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Unformatted text preview: India in Transition Population
Population(m) 1,095 Population growth ('01-05) 1.5% Second most populous country 81% Hindu, 13% Muslim, 2% Christian, 2% Sikh Official Languages: English, Hindi, 14 others Geography South Asia 3,287,590 sq km 28 States Borders China, Pakistan History 550 bc independent kingdoms Invasions from Central Asia 3rd century Gupta dynasty "golden age" Islamic Invasions Mughal Dynasty European Traders/Colonizers British Rule (1857) Independence 8/15/47 Politics World's Largest Democracy Indian National Congress (INC) Emergency Rule (Indira Gandhi '75-77) Janata Party Bharatiya Janata Party (1996) INC (2004) Economy 10th Largest GNP 4th Largest GNP (PPP) GDP Growth 8.1% 2005(4) Per-Capita Income (PPP) $3100 Agriculture accounts for 21% of GDP Major Industries include; mining, petroleum, diamond polishing, films, textiles, IT and business process outsourcing (BPO) services, pharmaceuticals and chemicals, and handicrafts. Indicative Planning Instituted as a response to perceived failures of the market system in attaining socially desirable objectives No formal obligation to fulfill objectives of the plan Authorities rely on `indirect government levers' (taxes, subsidies, etc.) The Lewis two-sector Model Agricultural Labor is redundant `Commercial' sector is efficient Purchasing capital goods results in increased demand for industrial labor Agricultural labor becomes more productive and produces a surplus The Nehru-Mahalanobis Approach N-M Approach pt. 2 origins of Indian planning Didn't Curb power of wealthy interests Mahalanobis' 2-sector model akin to Lewis' model Sought to industrialize the economy by increasing production of capital goods Development economics was dominated by the idea of overcoming the `savings constraint' Similar in approach to USSR Fabian Influence Planning Commission Set up in 1950 Origins of Implementation Defense of India Act (1939) India Act (1946) Many other acts PRIOR to independence War-time controls set up by the British Suited to regulation and control Industrial Policy Resolution (1948) Industries Act (1951) The Plans 1st plan ('51-56) Not so ambitious 2nd plan ('56-61) Inspired by Mahalanobis, move towards industrial growth 3rd plan followed by one year plans no significant change 4th plan ('69-74) -- based on input-output model 5th plan 7th plan included concerns for the redress of poverty GDP growth (1960-2004)
1988 1991 1979 The Crisis In 1990-91 gross fiscal deficit reached 8.4% of GDP Inflation peaked at almost 17% External debt reached 23% of GDP Low foreign exchange reserves Resulted in $2.3bn loan from IMF The Reforms Consisted of decontrol of private investment, opening the economy to foreign trade and foreign investment, financial sector reforms, etc. Controls on Private Investment Removal of industrial licensing Allowance of private companies into industries once reserved for the state Little done about small-scale sector rules Little done about state-level controls Openness to Trade Lowering of Import Tariffs Domestic v. external liberalization gradual approach Lowering of quantitative restrictions Devaluation of Rupee 20:1-31:1 from '91-'93 Trade (% of GDP) '80-'04 Foreign direct investment Price Controls Hydrocarbon prices Electricity prices (not changed) Labor Market Controls Still in effect Public Sector Reforms Outright privatization was eschewed in favor of more `cautious' reform Partial Privatization Board for Industrial and Financial Reconstruction Allowance of Private Investment in Infrastructure Financial System Banking Reform Capital Market Reform Inflation (annual %)
1991 1998 East Asian `Miracle' economies
Stable business environment Fiscal policies aimed at equity Pro-export exchange rates Progressive liberalization of the financial sector Minimal price distortions Education Indian Reforms in comparison Macroeconomic stabilization More rigid Labor Markets Education is not compulsory Conclusion Reforms were largely successful Fail to address underlying problems Gains are not widespread Much remains to be done Questions What are the effects of government policies towards children in terms of economic growth What role does primary education play in attracting investment to labor-intensive, unskilled industries ...
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- Winter '06