India has undergone remarkable changes since 1991. Until that date, India had spent its fifty years of independence
as a protectionist state, isolated from the trade with the rest of the world. Its share of world trade had gone from two
percent in the 1950’s to less than a half of a percent in the late 1980’s. At that point, India’s inflation was near the
double-digits. Its protectionist strategy had discouraged the production of exports, created recurrent shortages of
exchange, and made the balance of payments extremely vulnerable to external markets. By early 1990, India was
very close to defaulting on its external debt obligations. In 1991 India implemented a new strategy that has shot its
economy upward to now the fifth largest in the world.
In June 1991, India ended its four decades of central planning by implementing advances in agricultural
development for export, diversification of its industrial sector, nationwide distribution, and an educational system
aimed at providing a large quantity of high quality human resources. India has also made extreme changes to its
economic policies to stimulate domestic and foreign investments and trade. Initially, growth declined, but soon after
growth increased and is continuing to.
India has had an average growth rate of 5% between 1992-1995. Growth reached 7% in 1996. India’s GDP growth
has been impressive. Its 1993 per capita estimate was only $309 million and in 1995 India’s GNP per capita was
$340 million, as reported by the Worldbank. The World Factbook reported an estimated GDP per capita of $1,500
for 1995. Close to 40% of India's population of 952 million are in poverty. Agriculture employs 70% but only
accounts for a third of the India’s GDP. India has the highest number of poor people out of any country, containing a
quarter of the world’s poor. India’s inflation rate has remained fairly high and was 9% in 1995. Changes in India’s
economic policies have caused substantial industrial growth, primarily in capital goods. As a result, a large middle
class has abounded almost equal to the entire U.S. population in number. India’s huge middle class consumer sector
has attracted the world. Foreign direct investment is fifteen times greate!
r than it was before reforms and 10% of world portfolio investment in emerging markets have been put into India.
India’s exports have been rising in world exports. The main items exported are diamonds, textiles, leather products,
carpets, dyes and food. Their major exports to the U.S. are textiles/clothing and jewels. India’s largest trading
partners are currently the U.S. and the EU. Trade with the Asia-Pacific region is escalating. The chart below shows
the contrast in world export growth rates and India’s export growth rates over the past four decades. India,
reportedly, exported $29.96 billion worth of goods in 1995. In the past decade, India’s exports have grown by 21.7%
on an average.
India’s clothing and textile export far exceeds the world average of other countries. India’s large population and lack
of education for over half of its residents enables it to take advantage of its huge labor force making it one of India’s
biggest resources. In recent years India has put emphasis on upgrading its educational system to produce many
scientists and engineers. Expanding its quality human resources has enabled India to become more active in the
telecommunications market.
Along with the growth of education and the middle class, consumerism is growing. India’s imports have increased
exponentially to satisfy the growing desires of its people and to improve its infrastructure. India’s main imports are
aircraft and parts, telecommunications services/equipment, computer software, electric power generation, urban
mass transportation and food processing and packaging equipment. Most of these items will be used to promote
internal and external trade. Wood and paper are also imported frequently. The nation’s expenditures on goods and
services have increased almost 14% each year for the past seven years. In 1995, India imported $33.5 billion in
goods. Over the past decade imports have grown by 16.5% on average.
India is extremely far in debt. In March 1995 India had $97.9 billion in foreign debt. The World Bank reports that
India is its largest single borrower, owing $49 billion at the end of 1997. India has never defaulted on payments,
even in