Asia Economy
India's rupee crisis has muted obsession with overtaking China
By Michael Hennigan, Finfacts founder and editor
Aug 23, 2013 - 8:10 AM

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Shri Pranab Mukherjee, president of India (left) greeting Mohammad Karim Khalili, vice president of Afghanistan, New Delhi, Aug 21, 2013  

India's rupee crisis has muted its obsession with overtaking China and with growth halving in recent years, international focus has been drawn to the development challenges in Asia's third biggest economy.

Amartya Sen, a Nobel laureate, is a professor of economics and philosophy at Harvard, and this week he wrote in The New York Times that since Indian independence in 1947, life expectancy at birth has more than doubled, to 66 years from 32, and per-capita income (adjusted for inflation) has grown fivefold. In recent decades, reforms pushed up the country’s once sluggish growth rate to around 8% per year, before it fell back over the last two years.

He however acknowledged China's superior capacity to deliver public services and said that almost one in every 5 males and one in every 3 females are illiterate while less than half the children can divide 20 by 5, even after four years of schooling. 

China's public spending on health is at 2.7% of GDP (gross domestic product) while India's is at 1.2%.

Sen says the inadequacies in education and health require more democracy not less, rather than moving closer to China's authoritarian system.

Jagdish Bhagwati, the other well-known Indian emigrant economist who is professor of law and economics at Columbia University, is a bitter rival of Sen's and they are each 79 years old.

Bhagwati, is best known for his work on trade and has been critical of Amartya Sen's model of growth, which he says has actually hurt the poor in India by not really supporting the market reforms in 1991 and pushing for a Food Security Bill which would create inflation.

India has a notorious reputation for bureaucratic red tape and Prof Bhagwati has no confidence in the political system delivering a significant improvement in public services.

Last month, 23 children, aged between four and 12, died after eating a lunch of lentils, potatoes and rice cooked at the school in a poverty-stricken village.

Forensic tests showed the meal was contaminated with monocrotophos, a lethal pesticide banned in many countries.

The infrastructure deficit was highlighted last year when there were huge electricity blackouts, affecting 600m people.

Arvind Subramanian, an Indian national, who is based at the Peterson Institute for International Economics in Washington DC, wrote:

[In Lord Richard Attenborough’s movie Gandhi, an underling of the British Empire heatedly warns his supercilious boss that Mahatma Gandhi’s impending protest march to the sea poses a far greater threat than the Raj realizes: “Salt, sir, is a symbol.” This elicits the memorable sneering put-down from the boss (played by Sir John Gielgud): “Don’t patronize me, Charles.”]

Subramanian asked: is power, or rather the power sector, today’s salt - - emblematic of both the pessimistic outlook and promise of India?

Twenty years ago, just over 40% of India’s households had electricity. Today, that’s up to 66%. Much of the power is stolen or given away free. Local politicians put pressure on power companies to keep tariffs low, which leads to huge losses.

Advances in solar technology such as the solar lamp, have great potential in rural areas.

Soutik Biswas, Delhi correspondent of the BBC, said in August 2012:

  • India has an installed capacity of more than 170,000 megawatts, up from a mere 1,362 megawatts at the time of Independence in 1947;
  • Despite its soaring energy needs, India has one of the lowest per capita rates of consumption of power in the world - 734 units as compared to a world average of 2,429 units. This is nothing compared with say, Canada, (18,347 units) and the US (13,647 units). China's per capita consumption (2,456 units) is more than three times that of India.;
  • Sixty-five years after independence, only nine states - - Andhra Pradesh, Gujarat, Karnataka, Goa, Delhi, Haryana, Kerala, Punjab and Tamil Nadu - - of 28 have been officially declared totally electrified.

India's exports during 2012-13 stood at US$300.3bn, while imports were at $491.9bn. The trade deficit stood at $191.6bn.

Ireland's goods exports were insignificant at €235m in 2012 compared with €337m in exports to Romania.  Imports were valued at €365m. Services trade with India does not even merit separate country data.

Reuters reports that India's foreign exchange reserves were at $278.602bn as of August 9; China's reserves grew from $600bn 10 years ago to $3.5tn as of June this year.

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