{
  "title": "Breaking Out of the Third World: India's Economic Imperative — Address by Stanley Fischer",
  "publication": "IMF News, January 22, 2002",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp012202",
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  "summary": "Given at the India Today Conclave, New Delhi",
  "publishDate": "2002-01-22",
  "sections": [
    {
      "heading": "Introduction",
      "content": "- Context: Speech delivered at the India Today Conclave, New Delhi; as prepared for delivery, January 22, 2002.\n- Global backdrop: world economy subdued after unexpected weakness and the events of September 11; cautious optimism as industrial production and financial markets show signs of stabilization.\n- Core message: India must take decisive steps now to boost long-term growth and fulfill its economic potential; complacency must be avoided."
    },
    {
      "heading": "Achievements and Key Statistics",
      "content": "- Economic growth averaged 6 percent a year in the 1990s, led by services and a dynamic IT industry.\n- Poverty:\n  - Fell from 55 percent of the population in 1974 to an estimated 26 percent in 2000.\n  - During the nineties, the poverty rate is estimated to have fallen from 34 percent to 26 percent.\n  - About 260 million Indians still live below the official poverty line.\n- Social indicators (roughly last two decades):\n  - Life expectancy: from 55 to 63 years.\n  - Infant mortality rate: from 108 to 70 per thousand live births.\n  - Literacy: rose from 45 to 68 percent for men and from 29 to 45 percent for women.\n  - Current literacy levels: 68 percent for men and 45 percent for women; China: 91 percent for men and 76 percent for women.\n- External position:\n  - Official reserves now stand in excess of six months of goods and services imports.\n  - Reserves are more than four times the level of short-term external debt.\n  - External debt has declined to around 22 percent of GDP.\n  - Current account deficit has been held to less than 1 percent of GDP in recent years.\n- Investment and FDI:\n  - FDI in India averaged ½% of GDP during the last decade; in China it was 5% of GDP.\n  - Private investment in India around 15% of GDP; greater FDI could permit a nearly one-third increase in private investment relative to GDP.\n- Fiscal position:\n  - General government deficit nearly 10 percent of GDP.\n  - General government debt risen to almost 65 percent of GDP.\n- Growth objective:\n  - Planning Commission estimate: it will take growth rates of 8-9 percent over the next decade to reduce the poverty rate to around 11 percent.\n- Returns to education (World Bank (1995) review for Asia, cited):\n  - Private and social returns: 39% for primary, 19% for secondary, and 20% for higher education."
    },
    {
      "heading": "Achievements and Challenges — Analysis",
      "content": "- Driving force: ambitious reform program after the 1991 balance of payments crisis — industrial and trade liberalization, financial deregulation, improved supervision, privatization and FDI-friendly policies.\n- Recent slowdown: growth has been slowing since 1997; attributed fundamentally to a slackening in the pace of reform (droughts, high energy prices, Gujarat earthquake noted as exogenous factors).\n- Distribution of growth: services-led growth but industrial growth has slowed sharply; industrial growth needed to provide high-wage employment for the 70 percent of the labor force still working in agriculture.\n- Policy slippages: weaker growth and policy slippages undermined fiscal position and prompted credit rating downgrades."
    },
    {
      "heading": "Sustaining Stronger Growth — Policy Priorities and Recommendations",
      "content": "- Overview: Focus on five key areas — embracing globalization, structural reform in product and labor markets, education, strengthening the financial sector, and fiscal consolidation.\n\n- Embracing Globalization\n  - View: globalization should be embraced purposefully and cautiously; India should position itself to compete internationally.\n  - Trade:\n    - India has cut tariffs and removed quantitative restrictions, but tariffs remain very high by international standards and anti-dumping measures are frequently used.\n    - Advisory Council suggestion: move average industrial tariff level from 34 percent then to the East Asian average of 12 per cent by 2005; the average tariff level in India had not fallen since the report but the 12 percent target remains sensible.\n  - Capital account liberalization:\n    - India's cautious approach limited contagion during the Asian crisis by containing short-term debt.\n    - Benefits to greater openness, especially FDI, are emphasized: FDI transfers skills and technologies and has spillover benefits.\n    - Capital account liberalization should proceed gradually but steadily as the financial system and fiscal policy are strengthened.\n\n- Structural Reform (factor and product markets)\n  - Industrial deregulation priorities:\n    - Eliminate preferences for small-scale producers.\n    - Further ease constraints on foreign direct investment.\n    - Streamline regulatory procedures.\n    - Revamp bankruptcy legislation.\n  - Labor market reform:\n    - Repeal legislation blocking layoffs in medium- and large-sized firms (as announced in Minister Sinha's last Budget speech).\n    - Legislation to ease constraints on hiring contract labor.\n  - Agricultural reform:\n    - Abolish controls on prices, trade and movement of agricultural commodities.\n    - Sharply reduce role of government procurement agencies and dereserve agricultural processing.\n    - Current government food stocks represent a significant fiscal drain and exceed what is needed for food security.\n  - Power sector reform:\n    - Primarily state responsibility; central government can condition funding on reforms such as metering, energy audits, commercialization of distribution, and raising tariffs to economically sensible levels.\n\n- Education\n  - Emphasis: investment in education, training, and talent development is critical.