Macro Economy

Macro Economy Proceedings, Issue No.1, March 2007 (PDF: 265kb)

Contents:

INDIA'S GROWTH: PAST PERFORMANCE AND FUTURE PROSPECTS

Shankar Acharya

Acharya reviews India's economic growth performance from 1950 to the present and outlines the economic challenges and prospects facing the country in the medium term. He discusses the more open and outward-looking economy; the growing middle class; the young population; the rise of strong companies in a modernized capital market; recent reforms; and a supportive international economic environment as structural factors to explain the surge in India's growth rate to 8 percent a year since 2002.
Looking ahead he finds that weaknesses in India's fiscal situation, infrastructure, labor market, agriculture sector, reform process, and human resource development as well as changes in the international environment pose constraints for the economy. Acharya concludes that expectations of 6.5 to 7 percent annual growth for India in the next five years are more justifiable than the more bullish expectations of some analysts and of the Government's Planning Commission. He points out that even the more moderate scenario, however, implies an annual rate of growth in GDP per capita that is about as fast as India has ever experienced.

SACRED COWS ON THE ROAD TO DEVELOPMENT: REFORMING INDIA'S INFRASTRUCTURE SECTOR

Stephen Thomsen

Thomsen sees the infrastructure sector as a potential roadblock in India's push to match China's recent economic performance. The woeful condition of India's infrastructure means that substantial investment will be necessary just to sustain the current growth rate. The government hopes to commit $320 billion of public and private funds to infrastructure spending over the next 5-7 years. What does India need to finance and deliver the targeted level of infrastructure services?
Thomsen first documents the condition of India's infrastructure relative to China's and the experience with private participation in India's infrastructure sector. Then he examines the interplay of past reforms and private participation specifically in the power, transport, and telecommunications sectors. His look at the state of public finances reveals a funding gap that will have to be filled by private, and especially foreign, investment. He concludes that to get the most out of private participation India needs to adopt deeper reforms, both institutional and political, than it has so far undertaken and to implement them more conscientiously if it is to build an infrastructure sufficient to accelerate growth and alleviate poverty.