Indian Economy

Performance and Policies

Uma Kapila

Contents

Preface

Section - I Economic Development in 
              Post-Independence India

Basic Issues in Economic Development:

1.Economic Development and
   Under Development

   –Introduction
   –What Does Development Mean
   –Economic Growth and Economic 
     Development
   –The New View of Economic Development
      •Development as a Multi-dimensional 
        Process
      •Three Core Values of Development
   –Development, Freedom and Opportunities
   –The Three Objectives of Development
   –The Millennium Development Goals
   –Developed and Underdeveloped Countries
   –Defining the Developing World
   –Characteristics of the Developing World:
     Diversity within Commonality
      •Lower Levels of Living and Productivity
      •Lower Levels of Human Capital    
      •High Rate of Population Growth and 
        Dependency Burden
      •Higher Levels of Inequality and Absolute
        Poverty
      •Greater Social Fractionalisation
      •Larger Rural Populations but Rapid 
        Rural-to-Urban Migration
      •Substantial Dependence on Agricultural 
        Production and Lower Levels of 
        Industrialisation
        and Manufactured Exports
      •Underdeveloped Financial and Other 
        Markets
      •Lingering Colonial Impacts
      •External Dependence    
   –Nature of Indian Economy

2.Human Development
   –Human Development
      •Human Development Index
   –Are there Limits to Human Development? 
      •Sustainability, Equity and Human 
        Development
   –What Makes Development Unsustainable?
   –The Current State of Human Development 
   –Human Development: International 
     Comparison 
   –State of Human Development in India

3.India’s Economy at Independence.
   –Introduction
   –The Relative Importance of Various 
     Industrial Activities
      •Composition of National Income
      •The Working Force
   –The Agrarian Scene
      •Stagnating Agriculture
           –Causes
               ¡ Regressive Agrarian Structure
               ¡ Internal Drain of Capital
               ¡ Poor Technology
   –India’s Industrial Production and its 
     Structure
      •India’s Industrial Resources
      •The Decline of Traditional Industry and
        the Development of Modern Industry
   –Some Positive Features

Growth, Institutional Framework and Policy Regime:

4.Economic Planning: Evolution and Strategy.
   –Evolution of Planning 
   –Role of the State as Visualised in the Fifties
   –Early Experience with Five Year Plans 
     Changing Perceptions
   –Role of Planning in a Market Economy
   –Redefining the Role of State
   –Relevance of Planning Commission
   –NITI Aayog: Role and Functions

5.Economic Reforms and Liberalisation.

   –Debate on Liberalisation
   –The Background 
   –The Macroeconomic Crisis
   –Rationale for the Reforms
   –Macroeconomic Reforms
      •Structural Reforms
           –Industrial Policy Reforms
           –Trade Policy Reforms
    ¡ Tariffs
                ¡ Removal of Quantitative 
                  Restrictions
    ¡ Indian Customs Single Window 
                  Project: 2014-15
    ¡ Exchange Rate Reforms
           –Financial Sector Reforms
    ¡ Capital Markets
      •Fiscal Adjustment and Stabilisation
   –Economic Progress Post-1991
   –Impact of Economic Reforms on the 
     Vulnerable Sections
   –Conclusion
      •The Next Round of Reforms

6.Demographic Constraint: Population Change 
   and Economic Development.
   –Economic Development and Population 
     Growth
      •The Theory of Demographic Transition
      •The Microeconomic Theory of Fertility
   –How does Population Growth Affect 
     Economic Development?
   –India’s Demographic Transition
      •Causes of High Birth Rate
    –Social Factors 
    – Economic Factors
          ¡ Poverty
          ¡ Lack of Social Security
          ¡ Illiteracy, Ignorance and 
                        Belief in Fate
          ¡ Ineffective Family Planning
      •Fertility Rate
      •Causes of Decline in Death Rate
            –Control of Epidemics
            –Control of Famines
            –Improved Medical Facilities
            –Spread of Maternity Homes
            –Impact of Economic Development
   –Measures to Reduce Birth Rate
   –Concerns about Population Growth
   –Gender Equity and the Demographic 
     Transition
   –Population Policy since 1947
   –National Population Policy, 2000
      •Objectives
   –The Experience of Kerala and Tamil Nadu
      •Enabling Factors
   –India's Demographic Dividend
      •'Window of Opportunity' for India
      •Estimated Demographic Bonus 
        for India
      •India's Response to 'Window of 
        Opportunity'
   –The Future

7.Land Reforms.
   –Objectives of Land Reforms
   –Effects of Land Reforms on 
     Productivity and Poverty 

