India's Economic Development Since 1947

5th Edition 2010-11

India's Economic Development Since 1947 Edited by

UMA KAPILA

ACADEMIC FOUNDATION NEW DELHI www.academicfoundation.com

QD

Preface

21

The Contributors

23

Indian Economy Since Independence: ! Major Features ..J...........'„

......:

27

Uma Kapila • The India of 1947 • The Planning Era... • Structural Constraints and the Development Strategy • Role of the State as Visualised in the Fifties • Evolution of-Strategy and Priorities • Changing Perceptions

StracfuraB

:........ 28 , 30 31 33 36 38

g

2. Planning and the Market (Ed. Notes) • •

Role of Planning in a Market Economy Redefining the Role of State

45 45 48

India's Economic Development Since 1947

• The Government, the State and The Market • Cooperative Action

48 50

Growth and Development Experience (Ed. Notes) • The Performance Two Phases of Growth Periodisation of Indian Growth Experience Assessment of Performance Causal Factors What Next? Emerging Indian Economy Growth Prospects International Comparisons Sustaining High Growth , Vision for the Eleventh Plan • Growth and Structural Change Growth and Sectoral Shares, Cross-Country Evidence and Indian Experience Structural Change in terms of Industrial Distribution of Workforce and Occupational Structure • Human Development Human Development Index Progress and Setbacks in Human Development State of Human Development in India • Environment and Development Consequences of Environmental Plunder Environment Policy • Disparities in Growth and Development Regional Sectoral Disparities of Growth Causal Factors • Indian Development Experience in International Perspective Learning from the Experiences of Other Countries • India's Internal Diversities: • A Rich Source of Insights

54 54 56 57 61 63 66 67 71 72 74 76 77 79 84 91 93 94 97 102 104 106 108 114 115 118 121 123

C o n t e n t s . . . .

•

9

Kerala in International Perspective Selected Regional Perspectives: Learning from the Diversity of Development Experience Political Action and Rural Development in West Bengal Social Opportunities in Himachal Pradesh

125

Conclusion

133

126 128 130

4. India's Recent Economic Growth: A Closer Look R. Nagaraj • Industrial and Services Growth • Reliability of Estimates • Understanding Recent Growth • Conclusions

137 138 141 146 156

5. Growth Record of the Indian Economy, 1950-2008: A Story of Sustained Savings and Investment

160

Rakesh Mohan • • • • • • • • • • • •

A Review of the Indian Growth Process Growth Acceleration over the Decades Consistent Growth in Savings and Investment Growing Fiscal Imbalance and Correction Public Sector Savings Performance of the Private Corporate Sector Household Savings Estimation of Savings and Investment Efficiency in the Use of Resources Financial Sector Reforms Prospects for the Next Five Years Issues and Challenges

160 161 163 164 167 169 2 72 1 74 I 74 176 1 79 183

6. Reforms and Regional Inequality in India

190

Sabyasachi Kar, S. Sakthivel • •

Framework of 'New Economic Geography' Studies on Regional Inequality in India

192 193

10

India's Economic Development Since 1947

• • • •

Reforms and Regional Inequality A Decomposition Framework Role of the Sectors Concluding Remarks

197 198 199 205

:

Issues in Indian Economic Policy 7. Population and Human Resource Development (Ed, Notes:) • Population Trends

211 '.

211

• Gender Equity and the Demographic Transition

-215 '.

• Population Policy since 1947 • National Population Policy 2000]

..215 217

Objective of National Population Policy • Implications of Mortality Decline for the Future

217 221

•

Human Resource Development Education Policy in India Public Expenditure and Education Policy

222 223 225

Health Care as a Social Responsibility

230

• Tamil Nadu: The Success Story Enabling Factors The Future

237 237 239

8. India's Demographic Transition and its Consequences for Development

243

Tim Dyson •

India's Demographic Transition

244

•

Urbanisation

250

• The Future

252

•

256

Discussion

C o n t e n t s . . . .

1 1

9. Current Debate on 'Demographic Dividend' in India K.S. • • • • •

James The Concept of Demographic Dividend The Theoretical Confusion Empirical Estimation of Demographic Dividend Statisti'cal'Analysis Conclusions

264 268 269 276 '• 280

10. Growth, unemployment and Poverty (Ed. Notes) • Poverty and Unemployment

,.,,....;..'....

