Rising India and Indian Communities in East Asia

7. India's Economic Engagement with East Asia: Trends and Prospects

107 7 INDIA’S ECONOMIC ENGAGEMENT WITH EAST ASIA: TRENDS AND PROSPECTS Nagesh Kumar INTRODUCTION The฀Indian฀economic฀performance฀in฀the฀recent฀years฀has฀been฀attracting฀ widespread฀attention.฀With฀over฀8฀per฀cent฀growth฀sustained฀over฀the฀past฀few฀ years฀and฀robust฀outlook฀for฀the฀future,฀India฀is฀emerging฀as฀a฀growth฀driver฀ for฀the฀Asian฀and฀the฀world฀economy.฀With฀the฀reforms฀undertaken฀since฀ 1991,฀Indian฀economy฀has฀deepened฀her฀economic฀integration฀with฀the฀world฀ economy฀and฀trade฀and฀international฀investments฀now฀occupy฀a฀far฀more฀ important฀place฀in฀the฀economy฀than฀ever.฀Alongside฀the฀global฀economic฀ integration,฀India฀has฀also฀taken฀a฀keen฀interest฀in฀regional฀economic฀ integration฀in฀South฀Asia฀and฀East฀Asia.฀It฀is฀an฀active฀member฀of฀SAARC฀ and฀BIMSTEC,฀among฀other฀initiatives฀for฀regional฀integration฀in฀South฀ Asia.฀It฀has฀also฀adopted฀a฀Look฀East฀policy฀to฀guide฀its฀foreign฀economic฀ relations฀to฀deepen฀her฀engagement฀with฀ASEAN฀and฀East฀Asian฀countries,฀ and฀is฀articulating฀a฀vision฀of฀broader฀pan-Asian฀economic฀integration.฀ This฀chapter฀briefly฀overviews฀the฀macroeconomic฀performance฀of฀ ฀ Indian฀economy฀and฀the฀emerging฀patterns฀of฀its฀global฀economic฀integration .฀It฀also฀discusses฀India’s฀approach฀to฀regional฀economic฀integration฀in฀ South฀Asia.฀It฀makes฀some฀comments฀on฀the฀relevance฀and฀potential฀of฀recent฀ approaches฀towards฀regional฀cooperation฀in฀South฀Asia฀such฀as฀SAFTA฀and฀ some฀proposals฀for฀making฀them฀more฀effective.฀The฀structure฀of฀the฀chapter฀ 07฀Rising฀India.indd฀฀฀107 8/21/08฀฀฀2:17:56฀PM 108 Nagesh Kumar is฀as฀follows:฀Section฀2฀takes฀stock฀of฀the฀macroeconomic฀performance฀of฀ the฀Indian฀economy,฀its฀outlook฀and฀global฀economic฀integration฀against฀the฀ background฀of฀reforms฀undertaken฀since฀1991.฀Section฀3฀overviews฀India’s฀ approach฀to฀regional฀economic฀cooperation฀in฀Asia฀with฀particular฀reference฀to฀ South฀Asia.฀Section฀4฀presents฀some฀indicators฀of฀India’s฀growing฀integration฀ with฀East฀Asia.฀Section฀5฀makes฀some฀concluding฀remarks. MACROECONOMIC PERFORMANCE, OUTLOOK AND GLOBAL ECONOMIC INTEGRATION The฀recent฀performance฀of฀Indian฀economy฀is฀attracting฀a฀lot฀of฀attention฀ worldwide฀for฀its฀dynamism฀and฀long-term฀prospects.฀There฀has฀been฀a฀ progressive฀acceleration฀in฀the฀growth฀performance฀of฀the฀Indian฀economy฀ over฀the฀past฀five฀decades.฀In฀the฀first฀thirty฀years฀of฀independence,฀India’s฀ growth฀rate฀averaged฀3.5฀per฀cent฀which฀was฀derisively฀called฀“Hindu฀rate฀of฀ growth”.฀Since฀1980,฀however,฀there฀has฀been฀a฀marked฀acceleration฀in฀growth฀ rates฀and฀average฀annual฀real฀growth฀rate฀of฀GDP฀over฀the฀1980s,฀1990s฀and฀ first฀three฀years฀of฀the฀new฀millennium฀has฀been฀close฀to฀6฀per฀cent.฀There฀ has฀been฀a฀further฀acceleration฀in฀the฀growth฀trajectory฀since฀2003฀and฀the฀ average฀growth฀rate฀over฀the฀past฀three฀years฀has฀been฀higher฀than฀8฀per฀cent฀ per฀annum฀(see฀Figure฀7.1).฀ Another฀aspect฀of฀India’s฀recent฀growth฀performance฀has฀been฀that฀ volatility฀of฀growth฀has฀come฀down฀substantially฀from฀the฀pre-1980s฀period฀ (Kelkar฀2004).฀The฀Indian฀economy฀has฀developed฀a฀remarkable฀resilience฀to฀ external฀and฀internal฀shocks฀as฀has฀been฀demonstrated฀over฀the฀past฀decade฀ when฀it฀survived฀the฀effects฀of฀East฀Asian฀crisis,฀slow฀down฀of฀the฀world฀ economy฀towards฀the฀end฀of฀the฀1990s,฀and฀the฀oil฀price฀shocks฀without฀ much฀disruption. Furthermore,฀as฀the฀growth฀rate฀of฀population฀has฀declined฀over฀time฀ from฀2.3฀per฀cent฀to฀1.6฀per฀cent,฀per฀capita฀GDP฀has฀been฀rising฀much฀ faster฀than฀before.฀A฀higher฀growth฀rate฀of฀GDP฀produces฀an฀even฀greater฀ acceleration฀in฀per฀capita฀income.฀The฀average฀rate฀of฀per฀capita฀income฀ therefore฀has฀moved฀up฀from฀just฀1.2฀per฀cent฀during฀the฀first฀three฀decades฀ in฀the฀post-Independence฀period฀to฀nearly฀4฀per฀cent฀during฀the฀1990s฀and฀ to฀6.6฀per฀cent฀in฀the฀last฀few฀years.฀With฀these฀rates฀of฀growth,฀the฀Indian฀ economy฀in฀terms฀of฀GDP฀in฀current฀prices฀is฀projected฀at฀US$850฀billion฀ in฀2006฀with฀a฀per฀capita฀GDP฀of฀US$750฀(IMF฀2006).฀ Among฀other฀aspects฀of฀macroeconomic฀performance฀is฀the฀relative฀ stability.฀In฀a฀developing฀country฀like฀India,฀inflationary฀pressures฀could฀ have฀severe฀consequences฀for฀the฀poor,฀apart฀from฀its฀adverse฀impact฀on฀ 07฀Rising฀India.indd฀฀฀108 8/21/08฀฀฀2:17:56฀PM India’s Economic Engagement with East Asia: Trends and Prospects 109 the฀competitiveness฀of฀the฀economy.฀There฀has฀been฀a฀steady฀decline฀in฀the฀ rate฀of฀inflation฀(measured฀in฀terms฀of฀the฀growth...