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India’s Push to Center Stage of the World Economy

CAMBRIDGE: Twenty years ago, China ended decades of self-imposed economic isolation and changed the shape of the global economy. The world's other population giant, India, began its own economic reforms one decade later. India's reforms have been more gradual, the effects less dramatic at first, but after nearly a decade, India too is making a historical breakthrough. The first decade of the 21st century could well see India's average income per person double, and India's role in the world economy rise dramatically.

With one billion people - one sixth of all humanity -- stretched across a diverse sub-continent that ranges from the Himalayas to desert to fertile river valleys to great coastal cities, everything about India lies beyond generalization. It is a country that spans the economic scene from information technology - to which India contributes some of the world's finest engineers and programmers - to rural squalor deeper in few other places. Yet despite such diversity, some underlying trends are visible:

• India's economy has boosted its economic growth since the launch of market-oriented reforms at the start of the 1990s. After decades of economic growth around 3.5% per year, of which 2% or more was eaten up by population growth, India is now enjoying economic growth of 6% per year, of which less than 2% is accounted by population growth. With further reforms, growth could reach 9% per year, which would produce a rise of per capita income each year of around 7%, enough to double income per person in a decade.

• When India achieved independence half-a-century ago, Prime Minister Jawaharlal Nehru launched India on a soft, democratic version of socialism. The state was to hold the economy's commanding heights through planning, large public investments, and ownership of key industries. As everywhere else where socialism was tried, this was a prescription for state financial crisis and slow growth. The denouement came in 1991, the same year Soviet socialism collapsed. That year, India began to dismantle state planning, allow for open international trade, and encourage competition among private industry. Since then, India's international trade has grown rapidly and overall economic growth has picked up. India completely avoided the East Asian financial crisis of 1997-99.