India: India and the Knowledge Economy, Leveraging Strengths and Opportunities

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Abstract

One of the world's largest economies, India has made tremendous strides in its economic and social development in the past two decades, and is poised to realize even faster growth in the years to come. After growing at about 3.5 percent from the 1950s to the 1970s, India's economy expanded during the 1980s to reach an annual growth rate of about 5.5 percent at the end of the period. It increased its rate of growth to 6.7 percent between 1992-93 and 1996-97, as a result of the far-reaching reforms embarked on in 1991 and opening up of the economy to more global competition. Its growth however, dropped to 5.5 percent from 1997-98 to 2001-02, and to 4.4 percent in 2002-03, due to the impact of poor rains on agricultural output. But India's economy surged ahead to reach a growth rate of 8.2 percent in 2003-04, in line with growth projections cited in its Tenth Five-Year Plan, which calls for increasing growth, to an average of 8 percent between 2002-03 and 2006-07 (India, Planning Commission, 2002e). Such sustained acceleration is needed to provide opportunities for India's growing population, and its even faster-growing workforce. The time is opportune for India to make its transition to the knowledge economy-an economy that creates, disseminates, and uses knowledge to enhance its growth and development. This report provides a "big picture" assessment of India's readiness to embrace the knowledge economy, and highlights some of the key constraints, and emerging possibilities confronting India on four critical pillars of the knowledge economy: 1) strengthening the economic and institutional regime; 2) developing educated and skilled workers; 3) creating an efficient innovation system; and, 4) building a dynamic information infrastructure. The report highlights that to be competitive in the global knowledge economy of the twenty-first century, India should continue to focus its efforts on further reforming its overall economic and institutional environment, and improve its overall trade and investment climate. Addressing issues in this domain will be key because it sets the overall incentive framework needed to improve performance across the economy. The report further underlines that for India to leverage its strengths, and opportunities on a global scale, it needs to undertake significant reforms and investments in building education and skills, strengthening its innovation system, and further bolstering its information infrastructure. To create and sustain an effective knowledge economy, India must undertake systemic integration of reforms in the above four domains to strengthen its competitive advantage.