red Economic Development
north-south, or east-west.
-.::I the two countries, with
)cr-oplestill poor and un-
:nous structural fault lines
::or and a vast extent of
'he t\vo econonlies are still
nc structural weaknesses
frim being realised in thr
1-crloadedbanking system.
\-performingloans (NPLs).
rniption, a glut of unsold
.cuit-to-reform 'public' or
erprises. Nevertheless,
:ns were evident for making
s lgnificance: high growth
Ir more-the highest today
oviding adequate food to
the billion or Inore people
gn reserves to sufficiently
! the near future, and in
ent Index (HDI) for their
reform, China and India
:he cutting edge fi-ontier
~nlcations,biotechnology,
r i\vo nations also have a
r.l and technologists with
?search and inventions.
:!ear trend of convergence
.:? not sectorally. Whether
7e:lcl now on the adoption
c=r?.tlonreforms in the two
lmes ciear that decades of
:zdla after liberation, and
i;ecl the prophets of doom
? countries would not be
:..i-lng populations nor be
n q to buy adequate food
::es \vould converge to a
Alternative Scenarios in 2020 283
disaster scenario. The Massachusetts Institute of
Technology (1972) study: Limits of Growth had in general
terms opined in this vein for a t least developing countries
such a s India. Two US State Department officials and
brothers, Will Paddock and Paul Paddock authored in 1965
Famine 1975 in which it was predicted that there would
be terrible food riots in India in 1975, and no amount of
food aid from the US could present it or fill the 'bottomless
pit'. However, India quite the contrary became self-
sufficient in food by 1975 due to the 'Green Revolution'.
Nothing was heard of the Paddocks since then. China and
India have now proved such prognosis wrong; on the
contrary both nations constituting nearly 40 per cent of
t h e world's population have already impressive
achievements to their credit, a s briefly stated below:
'The growth rate of GDP accelerated in the two economies
on a sustained basis for the last two decades, without a
balance of payments crisis (compare East Asia in 1997),
or even a prolonged and sizeable inflation. Average GDP
growth ratesof six to seven per cent, after data correction,
during the last decade of the 20th century are the highest
today arnong nations of the world. This is i n itself
extraordinary. The growth rates for the two countries have
converged during the last five years of the 20th century,
and first five years of the 2 1st century.
Sufficiently large reserves of foodgrains and foreign
exchange have been accumulated in both countries to
maintain food price stability and contain currency
exchange rate fluctuation during the entire period since
1980. There is no doubt that much of the difference in
progress made by China was based on a relatively highc,r
human cost of deprived liberty and choice. This implied
trade-off is worth recognizing in a comparative analysis
with India. For instance, while China had one major famine
since liberation, in 1960-6 1, that caused 30 million deaths
from starvation, India had none. China also records nearly
90,000 violent demonstrations annually against the ill-
effects of reforms. India has had none. There have been
protests of course a s would be in democratic countries.
 Economic Developrnen t
art of the decade. This
n results for the model
e by multiplying the
lee in the explanatory
he 1990s (before 1995-
. The estimated impact
1 the negative effect of
Xure investments and
pending. Of all public
sector investment in
on private investment
-
consumption or other
Iinvestment growth.
mananda of Bombay
damaging trend from
the ratio of long-term
declined from 25 per
998-99, at the negative
t is, the social rate of
-
-ate of growth from 3.5
~r per year, had been
iercial loan-financed
investment that built
sports in textiles, gems
ors. This growth rate
~f accumulating short-
balance of payments
In-ing the deregulating
lacities built earlier in I
production in public
> d and through t h e
3r (now nearly 50 per
]my to the end of the
rr cent average annual
mm of 1993-97 could
the fundamental and
to become globally
-national competition
Alternative Scenarios in 2020
in the face of WTO commitments, were not implemented.
As a result, industrial growth recently has slumped to 2.5
per cent (in 2000-01) while the scandal ridden financial
system milked by crony capitalism and poorly supervised
capital market, is on the verge of a major crisis. In India,
as of now, economic reforms introduced in 1991 have been
exhausted. Thus, ironically, China and India may be on
converging paths-to a crisis-because of the stalled
financial reforms in both countries.
In India, during the late- 1990s, economic growth rate
weakened substantially. Growth in 2000-0 1 was only 4
per cent, and in the five years to 2001-02 averaged 5.25
In the early 1990s in India, wide-ranging structural
reforms had yielded notable gains, and by several
measures, India's economic performance during the
decade compared favourably with China. The reforms
started the process of unshackling and opening u p the
Indian economy and resulted in a significant boost to
growth, investment, and exports, and in a market
reduction in poverty. Growth in the 1990s was second
only to China in the region. This momentum now requires
new institutions.
The new institutional architecture will require
independent regulatory agencies and treating of their
independence at par with an independent judiciary. It will
need also an independent monetary authority by giving
greater independence to Reserve Bank of India on the lines
of autonomy enjoyed by the Federal Reserve in USA or
the Bank of England in U.K. This will promote competition
since it would end the crony capitalism that plagues India
and inundates the economy with mega scandals involving
insider trading and plain fraud.
In the reforms initiated in 1991 the emphasis was on
reforms of product markets by abolishing industrial
licensing and import barriers. These reforms however left
out multiplicity of regulations, land market distortions,
government control of banks, the factor markets such as
labour markets, capital markets, natural resources market
 3mic Development Alternative Scenarios in 2020
untouched. Lack of 7 per cent a year or more over the next few years requires
[he rate required there to be implemented and which should include
)lo!ment, poverty maintaining the momentum of reforms in the SOEs and
finance sector, and developing human resources in the ,

rket reforms, two special skills of modern technology.

efC)rms of labour India's GDP is growing at six per cent a year, compared
to 10 per cent that is now required. India's working-age
population, is also expanding faster. Unless, therefore GDP
grows closer to 10 per cent a year, India could face
Lvould involve unemployment as high as 16 per cent by 2010.
ets. debt markets The McKinsey Global Institute (MGI)has studied India's
5 . Privatization of
economy to assess what is holding back growth and what
3 5 t essential, but
policy changes might accelerate it. This study has shown
regulation and that, with the new reform policies, GDP growth of 10 per
of capital markets, cent a year is within lndia's reach even today. A 10 per
'sent. The recent cent growth rate for a decade will transform India, and
.t Lividly show hoN,
pull it abreast of China.
Private bank, one This study has affirmed that there are three main
management, and barriers in lndia to faster growth: the remaining
'cribers can have multiplicity of regulations governing product markets be.,
:it! markets and regulations that affect either the price or output in a
cause of a lack of sector); distortions in the land markets; and extensive
!e most damaging government ownership of business. It is to be remembered
(like the Reliance) that even today government controlled entities still account
llate, and whose for 43 per cent of the capital stock in the economy, and
're to choke off about 15 per cent of the non-agricultural employment.
'iglobalization get That such government 0-wnershipis cause of inefficiency
k and more so as can be seen in Chaft 53. Together, these inhibit GDP
5 with the world
growth by about 4 per cent a year. In contrast. MGI found
1997 Asian crisis that the factors more generally believed to retard growth-
'e 200 1 meltdown inflexible labour laws and poor transport infrastructure-
while important, constrain lndia's economic performance
much less by less than 0.5 per cent of GDP a year. Hence, to raise
implement two India's growth trajectory, a broader reform agenda is
to complete the required [see Chart 541.
Om!' to a market Removing the main bamers to growth would enable (at
Irolflh (based on 10 per cent a year) India's economy to grow faster than
'wth (driven by China. Annual growth in labour productivity would double
real GDP growth to 8 per cent. Some 75 million new jobs would be created,