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December 7, 1998

International conference examines India's economic expansion

By Barbara McKenna

Conference participants and supporters were honored at a dinner gathering. (Larger photo)

On November 20 and 21, top-level U.S. and Indian policy makers and academics met at UCSC to examine the major issues facing India's growing economy.

The group came together for the conference, "Growth, Governance, Empowerment: The Future of India's Economy." Conference participants included representatives from the Indian government, the World Bank, the United Nations, and U.S. and Indian academic institutions.

This was the first conference of such scope to take place through UCSC's burgeoning South Asian studies program. The program was launched a year ago with the establishment of the Chandra Bhandari Chair in India Studies, which, along with the Asia Foundation, was one of several key conference sponsors.

Among the specific points conference participants discussed were the following:


Since Indian independence 50 years ago, the country has operated under a closed market system. In 1991, India began a transition to an open market system--a dramatic step, especially given the problems experienced in the economies of the Former Soviet Union and countries in Southeast Asia.

India has avoided the pitfalls of its counterparts by opening up to the international market more slowly. The results have been impressive--national economic growth rates stood at 7 to 8 percent between 1991 and 1996.

According to UCSC history professor Dilip Basu, a co-organizer of the conference, "The consensus of the conference was that the pace of economic reform can be accelerated. Participants shared a kind of cautious optimism that if there is a stronger political will to implement reforms, the Indian economy will improve quite dramatically in the next century."

According to Isher Judge Ahluwalia, director of the Indian Council for Research on International Economic Relations in New Delhi, there is now general consensus among all political parties that reform is necessary and should be continued. Ahluwalia notes that finding such consensus in the government is a considerable achievement.


Although many areas of India's economy are still relatively closed, the government has long been encouraging foreign investment in India's infrastructure. The government has gone so far as to develop broad incentives for foreign investment, especially in India's power industry.

In a keynote speech, Montek Singh Ahluwalia, a member of India's Planning Commission and former finance secretary for the Indian government, observed that India's infrastructure levels have not advanced much in the past 50 years, while India's population more than doubled to almost 1 billion people. In order to support economic growth, India needs to generate rapid growth in infrastructure. Ahluwalia urges that, to encourage this growth, the government must continue programs that invite direct foreign investment in infrastructure.


According to UCSC professor of economics Nirvikar Singh, conference co-organizer with Basu, "Everyone agreed that some attention needs to be paid to making the fruits of growth available to the broader population. There was some good discussion on the precise ways in which education, health, and other public services and infrastructure could be improved at the level of the villages where many of India's people live."

Several papers dealt with the need for equity and empowerment for disadvantaged sections of society--women, children, and the poor. According to Singh, "There is a great deal of social awareness in India in all these areas, and the government has been responsive. But the reality on the ground level is that, despite government measures, the situation in these sectors is not very good." And there is a question, Singh said, of whether or not globalization might create more poverty in already poor segments of society.


Opening up an economy requires not only physical infrastructures, but legal ones as well. In a talk on the subject, John Williamson, division chief in South Asia for the World Bank, noted that additional institutional and legal infrastructures are required to create bankruptcy laws (which are nonexistent in India now), as well as to reform trade law, contract law, and corporate law. Additionally, a judicial system is necessary that can enforce those laws rapidly and efficiently.

Many newly opened countries began economic reforms without the advantage of a well-placed legal system. In this case, India has an advantage, Dilip Basu notes, having inherited a 200-year-old legal system from the British.

India is also handicapped, Williamson says, by an inefficient and often corrupt judicial system. The higher courts run efficiently and fairly, he observes, but lower courts are often rife with problems. To move forward with economic reform, the system must be cleaned up. Additionally, according to Bibek Debroy, director of the Rajiv Gandhi Institute for Contemporary Studies in New Delhi, the economy is saddled with constraints from many old, irrelevant, and problematic laws. These laws need to be purged to facilitate growth.

An edited volume comprising the papers presented and with some recommendations for the future is expected to be published next year.

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