After India became independent in 1948, its British-trained government officials proceeded to regulate India's economy heavily. The government took over many industries and heavily restricted the ability of private firms to import and produce.

The result: massive inefficiency and economic stagnation. As East Asian and Latin American economies grew, India's gross domestic product per capita hardly budged for 30 years. By the end of the 1980s, India's government debt as a percent of GDP was twice its 1980 level. Foreign debt had also doubled as a percent of GDP.

In June 1991, newly elected Prime Minister Narasimha Rao and his finance minister, Dr. Manmohan Singh, an economist who had argued in favor of opening India's economy to the rest of the world, began to free the Indian economy.

In three years, the highest tariff rates have fallen by almost half. The government is beginning to allow private firms to compete with formerly protected government monopolies. The results have already been dramatic:

• GDP is growing at 4.5 percent per year, which means that GDP per person is growing at a healthy annual rate of 2.5 percent.

• New foreign investments in 1993 alone exceeded $1 billion, 10 times their level in 1990-1991.

• Exports in 1993 rose over 20 percent to more than $22 billion, and will likely increase another 20 percent this year.

• India's middle class, now numbering 150 million and with incomes of 30,000 rupees ($20,000 in U.S. purchasing power), is growing by 5 to 10 percent per year.

A manager of one of India's largest companies has said he expects that the $100 billion in capital that fled India in the last 30 years will flow back in. - David R. Henderson.

Sources: Jagdish Bhagwati, "India's Economic Strides," American Enterprise, Vol. 5, No. 2, March/April 1994, American Enterprise Institute, 1150 17th Street, NW, Washington, DC 20036, (202) 862-5800; and Peter Fuhrman and Michael Schuman, "Now We Are Our Own Masters," Forbes, May 23, 1994.

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