India in Transition
Population
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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
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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
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World’s Largest Democracy
Indian National Congress (INC)
Emergency Rule (Indira Gandhi ’75-77)
Janata Party
Bharatiya Janata Party (1996)
INC (2004)
Economy
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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
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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
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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
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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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India in Transition - Ohio State University