8.Growth and Structural Changes since 1951.
   –Periodisation of Indian Growth Experience
   –India's Growth Turnaround
      •2003-2008: The Best Phase in Growth
      •Recent Deceleration since 2011
      •Recent Growth Record
           –Aggregate Demand
           –Factor Shares in GVA
   –Priorities for Reviving Growth
   –Reform Agenda
   –Risk Factors and Constraints
   –Performance on Inclusiveness
      •Multidimensionality of Inclusion
   –The Need for Faster Growth
   –Human Development
   –International Comparisons
   –Growth and Structural Change
   –Sectoral Growth Trends
      •Growth and Sectoral Shares,
        Cross-country Evidence and Indian 
        Experience
    –Inter-Regional Disparities in 
                  Growth and Development
    –The Way Ahead
    –Growth Prospect: An Assessment
    –Sustainable Development and 
                  Climate Change

Section- II Growth and Distribution

9.Poverty in India.
   –Magnitude and Determinants
      •The Selection of Poverty Lines
   –Multidimensional Poverty Index
   –Reduction in Poverty
   –Comparison of India and China in 
     Terms of Poverty Reduction
      •Causes of Poverty
      •Growth and Poverty Reduction
      •Growth and Inequality
      •Growth, Employment and Poverty
      •Growth Pattern and Poverty
   –Poverty and Inclusive Growth
   –Non-income Poverty Dimensions
   –Poverty Alleviation Programmes
      •Programme for Socially 
        Disadvantaged 
      •Land Reforms 
      •Public Distribution System 
      •Public Investment in Human 
        Capital and Public Goods
      •A Stronger Welfare System and 
        Improved Social Service Provision 
        are Needed
   –Concluding Remarks

10.Unemployment and Employment
     Perspective.
   –Concepts and Measurement
   –Characteristics and Structure of 
     the Indian Labour Market
   –Trend and Pattern of Employment 
     Growth
      •Growth in Employment, GDP and 
        Employment Elasticity
      •Patterns of Employment Growth at 
        a Disaggregated Level 
            –Primary Sector
            –Secondary Sector
            –Services Sector
            –Overall Sectoral Pattern
      •Gender Differentials in Employment 
        Growth
      •Long Term Perspectives
   –Labour Market Reforms would Help 
    Boost Employment Creation
   –Public Employment Programme for the 
     Unorganised Workers: The Case of NREGA
      •An Overview of the Scheme
      •The Performance
      •Success Stories
      •Remaining Gaps
   –Policy Agenda
   –Skill Development: The Challenge
   –Employment Perspective

11.Economic Inequality in India.
    –Inequality
    –Inequality after Economic Reforms

Section- III Current Perspectives in 
                  Agriculture

12.Agriculture: Role and Growth 
     Performance.
    –Importance of Agriculture in National 
      Economy 
       •Linkage between Agriculture and 
         Other Sectors
    –Agricultural Growth
       •Role of Institutional and Technological 
         Factors in Agriculture Growth
        •The New Technology
             –Characteristics of New 
               Technology
                   ¡ Better Agricultural Practices
            –Economic Aspects of New 
              Technology
    –Green Revolution
       •Three Phases of  Green Revolution
    – The First Phase, 1966-1972
    – Debacle and the Second Phase, 
       1973-1980
    – The Third Phase, 1981-1990
    –Reform Period, 1991 to the Present
      •Deceleration in Agriculture Growth
        during 1995-96 to 2004-05
      •Performance of the Agriculture Sector 
        during the Eleventh Five Year Plan
        (2007-2012) and Thereafter
   –Instability in Ouput
   –Regional Disparities and Intra-Personal 
     Disparities
   –New Technology and Environmental 
     Degradation
   –Long-term Performance, and What 
    could be Holding Back Indian Agriculture
   –Major Factors Affecting the Growth
     Potential
      •Lack of Long Term Policy 
        Perspective
      •Investment in Agriculture and
        Subsidies 
      •Lagging Research and Development 
        Efforts
      •Technology Generation and Dissemination
      •Rising Soil Degradation and Over-
         exploitation of Groundwater
      •Degradation of Natural Resources
      •Subsidies vis-à-vis Investments and 
        Farm Support Systems
      •Agriculture’s Terms of Trade and 
        Farm Price Volatility
   –Rural Distress in Post-Reform India
   –National Policy for Farmers, 2007
   –Emerging Imbalances
      •Subsidies versus Public Investment
      •Cereals Production and Build 
        up of Stocks
   –High Value Commodities: The Future
    Sources of Growth in Agriculture
   –Secondary Agriculture: A Driver for 
     Growth of Primary Agriculture
   –Reforming the Three 'I's: Investments,
     Incentives, and Institutions
      •Investments
      •Reforming Incentives
         –Price and Marketing Policy
      •Reforming Institutions
         –Marketing and Warehouse Facilities
         –Reforming Land and Credit Markets
         –For a High-yield Agri-trade
         –Challenges and Outlook

