World Energy Outlook 2007

Economic Challenges
Continuation of Policy Reforms
India’s impressive economic performance in recent years, after decades of
lacklustre growth and underdevelopment, owes a great deal to the economic
reforms launched at the beginning of the 1990s. After independence,
India pursued import-substitution policies and restricted international trade.
The role of the central government was strengthened through regulation and
by a wave of nationalisations in the late 1960s and 1970s, causing the public
sector’s share of GDP to increase steadily.
The disappointingly low rates of growth that resulted from these policies led
to pressure on the government to change course. In response to a balanceof-payments
crisis, a major programme of economic reforms was adopted
in 1991. Industrial and import licensing were progressively abandoned and
many public monopolies ended, including those in industry, aviation
and telecommunications. Foreign direct investment is now allowed in many
sectors. The reforms removed many obstacles to growth and began the process
of reintegrating India into the global economy. All national governments
since reforms commenced have pursued a similar economic agenda,
regardless of political orientation. The commitment of the state governments
to reform has varied: it has been strong in Andhra Pradesh and Karnataka,
for example, but more tentative in Bihar and Uttar Pradesh.
Notwithstanding the accomplishments of the past fifteen years, much remains
to be done. The fiscal deficit and debt to GDP ratios are still high.
Economic reforms have largely bypassed the agriculture sector, bringing
few changes to the lives of the rural poor. The level of education needs
to rise to prepare the growing labour force for employment in the industry
and services sectors. Financial sector reforms have to be more aggressive.
A major challenge for the Indian government is to ensure that all members
of society enjoy the benefits of economic expansion through development
policies that create a virtuous circle of growth in investment and income, and
increase support for social welfare (see Spotlight on previous page).
International Trade
Rapid growth in international trade has underpinned investment and
output growth in industry and services. A gradual reduction in trade barriers
following the 1991 reforms gave a substantial stimulus to trade.
The economy-wide average tariff fell from 87% in 1990 to 22% in 2005, but
it is still high compared to China (12%) and Indonesia (7%). 7
The value of exports (in year-2006 dollars) rose from $25 billion in 1990 to
7. World Bank Group, www.worldbank.org.
434 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS