a few unpleasant questions about the British Raj. These stereotypes have been perpetuated with the blessing of ultra-conservative politicians and the conniving press.
Back to India: in the 60 years of its existence after the British Raj, one cannot but complement its people. They have made phenomenal progress in spite of being victimized by the West for being pro-Soviet during the Cold War, kept out of important institutions of the world like the United Nations, vilified with bad laws for exploding a nuclear device in 1974, and subjected to untold misery by militarily arming a neighbor. India is an economic powerhouse today, in spite of all their machinations.
If you still do not believe me, consider the luxury of all luxuries -- gold and diamonds. India's total reserves of gold, both public and private, exceed 16,000 tons (worth about US$400 billion). It is more than the combined official reserves of the United States, Germany and the International Monetary Fund.
Indian gold is mostly in private hands. Every household uses this valuable commodity as social security. Every year India imports 850 tons of gold, roughly 25 percent of the yearly world gold output. Three-quarters of it is converted into jewelry and bridal wear. If the gold demand in India slackens a bit, the Bullion Exchange in London goes into a tizzy.
The same is true of the diamond trade also. India polishes and exports 80 percent of the world's diamonds, amounting to about $15 billion a year. Since there are no local mines, India buys about $8 billion worth of rough diamonds and polishes them to add about 50 percent additional value.
Finally, one has to reflect on the epoch-making event of 1991. Had this event not occurred, would India still be in the grips of the same socialist morass that had afflicted it for the past 40 years? This day was the turning point of India's economic fortunes.
India has a long way to go economically. It has not vanquished poverty yet. But that turning point is not far away. It is likely to arrive in about ten years. Again India is not technologically independent. That turning point is about 30 years away. Worst of all, India does not have the respect it deserves. That turning point will arrive when a notice is served to the world that the people of India mean business and will not settle for anything less.
July 1, 1991 was a fateful day for India after independence. It was on this day that India reached zero foreign exchange reserves, with mounting debt. All economic policies of the preceding governments had failed; the country was technically bankrupt.
Nobody in the world would lend India a penny to finance its oil imports, raw materials and spare parts purchases. There was nothing in the country's industrial and agricultural base that it could export to earn foreign exchange quickly. Foreign debt at that time stood at US$69 billion and it could not be serviced. Hence foreign banks could seize Indian assets abroad. There was an urgent need to do something before the nation collapsed.
That is when the current prime minister, Dr. Manmohan Singh, arrived on the scene. He had to be persuaded to relinquish his comfortable job at the United Nations in favor of a cruddy job as India's finance minister. He took the challenge and almost immediately sold off US$200 million worth of confiscated gold (from smugglers) and then air lifted several tons of Indian gold stored at the Reserve Bank of India to the Bank of England to act as collateral. A $400 million line of credit allowed India to ride out its greatest credit crisis.
That was then. Today India's foreign reserves stand at US$240 billion with a $1 trillion economy, $150 billion in exports, $22 billion in foreign remittances and about $20 billion in foreign direct investment. All this is giving India a high 9-10 percent GDP growth.
Since that day in infamy in 1991, India learned the hard way to dump state controls. Liberalization began immediately. Singh stayed at the helm as finance minister for awhile and then left. Smart, business-oriented finance ministers succeeded him and built India into an economic powerhouse. Each succeeding prime minister since 1991 had only one thing on his mind -- speeding up economic progress. The alternative was to perish in social turmoil.
If one goes back to 1950 and compares the country the British left in a mess to the India of today, it is a great surprise. Here are some statistics:
In 1948, India's population was 360 million, GDP 47 billion, literacy rate 18 percent, and life expectancy 32 years. The poverty rate was 45 percent. Agriculture accounted for 56 percent of the economy, manufacturing for 15 percent and services, 28 percent. Annual food grain output was 54 million tons.
By comparison, in 2006, India's population was 1.1 billion, GDP 1 trillion, literacy rate 65 percent, and life expectancy 64 years. The poverty rate was 28 percent. Agriculture accounted for 20 percent of the economy, manufacturing for 20 percent and services, 61 percent. Annual food grain output was 215 million tons.
This is a phenomenal achievement. Even if we discredit successive governments from 1950 to 1991 as mindless socialist sycophants, they did keep India together. And in 1991 they handed it over to the new breed of managers as a moderate, ambitious and ready-for-new-technology nation. Much of the progress has occurred in the last 15 years. Prior to that progress was lackluster at 3.5 percent growth.
The future looks good for the country. India in 20 years will bypass Japan in GDP and will catch up to the United States in 35 years. China will stay ahead for awhile, depending on how much business the West conducts with it. One will never be sure that China is really ahead of India, for faulty statistics and a revalued yuan give its GDP a higher value.
China's progress is mostly on paper, especially if you consider that 62 percent of its output is exported. There is hardly anything left for the locals to share. The widely publicized Chinese progress is not people-oriented. It is all exports. The amount of goods and services left for local consumption in India and China is roughly the same, as India consumes 60 percent of its GDP and exports only 40 percent. That should make people in India and China at about the same level.
In spite of all this progress, the world identifies India with poverty, Gandhi and Taj Mahal. That is what a BBC survey of major European counties indicated. The Asian countries that participated in the survey had a different view, however. They identified India as modern and high on development and technology. The old stereotype, which the British had a hand in creating, never seems to go away.
A British-born reader of my columns with mixed heritage recently commented that his mother, an English woman, has been telling him that Indians are the lowest of the low races. She has been telling him that if the British had not reached India 200 years ago, the Indians would still be in the gutter. After reading my papers, he has changed his opinion and has been asking his mother a few unpleasant questions about the British Raj. These stereotypes have been perpetuated with the blessing of ultra-conservative politicians and the conniving press.
Back to India: in the 60 years of its existence after the British Raj, one cannot but complement its people. They have made phenomenal progress in spite of being victimized by the West for being pro-Soviet during the Cold War, kept out of important institutions of the world like the United Nations, vilified with bad laws for exploding a nuclear device in 1974, and subjected to untold misery by militarily arming a neighbor. India is an economic powerhouse today, in spite of all their machinations.
If you still do not believe me, consider the luxury of all luxuries -- gold and diamonds. India's total reserves of gold, both public and private, exceed 16,000 tons (worth about US$400 billion). It is more than the combined official reserves of the United States, Germany and the International Monetary Fund.
Indian gold is mostly in private hands. Every household uses this valuable commodity as social security. Every year India imports 850 tons of gold, roughly 25 percent of the yearly world gold output. Three-quarters of it is converted into jewelry and bridal wear. If the gold demand in India slackens a bit, the Bullion Exchange in London goes into a tizzy.
The same is true of the diamond trade also. India polishes and exports 80 percent of the world's diamonds, amounting to about $15 billion a year. Since there are no local mines, India buys about $8 billion worth of rough diamonds and polishes them to add about 50 percent additional value.
Finally, one has to reflect on the epoch-making event of 1991. Had this event not occurred, would India still be in the grips of the same socialist morass that had afflicted it for the past 40 years? This day was the turning point of India's economic fortunes.
India has a long way to go economically. It has not vanquished poverty yet. But that turning point is not far away. It is likely to arrive in about ten years. Again India is not technologically independent. That turning point is about 30 years away. Worst of all, India does not have the respect it deserves. That turning point will arrive when a notice is served to the world that the people of India mean business and will not settle for anything less.
2 comments:
Good post.
Extremely informative. Esp. since you've avoided economic jargon! Keep it up!
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