Economic reforms spur rapid growth for India

India's erstwhile reputation as a country of vast but largely unfulfilled potential has been swept aside by a comprehensive program of economic liberalization. As she nears her first half century of independence, India is finally coming into her own in trade and business.

Benchmark reforms in the past three years aimed at deregulating the economy and encouraging foreign investment have fueled unprecedented growth, supported a swelling middle class and boosted exports.

Today, as India celebrates her 47th independence anniversary, the nation stands at the threshold of an exciting and dynamic era.

The future looks even brighter when one considers that India possesses the most educated and skilled labor force, gauged in absolute numbers, in the world. Excellent managerial and technical manpower and a middle class whose size exceeds the population of the United States or the European Union provide India with a pronounced advantage.

India's economic reforms are firmly rooted in a political consensus that spans her diverse political parties. Here democracy is a known and stable factor, having sunk deep roots over nearly half a century. India's time-tested institutions offer foreign investors a transparent environment guaranteeing the security of long-term investments.

A dynamic private sector, a free and vibrant press, an independent judiciary, a sophisticated legal and accounting system, as well as a user-friendly intellectual infrastructure with the widespread use of English as the principal language of commerce and administration, produce an environment conducive to foreign investment.

Policies

The announcement of a new industrial policy in July 1991 marked a watershed in India's efforts to open up her economy and move to the center stage of international business. Launched in conjunction with a liberalized trade policy and vigorous reform of the monetary and fiscal sectors, the policies are part of a broad and ongoing program of economic reform earmarked at the full realization of the country's immense economic potential.

Important features of the policies regarding foreign investment include automatic approval for foreign equity participation up to 51 percent in several key areas within two weeks from the Reserve Bank of India; industrial licensing abolished for all except 15 industries; free repatriation of profits and capital investment; the opening of the Indian capital market to foreign financial institutions; and special incentives for exports, as well as power, electronics and food processing.

Positive gains have been reaped from the advent of the new era of liberalization. Foreign investments have soared, with over US$2.8 billion of foreign direct investments in 1993 approved. This was compared to $1.4 billion in 1992 and $230 million in 1991. Foreign investment this year is expected to be more than $4 billion, a figure which exceeds the entire foreign investment over the previous four decades.

India's stock market has also gone from strength to strength. Dating back to 1875, the stock market has a capitalization of over $120 billion. It has an astonishing 6,000 listed companies, almost as many as in the U.S. The capital market opened up to foreign investment in 1992, and has since attracted the attention of 158 foreign financial institutions in the short span of just a year and a half. An inflow of over $1.5 billion in the capital market, most of it during the past six months, has further bolstered the economy.

The extensive restructuring of Indian industry since the economic reforms took effect has prodded major companies to seek foreign capital and reserve significant percentages of its issues for private placements. Indian companies, capitalizing on the rising international interest in India, have successfully accessed major financial centers of the world, raising more than $2.75 billion through Euro issues since the reforms began.

Benefits from the reforms are evident across the board. The six basic infrastructure industries -- electricity, coal, steel, cement, crude oil and refinery products -- together registered growth of 5.3 percent during 1993-94.

Exports in dollar terms increased sharply by 20.4 percent during the same period as compared to 3.8 percent during 1992-93. The current account deficit is likely to hover around $1 billion, slashed from $4.9 billion in 1992-93. Foreign exchange reserves have reached 17 billion, a striking increase from a mere $1 billion just three years ago.

Agricultural production registered 3.9 percent growth in 1992- 93 and food grain production is likely to reach 180 million tons for the same period, an increase of 11.6 million tons over 1991- 92.

These radical changes, conducted with full government and popular support, look set to bring more bountiful economic gains in the future. India is signaling that it will be a force to be reckoned with as business and economic competition steps up in the next century.