Economic Policies followed in India over the years

Economic growth in India over they years.

For the last quarter of 20th century India’s economy has grown at an average rate of nearly 6 per cent per annum. Following independence in 1947, India grew at a sluggish rate of some 3 to 4 per cent per annum. In 2005/6, India had an annual growth rate of GDP of around 8.4 per cent. From the late 1970s, the rate of growth exhibits an upward trend, averaging around 6 per cent for the period 1980–2005.

Indian economy in recent decades has been one of the world’s fastest growing economies, and that too within the framework of a democracy. Despite the growth, India is still among the poorest regions in the world and despite the declie in poverty, still accounts for a large absolute number of poor people.

The first real big economic growth year for India, 1975/6, was also one that stood out politically for the nation. That year the country’s GDP grew by 9 per cent. It was also the year in which the then Prime Minister, Indira Gandhi, declared a state of emergency and established dictatorial control over the nation. The next improvement would come in the early 1980s, when not only did the growth rate pick up further but the country broke ranks with other nations. The next significant change occurred in 1991, when, pushed by a macroeconomic crisis, itself caused by the First Gulf War and the drying up of foreign reserves, Indian undertook the most major reforms since independence.

Economic growth in India started accelerating a full decade prior to liberalisation of 1991

• Favorable initial conditions around 1980, especially a robust indigenous industrial sector and a low foreign debt economy
• Government adopted pro-business strategy, especially the abandonment of left-leaning, anti-capitalist rhetoric and policies, prioritising of economic growth, and a slow but steady embrace of Indian capital as the main ruling ally.

Post-Emergency (18-month period from 1975 to 1977) Indira Gandhi was a different Indira Gandhi: she downplayed redistributive concerns and prioritised economic growth; The three components of the new model of development that Indira Gandhi adopted from 1980 on – and that has pretty well been pursued by subsequent governments – were: prioritisation of economic growth as a state goal; supporting big business to achieve this goal; and taming labour as a necessary aspect of this strategy.

Right after coming to power in January 1980, Indira Gandhi let it be known that improving production was now her top priority. During the 1980s, segments of Indian capital became more efficient and business lobbying underwent some significant changes. Steady gains were oberved in productivity of Indian industry throughout the 1980

The industrial policy reform included further delicensing of the private sector, removal of MRTP restrictions, tax concessions to business, and some further efforts to tame India’s well entrenched and activist labour. India’s private sector got the “operational freedom it never enjoyed before. Though not substantial, reforms of the 1980s consisted of industrial liberalization measures, lowering of tax rates, and limited import liberalization.

Industrial production in India – a key object of reforms – did not accelerate following the liberalising reforms in 1991. Though growth in manufacturing in the 1990s was somewhat lower than in the 1980s, the shift in growth trend since 1991-92 was not statistically significant, and was not greatly influenced by the reforms. The real break in growth occurred around 1980. Since then nothing dramatic has changed in terms of the aggregate outcomes.

Changes during the 90s…Decline and disntegration of Soviet union. The pressures were more serious. First, the Soviet Union was an important trading partner which provided India, in exchange for a variety of goods, oil, armaments and defence materials. Much of this exchange did not involve use of hard currencies. With a sharp decline in exports to Russia, the issue of maintaining and upgrading defence forces became intimately related to the availability of hard foreign exchange.

Disintegration of the Soviet Union also meant the loss of a military and political ally, creating pressures to shore up relations with the US. Improved political relations with the US involved closer economic relations and opening of the economy to American goods and capital. WTO was going to happen (came into being in 1994), and as per WTO’s requirements import quotas would have to go and that tariffs would have to come down within some time bound period. Issue of politics and policies of reform.

In spite of India being a fairly mobilised democracy, it was then the case that major economic policy changes arrived in India with a narrow support base. Critical reforms in industrial policy in 1991 were made as executive decisions. Anticipating nationalist opposition to global opening, the government used legal technicalities – they included the policy changes in a “statement” rather than in a “resolution: – to avoid any discussion and a vote in the parliament. Liberalising reforms were pushed forward by a narrow coalition, and that an element of “stealth” clearly characterised the politics of economic liberalisation [see Jenkins 1999], aimed at circumventing nationalist and popular opposition.

The results included a steady but relatively slow-paced integration of Indian economy with the global economy, a trend that has pretty well continued into the present period.

Internal deregulation and the modest global opening were changes that were either demanded by Indian business groups, especially big business, or something a significant faction of Indian business could live with. The unwillingness or the inability to privatise public enterprises and/ or to tame India’s organised labour in turn reflects the fragmented nature of state power in democratic India.

The fact is that the Indian state has neither done enough to help improve the efficiency of the private industrial economy, nor has it done much at all to improve the life-chances of its poor.

