- Tim Callen, Christopher Towe, and Patricia Reynolds
- Published Date:
- February 2001
© 2001 International Monetary Fund
Production: IMF Graphics Section
Cover design: Lai Oy Louie
Library of Congress Cataloging-in-Publication Data
India at the crossroads
ISBN 9781557759924 (alk. paper)
1. India--Economic policy--1980. 2. India--Economic conditions--1947– 3. Fiscal policy--India. 4. Sustainable development--India.
Address orders to:
External Relations Department, Publication Services
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- 1. Overview
- Christopher Towe
- Part I. Preserving External Stability
- 2. India and the Asia Crisis
- Christopher Towe
- 3. Assessing India’s External Position
- Tim Callen and Paul Cashin
- Part II. Fiscal Challenges
- 4. Tax Smoothing, Financial Repression, and Fiscal Deficits in India
- Paul Cashin, Nilss Olekalns, and Ratna Sahay
- 5. Fiscal Adjustment and Growth Prospects in India
- Patricia Reynolds
- Part III. Monetary and Financial Sector Policies
- 6. Modeling and Forecasting Inflation in India
- Tim Callen
- 7. The Unit Trust of India and the Indian Mutual Fund Industry
- Anna Ilyina
- Part IV. Growth, Poverty, and Structural Policies
- 8. Growth Theory and Convergence Across Indian States: A Panel Study
- Shekhar Aiyar
- 9. Structural Reform in India
- Daniel Kanda, Patricia Reynolds, and Christopher Towe
- List of Contributors
India is a land of contrasts. One billion people live in a vast territory among architectural and sculptural wonders that give vivid testimony to its ancient and rich history, as well as to its powerful and age-old customs. Yet, there is also a very modern face of India, which is responding to the growing forces of globalization and where information technology has found a fertile environment.
These contrasts and the force of tradition appear to have contributed to a cautious approach to change. Tentative and slow moving attempts to free the economy from pervasive controls were started in the 1980s, but it was not until the serious balance of payments and macroeconomic crisis of the early 1990s that India introduced significant and wide-ranging policy reforms. These reforms are widely considered to have been successful in promoting a marked improvement in macroeconomic performance. Nevertheless, the subsequent pace of reform has been less even and bold, and the question remains whether the basis has been laid for the sustained and rapid growth that will be necessary to alleviate the deep poverty that still afflicts more than a third of the population.
That India emerged relatively unscathed from the financial crisis that affected most of Asia as well as many emerging economies is testimony to the country’s resilience. Many sectors of the economy—and above all the information technology sector—have shown extraordinary dynamism and remarkable vitality. At the same time, India is today at a crossroads and a number of macroeconomic indicators display worrisome trends. In particular, the fiscal situation has worsened in recent years and requires concentrated and determined attention to reduce the risk of financial instability. Fiscal consolidation in combination with more rapid pace of structural reform, liberalization, and infrastructure development is also necessary to lay the foundation for strong growth. The challenge for the government is to forge a political consensus across a diverse range of interest groups that is necessary to sustain rapid and consistent reform on broad range of fronts.
The chapters in this volume seek to address the implications of these challenges and opportunities. For the most part, they were written during 1999–2000 in the context of the IMF staff’s ongoing policy discussions with India. By bringing these issues together in a single volume, the macroeconomic and structural challenges that are highlighted can be given greater prominence and thus contribute to the policy debate, both in India and, more broadly, in other reform-oriented economies.
Mario I. Blejer
Asia and Pacific Department
The papers included in this volume were largely prepared in the context of the IMF’s Article IV consultation discussions with India during 1999–2000, under the leadership of Mario I. Blejer. His support and encouragement during this process are gratefully acknowledged. The papers also benefited from comments received from Dr. V. Kelkar, IMF Executive Director; his Advisor, Dr. N. Jadhav; and from the staff of the Reserve Bank of India and the Indian Ministry of Finance. The authors would also like to thank Mary Abraham and Irene Aquino for their infinite care and patience in preparing the manuscripts, and Alex Hammer and Aung Thurein Win for their research assistance. Sean M. Culhane, of the IMF’s External Relations Department, edited the volume and was masterful in guiding it to completion.
The views expressed in this book are those of the authors, and do not necessarily represent those of the Indian authorities, IMF Executive Directors, or other IMF staff.