Is India really shining?

Mohan Guruswamy, Abhishek Kaul & Vishal Handa of the Centre for Policy Alternatives, an independent think tank in New Delhi, present a sobering perspective in an op-ed piece in The Hindu. The main points being a. India is behind China on most development indicators - catching up on growth rate alone isn't enough and b. China is an industrialising country whereas India seems to be entering the post-industrial phase without having industrialised.

A comparison of the first ten years of the economic performances of India and China after reforms (1992-2001 for India and 1979-88 for China) is instructive. China entered the first decade of the reforms as a fast developing and modernising country with an average decadal growth rate of 5.52 per cent. But more important than this was the performance (1980) of reducing infant mortality to 42 per 1000; elevating life expectancy to 67 years; raising adult literacy to 66 per cent. India by contrast had a better growth rate of 5.7 per cent in the 1980s but came burdened with an infant mortality of 119 per 1000; life expectancy of 59.2 years; and adult literacy of 48.41 per cent. Many reasons have been advanced for China's stupendous performance. Few are as valid as what Amartya Sen wrote: "China's relative advantage over India is a product of its pre reform (pre 1979) groundwork rather than its post reform redirection."

Yet another comparison would be even more instructive. In 1978, at the inception of its reforms, China's per capita GDP (in constant 1995 U.S.$) was $148, whereas that of India in the same year was $236. Seven years after it began its reforms, in 1986, China caught up with India in per capita GDP terms ($278 vs. $273) and a decade after reforms in 1988 was comfortably ahead of India with a per capita GDP of $342 compared with India's $312. In the first post-reform decade, the Chinese economy grew at 10.1 per cent while the Indian economy grew at 5.7 per cent in the corresponding decade. Quite clearly that was India's lost decade.

But what did we achieve in the first decade of our reforms? In 1992, the first year of its reforms, India's per capita GDP was $331. This grew to $477 in 2001. In the same period the Chinese per capita GDP surged from $426 to $878 in 2001. In the 1990s China grew at the rate of 9.7 per cent while India grew at 5.9 per cent. Quite clearly far from beginning to catch up, we fell well behind.

It is true both countries have transformed themselves after they embarked on the path of economic reforms. But the transformations were entirely different. In 1980 the sectoral break-up of China's economy was as follows: agriculture 30 per cent, industry 49 per cent, and services 21per cent. In 1990 that changed to agriculture 27 per cent, industry 42 per cent, and services 31 per cent. In 2000 that picture transformed further. Agriculture fell to 16 per cent; industry grew further to 51 per cent while services steadied at 33 per cent. Note the growth in the share of industry now. This was primarily made possible by overseas investment, which amounted to $293 billion during the decade, which also created millions of new jobs. Apart from the millions of new jobs created, the role of FDI in making China a major world-manufacturing centre is seen in the share of FDI enterprises in total exports. This rose from under 2 per cent in 1978 to 45.5 per cent in 1999. Today China accounts for 3.79 per cent of world trade while India's share is just 0.93 per cent. Consequently, China foreign reserves have burgeoned to $383 billion while India's is $92 billion.

The Indian picture makes for a study in contrasts. The share of agriculture fell somewhat from 31 per cent in 1990 to 28 per cent in 2000. The share of industry too fell from 28 per cent to 26 per cent. Services grew from 41 per cent to 46 per cent. Software exports apart, the biggest contributing factor to the growth of India's services sector has been the growth of public administration, which has been bounding at an average rate of 32.5 per cent each year from 1993-94 onwards. In 2001 Central, State and local government salaries together topped Rs.167, 715 crores. This kind of spending was not what Keynes had in mind when he advocated public spending to stimulate the economy!

The Tourism Conundrum

Francois Gautier is not my favourite journalist. For that matter, I don't even think he is much of a journalist. But, give the devil his due. In this piece, he makes a great deal of sense and reveals why India's tourism industry is in such a funk.

I often shuttle between Chennai and Delhi. A return ticket by Indian Airlines or Jet (which is more expensive) between these two cities costs more than Rs 22,000. For that price, I can fly from Paris to New York, which is triple the distance. And that is economy only: it will cost you a whopping Rs 34,220 return fare for a business class ticket on Jet from Chennai to Delhi. If you have the misfortune to be a foreigner, you will have to pay 30% to 40% extra, depending on the dollar exchange rate, which means you will have to disburse Rs 42,000 for a business class return Chennai-Delhi. For that price you can fly to Europe and back in economy!

