CIAO DATE: 07/03

India's Slow Conversion to Market Economics

Joydeep Mukherji

CASI Working Paper
November 2002

Center for the Advanced Study of India

 

Abstract

According to the Bible, Saul of Tarsus converted almost instantly to Christianity on the road to Damascus. Subsequently, he neither ate nor drank for three days. The conversion of the world's second largest country, India, to a new way of life based on free markets and private enterprise will not be so rapid or disruptive. Nevertheless, India's conversion to market economics will, like Saul's, be thorough and deep. It will increasingly affect all of us in the global village, in which Indians constitute 17% of the inhabitants.

India's economic performance over the coming years is likely to disappoint both optimists and pessimists. It is not likely to grow as rapidly as East Asian countries during their best growth years but neither is it destined to remain poor. India's economy has grown 5%-6% per year over the last decade during a period of halting reform that has opened up what was once the most regulated and bureaucratized economy outside the communist world. With the benefit of hindsight, it is clear that high hopes in the early 1990s of India becoming a new Asian "tiger" were unrealistic. However, the end of irrational exuberance about India's prospects in the near term should not obscure favorable long-term trends that will slowly create freer markets and more prosperity.

The public perception of India's future, often amongst Indians themselves, tends to be less optimistic. Media and policy attention focuses on the shortcomings of India's public sector, which have not improved much in recent years. A seemingly endless supply of corruption scandals consumes public attention and lowers expectations as well. The focus on the poor quality of governance is justified, but it risks ignoring the progress made elsewhere in India as people try to get ahead despite such obstacles.

The strongest resistance to change in India comes not from ideology but the mind-set created during several decades of semi-socialist economic policies. The mind-set is slowly changing towards more pragmatism and individual initiative, faster among the young and in the business community than among the intelligentsia and in the public sector. The combination of an elderly political class largely stuck with the old mind-set and a troubled intelligentsia, especially in academia, still largely uncomfortable with the idea of a capitalist India shapes public discourse inside the country, and influences the perceptions of outsiders. Fortunately, the discourse lags behind the emerging reality.

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