Twenty Years of India's Liberalisation

Twenty Years of India's Liberalisation

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Author(s):
UNCTAD
31 Dec 2012
Pages:
110
ISBN:
9789210555036 (PDF)
http://dx.doi.org/10.18356/721b3d9b-en

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India’s growth miracle has attracted worldwide attention, particularly because this growth has been pursuant to the wide ranging economic reforms introduced in the early 1990s. Many other developing countries intensified liberalisation during this period but were unable to experience a similar spurt in their economic growth. One distinctive feature of Indian liberalisation experience is the gradual and calibrated manner in which reforms were introduced, especially with respect to external liberalisation, be it in the financial, agricultural or manufacturing sector. This book brings together distinguished economists of India, who analyse the role played by trade and foreign direct investment (FDI) polices in growth and development of different sectors in India.
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  • Acknowledgements
    We are extremely grateful to Richard Kozul Wright, Head, Economic Cooperation and Integration among Developing Countries, and Rajeev Kher, Additional Secretary, Department of Commerce, Government of India, for their unstinted support and guidance in this endeavour. We are also highly thankful to the contributors, who accepted this very arduous and challenging task and enriched the book with their valuable insights. The timely revisions made by the contributors are much appreciated.
  • Abbreviations and acronyms
  • About the authors
  • Overview
    India’s growth miracle has attracted worldwide attention, particularly because this growth has been pursuant to the wide ranging economic reforms introduced in the early 1990s. Many other developing countries intensified Liberalization during this period but were unable to experience a similar spurt in their economic growth. One distinctive feature of Indian Liberalization experience is the gradual and calibrated manner in which reforms were introduced, especially with respect to external Liberalization, be it in the financial, agricultural or manufacturing sector. On the risk of being categorised as “reluctant globaliser”, India embarked on the path of slow and steady Liberalization and still maintains high tariffs in many agricultural products and has given limited access to foreign investors in many sectors. To what extent has this approach stimulated economic growth in India? This book is a modest attempt to capture the role played by trade and foreign direct investment (FDI) polices in growth and development of different sectors in India.
  • Role of trade policies in growth of Indian manufacturing sector
    Manufacturing sector in India, compared with the other sectors, has always been the main focus of Liberalization policies. From import substitution policies of the 1950s to export promotion strategies of the 1980s and to major tariff Liberalization of the 1990s, the sector has experienced a wide variety of policy interventions. However, this sector has also been of major concern owing to its sticky growth rates, decade after decade, and persistently low contribution to total output and employment in the economy. The sector’s average annual growth rate remained around 5.8 per cent in the 1950s and 1960s, falling to 5 per cent in the 1970s and returning to 5.8 per cent in the 1980s. The sector’s contribution to GDP varied from 12 per cent to 14 per cent from the 1960s till the 1980s and its contribution to total employment remained low with negative growth in the 1980s (-0.12 per cent per annum).
  • Agricultural trade liberalization policies in India: Balancing producer and consumer interests
    India followed an inward-looking and highly protectionist trade policy in agriculture till early 1990s. Barring a few traditional commercial commodities, agricultural trade was subjected to measures like quantitative restrictions, canalization, licenses, quotas and high tariff rates. These measures strictly regulated imports and exports to safeguard domestic producers’ and consumers’ interests. In most commodities levels of export and import were determined by fluctuations in domestic supply and exports were residuals. Similarly, imports were allowed with fall in domestic production to fill the gap between domestic demand and supply. The production pattern was strictly guided by domestic requirement and self sufficiency in almost all major commodities. Allocation of resources based on comparative advantage in trade did not get much emphasis. This scenario started changing with economic reforms of 1991. External trade was further liberalised with the implementation of WTO Agreement on Agriculture in 1995. The process was accelerated after India lost the dispute in WTO to retain Quantitative Restrictions (QRs) on ground of Balance of Payment
  • Calibrated financial liberalization in India: Has it served the country?
    The policymaker devising a financial Liberalization program is often faced with a choice of cold-turkey approach versus the gradualism approach. While it is not a zero-one choice, economy-specific discussions of economic Liberalization in general and financial Liberalization in particular start with a priori. Depending on the ideological location of the exponent, the pace of Liberalization is frequently labelled “fast” and “slow”. This chapter argues that such branding of the pace of Liberalization suffers from an inherent over-simplification and that economy-specific contexts need to be appreciated before pronouncing any value judgement about the pace of reform. At the risk of repeating a cliché, the analogy could be one of driving a car where depending on the road condition, the driver needs to zero in on an optimal application of the gas paddle vis-à-vis brakes. To say that driving was slow or fast without any reference to the road condition is intrinsically misleading. Without trivialising the analogy, this chapter presents an analytical account of the financial Liberalization in India.
  • Impact of liberalization and globalization on productivity in Indian banking: A comparative analysis of public sector, private, and foreign banks
    In an economy that has been under strict government control over years, the main components of Liberalization are public sector downsizing (if not elimination) creating room for domestic firms and allowing entry of foreign firms. In this respect, Indian banking industry provides an ideal setting for evaluating the impact of Liberalization and removing entry restrictions. India, though dominated by public sector banks, already had a significant presence of private domestic banks and foreign banks. Banking reforms have created a more level playing field where all banks compete within a new set of broad (and far more relaxed) regulations. Data on the performance of the three different categories of banks over the past two decades offer an opportunity to assess to what extent regulatory changes have improved the productive efficiency of the Indian banking sector.
  • Concluding observations
    The global economic crisis in 2008 has fuelled debates on the link between Liberalization and growth. Conventional theories of export-led growth are being challenged, and growing financial Liberalization is being viewed with concern. This has drawn attention to the experiences of some developing countries, such as India, that have enjoyed a sustained period of strong economic growth, over a decade or more, to become ‘emerging economies’. This book attempts to document India’s experiences of twenty years of Liberalization and record the lessons learnt from its growth process.
  • References
  • Notes
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