When a democratic state is narrowly committed to growth and business groups, not only is the quality of that democracy likely to suffer, but it is also likely to create distributional and political problems. The three most evident in India are: growing regional and class inequalities, with political ramifications; the utilisation of ethnic nationalism – instead of the less volatile, interest-oriented appeals – as a tool of political mobilisation; and a rapid turnover in ruling governments.

Also, if a set of policies is supposed to work anywhere and at any time, why have only some states in India responded well? Why has economic growth picked up significantly in the post-reform period in Gujarat, Kerala, and West Bengal and declined as significantly in Bihar, UP, Orissa, Punjab and Rajasthan?

Bihar, UP, Orissa and Rajasthan are poor states with poor infrastructure and unfavorable investment climate. Private capital in India for now seems to be shirking India’s poor states with poor infrastructure and unfavourable investment climate. Important factors as quality of roads, availability of electricity, levels of education, labour discipline, and law and order conditions – all factors that private investors take into account when deciding in which state to invest – can be traced back to the past developmental activities of state governments. The pattern of economic reforms in India is not following the free market logic of capital moving to capital scarce areas.

India still ranks relatively high in the ‘getting credit’ and ‘protecting investors’ spheres, but particularly low in the areas of ‘dealing with licences’, ‘paying taxes’, and ‘enforcing contracts’. In India one needs on average 270 days to complete all the procedures required to build a standardized warehouse in the construction industry; this is considerably higher than the average of the low-income countries.

India’s initial focus on the international sector has paid off handsomely – Exports rose and foreign countries started outsourcing their work to India.

In recent years, India has been aligning with USA, which could be beneficial as seen in the case of South Korea. With terrorism being the main global concern of the USA, and with the rise of China, India is viewed by the United States as a counterpoise for all these risks.

While the Indian economy is booming, there is evidence that workers are not partaking in the boom adequately. Much of it has to do with the ‘culture’ that pervades India’s labour markets, which in turn is a consequence of the complicated and ill-conceived laws that govern the labour market. But in today’s globalized world, with volatile and shifting demand, firms have responded to this by keeping their labour force as small as possible.

If India wants to sustain and raise even higher its current growth, the main bottlenecks in the Indian economy will need to be addressed. These are infrastructure (roads, expensive freight rates, power supply, ports, and airports), labour and bankruptcy regulations, and the high level of corruption in the government bureaucracy. In addition, the current erratic and low growth pattern of the agricultural sector, and the rising inequality—between states, between rural and urban areas, and within urban and within rural areas mainly since the 1990s—are a concern.

References

1. Politics of Eco Growth in India Pt 1 1980s – Atul Kohli
2. Politics of Eco Growth in India Pt 2 post 1980s – Atul Kohli
3. The Pattern and Causes of Economic Growth in India – Kaushik Basu
4. Economic Reforms for the Nineties – MS Ahluwalia
5. The 1991 Reforms How Home-grown Were They – MS Ahluwalia
6. Economic Development and Political Democracy in independent India – Deepak Nayyar
7. Reflections on the Era of Planning – Jairam Ramesh
8. Notes on the Political Economy of Indias Tortuous Transition – Pranabh Bardhan
9. Politics of Economic Reform in India – Pranabh Bardhan
10. Political Economy of Growth 1993 to 2013 – Ken Sahu and Kar
11. Reflections on Indian Political Economy post 1980s – Pranabh Bardhan
12. A Retrospective Overview of Social Action in India: 1817-2017 – Vijay Mahajan

Project work/assignment on Economic Policies in India

Consolidation and Resurgence of Capital and Business from early 1980s till early 1990s.

• a period of the first set of substantial changes in the political economy and economic policy structure of the State with a bureaucracy, technocracy and ruling elite that mostly supported changes that came in early to end 1980s
• while many policy changes led to withdrawal of the State and its apparatus from interfering in aspects of the economy and business, an easing of controls, more relaxed tax policy and decline in Government monitoring, there was also hint of some distorted policies that led to cronyism in one sense, and certain businesses on the other
• was also a period when India opened up technologically and financially towards a more distributed, public based, public oriented and democratic society and this started a built up on the foundations of what was achieved in the early years post Independence

The Period of Reform — growth, with inequality, unemployment and enclaving India, from mid-1990s till now.

• pushed towards large scale reforms, the decade of 1990s and 2000’s prepared the ground for unleashing our manufacturing and services based potential, leading to high growth, some spread of prosperity, growth of a middle class, but also unequal growth, without corresponding benefits and prosperity for people
• was a period of high growth, but in selected sectors, and over a while accelerations in certain parts to the detriment of other sectors, challenging crucial issues of ecology, equity, democracy and accountability
• the State and its apparatus and the ruling business coalitionswith ruling powers transcended the regulations and clutches of the State and democracy and have risen above it

Write a precis of the course pertaining to the subject you have chosen – meaning the development and evolution of policy in the selected field and its impact.

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