It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the world’s fastest growing economies with average growth rates of 8% over the past three years
Emerged as a global player in information technology, business process outsourcing, telecommunications, and pharmaceuticals
Is now the world’s fourth largest economy in purchasing power parity terms.
Challenges
The country’s achievements have, however, created new challenges. Some of the most prominent are:
1. Improving the Delivery of Core Public Services
As incomes rise, citizens are demanding better delivery of core public services such as water and power supply, education, policing, sanitation, roads and public health. And as physical access to services improves, issues of quality have become more central.
Education: While India has made huge progress in getting more children into primary school, learning outcomes have yet to make more headway.
Health: Although population growth has fallen below 2% per year due to declining fertility, there has been little improvement in maternal mortality. And, despite the fall in child mortality, these rates remain high as they are strongly related to child malnutrition where little progress has been made.
Infrastructure: Power networks, roads, transportation systems and ports are facing huge demands from India’s rapidly growing economy. But, shortages are eroding the country’s competitiveness and hurting the growth of labor-intensive enterprises, particularly export-oriented manufacturing which has the potential to absorb India’s fast-growing working population.
2. Making Growth More Inclusive
Substantial disparities persist within the country. In a marked departure from previous decades, reforms of the 1990s were accompanied by a visible increase in income inequality. Although this continues to be relatively low by global standards, disparities between urban and rural areas, prosperous and lagging states, skilled and low-skilled workers are growing. Inequality can have huge social costs, and evidence of social unrest in some disadvantaged regions is growing.
Agriculture: Slow agricultural growth is a concern for policymakers as some two-thirds of India’s people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation.
Jobs: While the services sector booms with promising job opportunities for skilled workers, some 90% of India’s labor force remains trapped in low productivity informal sector jobs.
Lagging States: Faster economic growth has seen rising inter-state disparities. While India’s higher-income states have successfully reduced poverty to levels comparable with richer Latin American countries, its poorer states - Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - have not kept pace and are lagging behind their more prosperous counterparts.
3. Sustaining Growth
Maintaining high growth will also require attention to some basics:
Fiscal deficit: While the country has improved its fiscal indicators recently, further improvements will be needed to reduce risks to fiscal stability and, more importantly, to create the space to fund the country’s large infrastructure needs and ambitious social development programs.
Trade Deficit: The trade deficit is large and has widened due to high oil prices and increased non-oil imports. Nevertheless, India’s vulnerability to an external crisis remains limited due to its large foreign exchange reserves - which touched almost US$ 285 billion on Jan 18, 2008 - its low levels of external debt, and buoyant exports of services.
Ongoing Reform: Redoubling of reforms that address the basic constraints to growth is essential, as international experience shows that the recipe for slow growth is complacency about pushing ahead with reforms in times when growth is high.
Priorities
Government policy and programs are looking beyond maintaining rapid growth to making this growth more inclusive. The 11th Plan approach paper lays out the Government’s priorities in this direction.A variety of Government initiatives have been launched: to build rural infrastructure (Bharat Nirman), address employment (NREGA), uplift rural health (NRHM), address primary education (SSA), and renew urban infrastructure (JNNURM).
But for these and other programs to be effective, it is increasingly being recognized that deeper institutional reforms are needed to strengthen capacity and enforce accountabilities at all levels.
Public sector services reform: India’s core public services such as healthcare, education, power, water supply and transportation need urgent improvement. This will require systemic reform of the public sector service providers, implementing effective systems of accountability to citizens, decentralizing responsibilities, and expanding the role of non-state service providers.
Infrastructure: India needs to invest an additional 3-4% of GDP on infrastructure to sustain its current levels of growth and to spread the benefits of growth more widely. Although this will clearly require a government role, the relative roles of the government and private sector need to be defined.
Policies that encourage competition can be strengthened.
Agricultural and rural development: Raising agricultural productivity requires a return to investments in agricultural technology and infrastructure. Getting the rural economy moving will also require facilitating rural - non-farm - entrepreneurship. The bright spot on the horizon is that the private sector is now looking at the rural areas as a potentially important market and is increasing its investments accordingly, thereby opening up new opportunities for Indian farmers. Encouraging policies that promote competition will also ensure farmers receive better prices.
Labor regulations: India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade.
Lagging states: Lagging states need to bring more jobs to their people by creating an attractive investment destination. Reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance are important.
HIV/AIDS: Indiahas one of the largest numbers of HIV infected populations anywhere in the world. Although the prevalence rate is low, at less than one percent, it remains acutely at risk of a growing epidemic.
Other strategic challenges: These require long-term vision and urgent action:
Adapting to increasing water scarcity
Improving energy efficiency and ensuring adequate energy supplies
Adapting to climate change which could impact India more than most countries
Coping with accelerating urbanization through strengthened urban governance
Protecting India’s fragile environment in the face of the rising pressures created by economic success
Making India a driving force in technical innovation.
World Bank Support to India
The World Bank works in close partnership with India’s Central and State Governments, aligning its strategies with the country’s own development agenda. It lays emphasis on investing in people through better health and education, empowering communities to participate in their own development, improving the effectiveness of government, and promoting private sector-led growth to achieve the country’s development goals.
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure, human development, and improving rural livelihoods. The Bank is increasingly focusing on providing analytical reports on the country’s major development challenges, and extending practical advice to policy makers by sharing good practices and experience from within the country and abroad.
Lending
India is one of the oldest members of the World Bank having joined the institution in 1944. New World Bank lending to the country in FY08 (July 2007-June 2008) was US$2.7 billion. At end of June 2008, the Bank group had 60 active projects with a net commitment of about US$ 13.8 billion for these projects.
