INDIA ECONOMIC POLICY

For many ‘old economic powers’, India along with China is considered as threat for their economic hegemony. In the past decade, both countries have shown an incredible economic growth of over 8 % annually. In 1991, India Prime Minister Narasima Rao liberated Indian market by reducing government control and regulation especially in Foreign Trade segment.

This liberation in turn pushed Indian economic growth far outreaching of most of other countries. Before the 1990’s liberation, India adopted socialist market policies where government applied a strict control over any economic activity. Till the early 1990s, India was a closed economy: average tariffs exceeded 200 percent, quantitative restrictions on imports were extensive, and there were rigid restrictions on foreign investment.

India began to cautiously reform in the 1990s, liberalizing only under conditions of extreme necessity. Although India has steadily opened up its economy, its tariffs continue to be high when compared with other countries, and its investment norms are still restrictive. This leads some to see India as a ‘rapid globalizer’ while others still see it as a ‘highly protectionist’ economy. In its study, World bank concluded that to sustain the dynamism of India’s services sector, the country must address two critical challenges: externally, the problem of actual and potential protectionism; and domestically, the persistence of restrictions on trade and investment, as well as weaknesses in the regulatory environment. To support its economic reformation, India has undergone several economic agreement with various contries and regional organization such asIndia-Sri Lanka Free Trade Agreement, Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China, and South Korea, India-Nepal Trade Treaty, Comprehensive Economic Cooperation Agreement (CECA) with Singapore, Framework Agreements with the Association of Southeast Asian Nations (ASEAN), Thailand and Chile.

In 1999, Goldman Sachs has predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035 it is expected to reach as 3rd largest economy of the world behind US and China. Goldman Sachs has made these predictions based on India's expected growth rate of 5.3 to 6.1% in various periods,whereas India is registering more than 8% growth rate for the last 3 years. According to some experts, the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent in 2025), and hence the latter will emerge as the third pole in the global economy after the US and China.The basic idea is that income per capita was roughly similar prio to the industrial revolution with the regions that make up the boundaries of modern day China and India each had much larger economies than the west.

Now with rapid growth in the developping world (except sub saharan africa) developed countries are again going to have a situation of roughly similar standard of living in most of the world possibly within the next 50 years and China and India being over 3 times the size of any other country are probably going to be the world's largest economy based on a average growth of 5% and a currency appreciation of 2% per annum vis a vis the USD. India faces a burgeoning population and the challenge of reducing economic and social inequality. Despite its enourmous economic growth, poverty remains a serious problem, although it has declined significantly since independence, mainly due to the green revolution and economic reforms.

However, in comparison with Chinese foreign trade and investment atmosphere, most of foreign investors feel more secure to invest their capital in China. The main reason of this outcome is the availability of infrastructure. The frequent shortage of electric power and availability of decent road infrastructure have made foreign investors to think twice to invest in India. Power shortage and lack of decent road infrastructures may effects their production liability and also increase production cost. But India posses something which China does not have, English. Although in industrial sector, India is behind China but in service sector India move faster than China. As Chinese Prime Minister stated in his recent visit to India that in the future, India would become the front office and China would be the factory.