Center for Social Innovation

When India regained its independence in 1947, the country’s political, social, and economic fate was in its own hands for the first time in almost 90 years. With optimism and good intentions, the country embarked on a journey to establish a democracy and representative government, define a plan for economic development, and build a society within which its large, diverse, and fragmented population could prosper. More than five decades later, however, opinions differed as to whether or not India had realized the greater triumphs and achievements that Nehru anticipated.

Analysts both applauded and berated the country’s achievements. With 17 percent of the world’s population, India generated only 2 percent of global GDP. Per capita income was less than $3,000 per year, with 25 percent of the country’s 1 billion people living below the poverty line. To keep pace with a labor force expanding at 2 percent per year and to make up for past development failures, India needed to sustain double-digit annual GDP growth but realized only 6.9 percent growth for fiscal 2004/2005.

Yet, the country had become the world’s 12th-largest economy (and the 3rd-largest economy in Asia behind Japan and China). India’s foreign exchange reserves were at a record level of more than $120 billion, while inflation and interest rates remained manageable. Exports had surged in the past two years, and India’s information technology services sector was thriving and had become a benchmark for economic development around the world. India had made significant progress toward establishing a competitive position in the global economy, but the journey initiated in 1947 remained incomplete.

With aspects of its socialist roots still in place, India had not yet fully defined nor realized the competitive advantage that would enable the country to sustain an improved global position. As Harvard’s Michael Porter asserted, "A nation's competitiveness depends on the capacity of its industry to innovate and upgrade."

India’s services sector had shown that the country had the capacity to be a pioneer. The question was whether India would capitalize broadly on this success by addressing obstacles to growth, or miss the opportunity to enter the modern world.

This paper provides a brief overview of India’s history, and explores the status of the country’s economic position in the early years of the third millennium.