283 284

Poverty Estimates 284 Report of the Planning Commission Expert Group (Tendulkar Committee) Regarding PovertJLines...... 288

•

Poverty Reduction Poverty and Inclusive Growth Poverty Alleviation Programmes

291 297 303

Employment Perspective

303

Long-term Trends in Employment Situation: 1983 through 2005 .< Informalisation of Employment

305 308

• What Explains Lack of Growth in Formal Sector Employment? • The Employment Situation Among the Vulnerable Groups

311 313

• Growth and Employment

31 7

• Weaknesses in Past Performance

319

• •

Employment Projections for the Eleventh and Twelfth Plans

322

Sectoral Employment Perspectives

322

Employment in Manufacturing, Construction and Services • Employment and Labour Policy

263

323 325

12

India's Economic Development Since 1947

• Public Employment Programme for the Unorganised Workers: The Case of NREGA The Performance Success Stories • Conclusion • Indian Labour Laws and Labour Markets

326 328 329 331 331

1 1 . Report of the Expert Group to Review the Methodology for Estimation of Poverty Chairman: S.D.. Tendulkar • Summary

335

335

12. Rural Unemployment 1999-2005: Who Gained, Who Lost?

340

Abhiroop Mukhopadhyay, Indira Rajaraman • • • • •

Introduction Reported Unemployment from the Two Rounds Data and Estimation Findings '. Conclusions

340 341 342 343 351

13. Implementation of Employment Guarantee: A Preliminary Appraisal

354

Pinaki Chakraborty • Budgetary Incidence • Implementation Issues • Spatial Dimension • Summing Up

355 357 359 364

14. Macroeconomic Stabilisation: Trade, Fiscal and Monetary Policy Issues (Ed. Notes) • • • • • •

The Background The Macroeconomic Crisis Rationale for the Reforms Macroeconomic Reforms Fiscal Adjustment and Stabilisation Fiscal Responsibility and Budget Management Act, 2003 • Central Government Finances

366 366 368 368 3 74 3 78 381

366

Contents...

13

• • • • • • •

External Balance Macroeconomic Performance: An Overview Monetary Policy Issues Credit Delivery External Sector Management Global Financial Crisis: Policy Response Global Financial Crisis and Conduct of Monetary Policy • Fiscal Policy Developments • Challenges and Outlook

382 386 386 388 389 390 391 393 395

15. Financial Sector Reforms and Monetary Policy: The Indian Experience

401

Rakesh Mohan • Introduction • Financial Sector and Monetary Policy: Objectives and Reforms • An Assessment • Monetary Policy • Some Emerging Issues • Concluding Observations

401 402 415 421 428 438

16. Agriculture: Issues in Development and Policy (Ed. Notes)..... • Linkage between Agriculture and Industrial Sectors • The Institutional Context • The New Technology • Three Phases of Green Revolution • Reform Period, 1991 to the Present • The Role of Technology in Indian Agriculture • Deceleration in Agriculture Growth • Agricultural Growth during 2005-06-2007-08 • Major Factors Affecting the Growth Potential • National Policy for Farmers, 2007 • Towards Sustainable and Inclusive Growth • Technology • Irrigation

440 440 442 446 447 451 452 456 458 462 471 472 475 4 75

4

India's Economic Development Since 1947

• • .

• • • • • •

Reforming the Three Ts: Investments, Incentives, and Institutions 485 Food Management 489 Food Procurement Policy 490 Public Distribution System (PDS) 492 Food Subsidy 494 Food Security497 Food Security and Future Sources of Growth of Agriculture 500 Towards Elimination of Hunger and Malnutrition....503 The Way Forward 506 Agricultural Price Policy 509 Challenges and Outlook 515

17. Agricultural Growth in India Since 1991 Pulapre Balakrishnan, Ramesh Golait, Pankaj Kumar • Agriculture and the Economic Reforms • Growth of Agriculture Since 1991 • Prices and the Recent Agricultural Growth • Non-price Factors and the Recent Agricultural Growth • Conclusion, with Implications for Policy

521

522 523 525 533 549

18. Food and Nutrition in India: Facts and Interpretations Angus Deaton, Jean Dreze • Introduction • Trends in Calorie Consumption and Nutrition Trends in Nutritional Status • Interpretations • Concluding Remarks

554 554 556" 574 587 611

19. Industrial Development and Policies Since 1947 (Ed. Notes) • Extent and Pattern of Industrialisation during the British Rule • The Industrial Scene at Independence

621 621 621

Contents...

• Industrial Control Regime • The Policy Regime in the 1990s • New Economic Policy Opening up to Foreign Investment Public Sector Reforms, Privatisation and Infrastructure • Industrial Growth Phases of Industrial Growth Industrial Growth in the 90s • Profile of Industrial Growth Shift in Favour of Registered Manufacturing , Decline in Employment Growth in Organised Manufacturing The Stagnant Share of Manufacturing Sector in GDP The Manufacturing Slowdown (1996-2002) • Factors Causing the Industrial Slowdown: Some Hypotheses Infrastructure Constraints in the Industrial Sector • Productivity Trends in the Manufacturing Sector • Recovery in Industrial Growth since 2002-03 • Industrial Policy Eleventh Plan • Industrial Growth since 2007-08 • Challenges and Outlook • Micro and Small Enterprises (MSEs) Role of MSEs in Indian Economy Globalisation and Small Industry Performance Future Prospects of Small Industry • Public Sector The Rationale Performance of Central Public Sector Undertakings Central PSE's Profitability • Reasons and Implications Policies toward CPSEs and their Implementation • Privatisation

