July 7, 2004
By J. Singh-Sohal
India, for one,
opted for a centralized and planned economy, drawing upon Marxist
ideas. In its attempts to fix the backward nature of its economy
and the problems of mass poverty, it created a system fraught with
regulations and as bureaucratic as communist Russia.
Things appear to be changing since the election of the Congress
Party and key reformer Manmohan Singh as prime minister earlier
this year. Already, Singh has held successful peace talks with
cross-border rival Pakistan. He has shored up relations with the
United States, which soured in 1998 because of India's nuclear
On the economy, Singh's track record is one of attracting foreign
investment by opening up markets -- what the new administration
will need to do if it wants to tackle the fiscal deficit in India,
which totals 4.8 percent of gross-domestic product.
Economic reform is on the horizon, and this change half a world
away could have a profound effect in the United States. As more
American companies tap into the vast Indian market, India gains
significance in the global arena.
Singh should seek to cut bureaucracy and regulation, which hinder
both domestic growth and foreign investment. He'll be swimming
against the tide of Indian history and that of his own party in
doing so, but it's the right thing to do to modernize India and her
economy, which traditionally has been protectionist.
Cutting back on restrictions on business growth -- such as the
36.75 percent top rate of corporate tax, the 28.2 percent weighted
average tariff and a government that consumes 13.1 percent of GDP
-- is crucial if India is to continue to benefit from foreign
investment. Such restrictions make it difficult for investors to
access markets and hurt interstate commerce.
Right now, if an American company such as Microsoft or IBM wants to
do business in India, it first must win approval from the Foreign
Investment Promotion Board. Singh should make trade simpler by
implementing lower tariffs and reducing export controls.
India has to come to terms with the reality that its planned
central economy has failed and that much more needs to be done to
encourage the ailing private sector, which makes up less than 10
percent of the Indian economy. Currently, the private sector is
prohibited from investing in major industries such as energy. Also,
the strict industrial licensing regulations and labor market and
employment controls prevent private enterprise from
It won't be easy with 20 million people on the public payroll and
70 percent of all legitimate work found only in the public sector.
Nonetheless, privatization and decentralization are economic
realities in the globalization age, and their benefits far outweigh
any sense of national pride conveyed through public ownership.
Singh will need to press hard for reform, since his coalition
government needs the support of left-wing parties to pass
legislation on privatization issues.
Rural development and the war on poverty are also important issues
for the Congress Party, especially since they contributed to the
party's election victory. In addition, the majority of Congress's
support base is from the agricultural community, which makes up 60
percent of India's labor force.
With 25 percent of Indians living below the poverty line, the fate
of the poor is a real issue that requires direct action and
involvement by the federal government. State welfare and education
programs proposed by the Singh administration will seek to address
this, along with direct international aid such as $100 million
India received from billionaire American computer mogul Bill Gates
to fight the epidemic spread of AIDS.
Indians have a natural inclination towards socialism, with its
emphasis on the collective well-being. Capitalism is seen as
impractical in a country numbering over one billion. Yet, free
enterprise is essential to economic development and presents a more
realistic solution to alleviating poverty. India should encourage
entrepreneurial activity. With a targeted growth rate of 7 percent
to 8 percent, the new finance minister, P. Chidambaram, seeks to
Fortunately, with its cheap and plentiful labor and ample natural
resources, India already is attractive to foreign companies and
Economic growth in India also would benefit America, as increased
investment means greater profits for American companies. The U.S.
should push for more market access in India, and a fairer export
The result: a radical change that benefits everyone.
J. Singh-Sohal, a British citizen and a student at Brunel
University in London, is an intern at The Heritage
First appeared on FoxNews.com
At the end of the Second World War, radical changes occurred in many of the newly independent nations that once were part of the British Empire.
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