The funniest thing is that there is sometimes a 15-day waiting list to travel by train from Chennai to Delhi (or the other way) in second class A/C sleeper, which costs a little over Rs 2,000 and takes 36 hours -- that is when the train is not a few hours late or does not have an accident. If Indian Airlines or Jet had the intelligence to offer Chennai-Delhi tickets at Rs 3,000, regardless of the dates, people will gladly shell out another 1,000 bucks, just to avoid the 36-hour trip. IA could easily fill up six Airbus-320 aircraft a day and make a handsome profit, instead of hiking up its prices four times in the last five years.

And what about Indians paying Rs 20 to see the Taj Mahal or at Hampi and foreigners being asked Rs 500? Are we cows to be milked? Does the Indian government think it is going to earn the goodwill of tourists and guarantee their return, when they are discriminated against?

Moreover, the hassles faced by foreigners in India are not only financial. Take visas for instance. In Sri Lanka, all foreigners are automatically handed a one month visa upon their landing at the airport. But not in India. One has to apply to sour faced, underpaid staffers at Indian embassies abroad -- and forget about five year visas, even if you have been visiting India for 35 years.

These archaic price discriminatory tactics the Indian govt uses against foreigners is something that has annoyed me for a long while, not to mention the crazy visa policies where practically everyone needs a visa to visit India, as a tourist or otherwise. It's part of the we-are-so-great-you-must-feel-privileged-to-visit-our-country mentality that has not gone away despite a decade of reforms. Is it any surprise then that India (with its unbelievable potential for tourism) gets about as many tourists in an entire year as France gets every two to three weeks?

State Government Finances

Here is a site you should check out. It's the Punjab Government site. There is a special features section in which there is the report of the Expenditure Reforms Commision. It's a good read, 90 pages or so--if you have nothing to do on the weekend. Basically one gets some idea of why state government finances are in such a mess.

AIDS and India

There is a nice Amy Waldman story in today's NYT on India's plans to provide free AIDS therapy. As she notes:

By April of 2004, the government hopes to begin providing free antiretroviral therapy to all H.I.V.-positive new parents, all children under 15, and eventually, to all patients with full-blown AIDS in the six states with the highest rates of H.I.V./AIDS. The decision amounts to a significant policy shift for India, which has not previously tried to offer antiretroviral treatment on any significant scale, though it does provide drugs to try to prevent AIDS transmission from mothers to babies in childbirth.

But several obstacles must be overcome by spring. The government must still reach a final agreement with the country's pharmaceutical companies, who manufacture generic versions of antiretroviral medications, to reduce their prices, as these companies recently agreed to do in Africa and the Caribbean. The government has yet to identify "budgetary support," the money to pay for drugs for as many as 100,000 people, the number it estimates would be served in the first year. It also will have to recalibrate its weak public health system to provide for far broader testing, and train doctors and nurses to monitor the dosage and effects of antiretroviral therapy.

India is estimated to have at least 4.6 million people with H.I.V. — the second highest number in the world, after South Africa. More than 600,000 new cases occurred in 2002.

Doctors in India prescribe antiretroviral therapy, but at $1 a day, it costs too much for most people. India's per capita income is less than $500 a year.

People often underestimate the danger that AIDS poses to India. An article in last Dec's Foreign Affairs magazine (now unfortunately unavailable online) made a very pursuasive argument of how AIDS is not just a humanitarian tragedy, it has the potential to spread into a pandemic and destroy the economic potential of three pivotal countries, India, China and Russia.

I had written a little bit earlier about the problems that India faces in fighting AIDS. I am very glad that we are finally responding to the crisis; though from what I read between the lines, we seem to be indulging in a bout of pennywise, poundfoolishness:

For two weeks, the companies and government have been in what one participant called "back-breaking" negotiations over those issues. Ms. Swaraj has made clear that she would like the companies to provide lower prices in India than those agreed to with the Clinton Foundation. "That's only natural because these are companies based in India," she said. Industry representatives say the government needs to understand the business imperatives of companies that have become Indian success stories and wealth creators. The Clinton Foundation agreement, they say, has left them a small margin of profit that will allow their businesses to keep growing and appease shareholders. To go any lower, they say, will require concessions from the government, like exemptions on sales and excise taxes.

Ms. Swaraj announced at a news conference Sunday — the day before elections in four important states — that an agreement with the companies had been reached, but privately industry and government officials said negotiations were continuing.

In an entirely different context, in my home state of West Bengal, the state government is indulging in similar shortsightedness and a deal to offer computer literacy to school children is now in danger of falling through ...