15

623 626 627 629 629 630 630 631 638 639 639 639 640 641 642 645 646 6~50 6~5i 653 656 659 661 667 670 670 673 676 678 6 75 680

16

India's Economic Development Since 1947

•

Indian Experience since 1991

680

Labour Policy Reforms

683

20. Removing Infrastructure Bottlenecks

688

OECD • • •

•

•

Infrastructure is a Major Constraint on Growth The Private Sector has a Crucial Role to Play in Narrowing Infrastructure Gaps Private Secto/ Involvement is Transforming Certain Sectors Civil Aviation Wireless Telecoms * A More Limited Start has been made in other Sectors Fixed Line Telecommunication Electricity Roads • Ports Airport In Other Sectors, the Framework is not conducive to competition Coal Railways

688 690 695 695 696 698 698 700 709 711 713 714 714 7.76"

2 1 . Services in the Indian Growth Process (Ed. Notes) • • • • •

Growth and Sectoral Shares, Cross Country Evidence and Indian Experience Which Services Have Grown Rapidly? Factors Underlying the Services Growth India's Share in World Exports World Trade in Services Sector Summing Up

725 727 732 736" 740 744 753

22. Reforming India's Product and Service Markets

758

OECD Despite Extensive Liberalisation in Some Areas Regulations are on Average Rather Restrictive

758

Policies to Improve Product Market Regulations

764

Contents...

17

23. Foreign Trade: Issues and Policies (Ed. Notes) • • • • • • • • • • •

• • • • • •

Constraints Arising from Foreign Trade and Import Substitution-based Policies 798 Inward Looking Strategy 799 Foreign Trade Performance 805 Structural Changes in India's Foreign Trade 809 Global Recession and India's Merchandise Trade:... 817 Direction and Composition of Trade 825 World Merchandise Trade: Global Recession 827 India's'Services Imports '. 835 Special Economic Zones 836 Bilateral and Regional Cooperation 838 Regional Trade Agreements 839 Challenges and Outlook 839 India's Balance of Payment Trends 1950-2008-09 841 A Decade of Comfort 842 The Period of Difficulties 842 Easing of Pressure 843 The Build-up to the Crisis 843 The Crisis: 1990-1992 844 Balance of Payments during 1993-94 to 2005-06 845 Balance of Payment during 2006-07 to 2008-09 847 Current Account 849 Sustainability of Current Account 851 Capital Account 853 External Debt 856 Capital Account, External Debt and Exchange Rate 860 Roadmap Towards Fuller Capital Account Convertibility 861 Managing Capital Flows 863 Foreign Exchange Reserves: Approach, Developments and Issues 864

798

18

India's Economic Development Since 1947

• • •

• •

Foreign Exchange Rate Policy

869

Exchange Rate Management

870

World Trade Organization

873

India and the WTO

875

India's Participation in WTO Meetings

576"

WTO Negotiations and India

880

Global Crisis

884

Explaining the Origins of the Current Crisis

884

Decoupling Theory

885

Regulatory Failure

888

•

Impact on the Real Economy

•

Concluding Remarks

..888 889

•

Annual Supplement to Foreign Trade Policy 27th August 2009 to 31st March 2014 (w.e.f. 23.08.2010)

892

24. India's Development Prospects: Looking Ahead (Ed. Notes) •

899

Some Aspects of India's Recent Growth Dynamics

901

Growth Drivers

901

Aggregate Demand and Supply

901

Sectoral Composition

903

Growth Prospects

906

•

International Comparisons

908

•

Sustaining High Growth

910

•

Sustaining the Growth Momentum— Some Aspects of the Policy Agenda

• •

Tasks Ahead

:

.f

917 920

Launching the Second Generation of Reforms

920

The Political Economy of Reform

921

Contents...

25.

19

India's Key Challenges to Sustaining High Growth

932

OECD

• Economic Reforms have Transformed the Indian Economy 932 • The Economy has responded Positively to the Reforms 938 • Looking into the Future 958 • Easing Regulation in Goods and Service Markets 962 • Removing Barriers to Employment in the Formal Sector 965 • Improving the Efficiency of the Financial System....969 • Orienting Public Finances to Achieve more Rapid Growth 970 • Improving Infrastructure 979 • Improving Education 989 • Conclusions 992

26.

India Amidst the Global Crisis Mihir Rakshit • Introduction • Pre-crisis Developments • Global Crisis: Domestic Consequences • Policy Omissions and Commissions

27.

997 997 998 1020 1030

Lessons from the 2008 World Food Crisis

1037

Jomo Kwame Sundaram • • • • '• •

Longer-term Problems Trade Liberalisation Other Longer-Term Trends Proximate Causes of Food Price Hikes U-Turn in Washington? Prospects

1038 1040 1042 1044 1045 1049

Statistical Appendix •

Selected Economic and Social Indicators 1950-51 to 1008-2009

1053 1054