India's pro-growth policies paying off

Over the past decade, India's government has finally loosened the grip that has kept 1.1 billion people in poverty. The country is gradually moving away from socialism toward market policies that include privatisation of state-owned industries, lower tariffs and reduction in other tax rates, and looser controls on foreign investment.

The new policies have brought increasing prosperity, say observers, although challenges remain:

The government lowered import tariffs and granted tax breaks to outside investors – foreign direct investment more than doubled to $6 billion in 2003.

Foreign capital inflow in the last 12 months was 50 percent higher than any other period, and foreign investors own 31 percent of the shares in the country's top 10 companies.

Gross domestic product is expected to grow 8 percent this fiscal year and 6.4 percent next year.

A Goldman Sachs report predicts that India will become the world's second largest economy – surpassing China – after 2010.

Although India's middle class is growing – with 2 million cellular telephone connections sold each month – living standards are still low. The average income is $500 a year and about 35 percent of the population lives in poverty.

Source: Marilyn Alva, India Is Becoming Powerhouse; Growth Expanding Middle Class, Investor's Business Daily, February 13, 2004.

For more on India http://www.ncpa.org/iss/int/

FMF Policy Bulletin\17 February 2004