P A G Eiii E e c u t i v e S u a r y executive summaryi µIn 1991, with India runnin out of hard currency, Manmohan Sin h«decided that

India had to open its economy. ³Our Berlin Wall fell«and it was like unleashin a ca ed ti er« We went from quiet self-con dence to outrageous ambition in a decade´ [Tarun Das, Chief Mentor, Confederation of Indian Industries].¶ (Thomas Friedman, The World is Flat) Optimism abounds in India. Well it might. Keynote reforms, initiated by the then Finance MinisterDr Manmohan Singh in 1991, provided the momentum for a major reduction of the role of the publicsector in the economy, a degree of deregulation, and greater integration of India¶s economy intointernational markets. India¶s entrepreneurial spirit was unleashed. The result has been a shift from India¶s traditional annual GDP growth rates of around 3.5 per cent to a much faster growth trajectory.1 Between 1991 and 2005 the economy expanded at an annual average of around six per cent. In the past three years growth has been higher still, at around eight per cent. Growth for 2006±07 may be even higher, with the economy expanding at an annualised rate of 9.2 per cent in the third quarter of 2006. These gures call to mind the performance of the economic success stories of East Asia ± Japan,Taiwan, the

Republic of Korea, the high-growth ASEAN economies and, most recently, China.Extrapolating from macro factors ± such as demographics and potential for technological µcatch-up¶ ± and assuming an ongoing reform effort, studies by a number of prominent analytical organisations have projected that India could even outperform these dynamic economies over the next fty years.If so, these

studies claim, by 2050 India could be the third-largest economy in the world (in marketexchange rate terms) by a signi cant margin, behind only China and the United States. Such developments would profoundly shift the world¶s economic centre of gravity. This study does not seek either to substantiate or to disprove these rosy projections. Any suchattempt would be futile. Too much is dependent on factors which cannot be plausibly predicted, suchas the ongoing willingness and ability of Indian governments to sustain a reform program over longperiods; the health of the international economy; new developments in technology; and the shapeof the international trading system. Instead we ask: Howmi ht it happen? Is there a plausible path from today¶s India to the projected giant economy of 2050? What opportunities might successful pursuit of that path generate for Australian services providers? And nally, what factors need to be taken into account along the way as Australian companies consider whether they should be seeking to participate directly in India¶s growth? 1 While some contend that growth picked up in the 1980s, Panagariya (2005) points out that growth was patchy. Growth wasstrong over 1988±89 to 1990±91, but this was largely a re ection of the liberalisation and deregulation measures under PrimeMinister Rajiv Gandhi as well as expansionary policies that ended in the economic crisis of June 1991. It was the more systematic and deeper reforms commencing in 1991 that helped sustain India¶s economic growth.

Sign up to vote on this title
UsefulNot useful