\n  - Literacy shortfalls highlighted relative to China.\n  - The Prime Minister's Economic Advisory Council report details necessary measures; universal primary education is an effective anti-poverty measure.\n\n- Financial Sector Strengthening\n  - Lesson from Asian crises: importance of a strong, well-regulated financial sector with prudential and supervisory systems, strong governance, and mechanisms to resolve weak institutions.\n  - Progress and remaining weaknesses:\n    - Prudential norms tightened, bank capital bolstered, supervisory systems strengthened.\n    - India undertook a Financial Sector Stability Assessment.\n    - Remaining issues: stock market scandal (governance), problems with UTI, development finance institutions, urban cooperatives, weak banks, and high non-performing loans.\n  - Privatization and ownership:\n    - Government commitment to reduce ownership in financial sector is welcome and should be pursued.\n    - Concern that private investors may avoid entry while government retains controlling shares; government control historically leads to deterioration of institutions.\n  - Goal: strengthen supervision, governance, and resolution mechanisms to enable the financial system to finance investment.\n\n- Fiscal Consolidation\n  - Current situation:\n    - General government deficit nearly 10 percent of GDP.\n    - General government debt almost 65 percent of GDP.\n    - Consolidation since 1991 crisis has been erased.\n  - Consequences:\n    - Unsustainable deficit risks disorderly stop with serious growth consequences.\n    - Borrowing at current levels crowds out private investment and imposes a heavy interest burden, diverting resources from development needs.\n  - Recommended actions:\n    - Passage and implementation of the Fiscal Responsibility and Budget Management Bill (seeks to eliminate the revenue deficit over the medium term) is welcome but insufficient alone.\n    - Harder budget constraints at the state government level.\n    - Tax reform.\n    - Reductions in subsidies.\n    - More rapid progress with privatization.\n    - Focus on overall deficit rather than adherence to the golden rule of balancing current expenditures.\n  - Urgency: gradual improvement plans in the 1990s failed; a more determined rate of deficit reduction is economically and politically preferable."
    },
    {
      "heading": "Conclusion",
      "content": "- The reform agenda is formidable, politically and technically challenging; many reforms will confront privileged interests and entail painful adjustments.\n- Long-term benefits far outweigh short-term costs; delay raises costs.\n- If India implements these measures and increases growth to the 8-9 percent range, it can move out of the third world and inspire other countries.\n- Closing exhortation to policymakers: \"Just do it.\"\n\nSource: Breaking Out of the Third World: India's Economic Imperative — Address by Stanley Fischer, Special Advisor to the Managing Director, International Monetary Fund; as prepared for delivery, January 22, 2002.\n\n---\n\n\n References\n\n- India and the IMF\n- Singapore and the IMF\n- People's Republic of China and the IMF\n- Speeches\n- Stanley Fischer\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp012202"
    }
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    "Published: January 22, 2002",
    "Context: Speech delivered at the India Today Conclave, New Delhi; as prepared for delivery, January 22, 2002.",
    "Global backdrop: world economy subdued after unexpected weakness and the events of September 11; cautious optimism as industrial production and financial markets show signs of stabilization.",
    "Core message: India must take decisive steps now to boost long-term growth and fulfill its economic potential; complacency must be avoided.",
    "Economic growth averaged 6 percent a year in the 1990s, led by services and a dynamic IT industry.",
    "Poverty:",
    "Social indicators (roughly last two decades):",
    "External position:",
    "Investment and FDI:",
    "Fiscal position:",
    "Growth objective:",
    "Returns to education (World Bank (1995) review for Asia, cited):",
    "Driving force: ambitious reform program after the 1991 balance of payments crisis — industrial and trade liberalization, financial deregulation, improved supervision, privatization and FDI-friendly policies.",
    "Recent slowdown: growth has been slowing since 1997; attributed fundamentally to a slackening in the pace of reform (droughts, high energy prices, Gujarat earthquake noted as exogenous factors).",
    "Distribution of growth: services-led growth but industrial growth has slowed sharply; industrial growth needed to provide high-wage employment for the 70 percent of the labor force still working in agriculture.",
    "Policy slippages: weaker growth and policy slippages undermined fiscal position and prompted credit rating downgrades.",
    "Overview: Focus on five key areas — embracing globalization, structural reform in product and labor markets, education, strengthening the financial sector, and fiscal consolidation.",
    "Embracing Globalization",
    "Structural Reform (factor and product markets)",
    "Education",
    "Financial Sector Strengthening",
    "Fiscal Consolidation",
    "The reform agenda is formidable, politically and technically challenging; many reforms will confront privileged interests and entail painful adjustments.",
    "Long-term benefits far outweigh short-term costs; delay raises costs.",
    "If India implements these measures and increases growth to the 8-9 percent range, it can move out of the third world and inspire other countries.",
    "Closing exhortation to policymakers: \"Just do it.\"",
    "[India and the IMF](http://www.imf.org/external/country/IND/index.htm)",
    "[Singapore and the IMF](http://www.imf.org/external/country/SGP/index.htm)",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[Stanley Fischer](https://www.imf.org/external/np/omd/bios/sf.htm)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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