Restoring the Indian Economic Miracle

Contact:
Stephen Ezell
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202-449-1349

WASHINGTON, DC (April 22, 2014) - Indian economic growth clocked in at 4.4 percent in 2013, a far cry from the roughly two decades of robust economic development often referred to as the "Indian Economic Miracle." While the global economic slowdown has played a part, a major factor in India's recent economic slowdown has been the loss of momentum for continued economic and trade liberalizing reforms. This has been replaced by an economic development approach which has prioritized expanded manufacturing over across-the-board productivity growth, which has in part contributed to India's recent embrace of several trade-distorting "innovation mercantilist" policies.

With elections now underway to choose a new Lok Sabha and Prime Minister, the Information Technology and Innovation Foundation (ITIF) releases a new report, The Indian Economy at a Crossroads, which details the evolution of India's post-independence economic policies and explains how the liberalizing reforms of the early 1990s spurred two decades of turbocharged economic growth. The report explains how that success is increasingly threatened by trade-distorting policies, such as PMA rules for procurement of ICT products and compulsory licensing of biopharmaceutical IP, designed to promote domestic industries, particularly manufacturing, at the expense of global trade partners. But while such policies may seem beneficial in the short-term, they will ultimately prove counterproductive, by hampering domestic innovation, lessening India's attractiveness for FDI, and leading to retaliatory measures by other nations.

To reverse growing economic stagnation and spur global competitiveness, India should instead embrace a modern economy path that seeks to drive across-the-board productivity growth in all sectors-based on competitive markets, liberalized trade, and robust innovation policies. This strategy will create strong, innovation-based industries at home that can effectively compete globally, while providing a much more effective path to achieve the broad and sustainable income and employment growth India seeks.

"India's previous economic success sprang from the country's decision to embrace core tenets of free markets and non-discriminatory trade," says Stephen Ezell, Senior Analyst with ITIF and co-author of the report. "However, as the global race for innovation-based economic growth has intensified, India has in some cases adopted protectionist policies that may appear to offer short term benefits, but in the long run will lead to slower growth and competitiveness for Indian firms and lower standards of living for Indian citizens."

The authors conclude the report by presenting a series of recommendations designed to create a comprehensive, pro-productivity strategy that can strengthen Indian innovation and spur the development of new industries and high- tech sectors that can create sustainable growth.

"A strong and vibrant India is in the United States' and the world's best interest, and it is our hope that this report will help provide a roadmap for continued economic development for years to come," adds ITIF President Robert Atkinson.

Read the report.