13.Agricultural Price Policy, Food 
     Management and Food Security.
    –Agricultural Price Policy
    –Food Management
       •Food Procurement Policy
       •Price and Distribution Controls in
         the Food Grain Market
       •Public Distribution System (PDS) 
       •Food Subsidy
       •Buffer Stock
    –Food Security
    –Conclusion

Section- IV Current Perspectives in Industry
                  and Services

14.Industrial Policy.    
    –The Industrial Scene at Independence
    –Industrial Control Regime 1950s
      to 1970s
    –Performance of the Industrial
      Licensing System
    –Industrial Policy Reforms 1980s
    –The Policy Regime in the 1990s
    –New Economic Policy (1991)
       •Opening up to Foreign Investment
       •Public Sector Reforms and Privatisation
    –Industrial Policy: Recent Policy
      Initiatives
    –Industrial Policy Objectives for the 
      Twelfth Plan and Beyond
       •The Architecture of a Strategy to 
         Accelerate Growth of Manufacturing    
       •Three Components of India’s 
        Manufacturing Strategy and Plan

15.Industrial Growth and Structure
     since 1951.
     –Industrial Growth
     –Policy Regimes and Pattern 
       of Growth
     –Comparative Growth Rates in the 
       1980s and the 1990s
     –Relative Contribution of Sectors 
       to Total Production
     –The Manufacturing Slowdown 
       (1996-2002)
          •Factors Causing the Slowdown: 
            Some Hypotheses
                –Cyclical Factors in Industrial
                  Slowdown
    –Structural Factors
         ¡ Infrastructure Constraints
                       in the Industrial Sector
     –Recovery in Industrial Growth 
       since 2002-03
     –Recent Industrial Growth (2008-09 
       to 2013-14)
     –Industrial-sector Performance based 
       on Revised GDP Estimates
     –Comparative Position of India and
       World Manufacturing
     –Why has Growth Moderated?
     –Investment in the Industrial Sector
          •Gross Capital Formation in
            Industrial Sector
     –Challenges Arising from Government 
       Policies: Difficult Business Environment
          •Labour Deployment Rigidities
          •Infrastructure Bottlenecks
          •Regulatory Delays and Lack of 
            Transparency
          •High Cost and Non-availability
            of Commercial Bank Credit
     –Why did Manufacturing Sector's 
       Share in Total Employment Stagnate
     –Other Aspects of Industrial Change
     –Why did the Reforms Fail to 
       Deliver the Expected Results?
     –India's Unique Pattern of Development
     –What Should be Done Now?
          •Balanced Growth
          •Integrating into Global Networks
          •Improving Physical Infrastructure 
     –The Architecture of a Strategy to Accelerate
       Growth of Manufacturing
     –Conclusions

16.Micro, Small and Medium
     Enterprises (MSEs).
     –Role of SMEs in Global Economy: 
       International Scenario
     –Defining MSEs: MSMED Act, 2006
     –Role of MSEs in Indian Economy 
          •To Generate Large-Scale 
            Employment
          •To Sustain Economic Growth
            and Increase Exports
          •Making Growth Inclusive
     –Globalisation and Small Industry
       Performance
     –SSI Performance in the Globalisation Era
          •Performance of the SSI Sector: Pre-
            liberalisation Period versus Liberalisation
            Period
          •Performance of the Registered SSI in 
            the Liberalisation Period: 1987/88-2006/07
     –Inferences and Conclusions (In the Context
       of Recent Policy Initiatives)

17.Public Sector in the Indian Economy.
     –The Rationale
     –Performance of Central Public 
      Sector Enterprises
          •Output and Capital Formation
          •Fall in Public Sector Employment
            Growth
          •Central PSEs’ Profitability
     –Reasons and Implications
     –Public Sector and 1991 Industrial 
       Policy
     –Policies toward CPSEs and their 
       Implementation
     –Privatisation 
          •Privatisation: Indian Experience
            since 1991

18.Services in the Indian Growth Process.    
     –Importance of the Services Sector 
       for India
          Services GDP and Gross 
            Capital Formation
          Services Employment in India
     –Growth and Sectoral Shares, 
       Cross Country Evidence and 
        Indian Experience
          Services GDP: International
            Comparison
     –India’s Services Sector
     –Important Services for India
     –Factors Underlying the Services
       Growth
     –India’s Services Trade
          India’s Services Exports
          India’s Services Imports
          India’s Balance of Trade 
            in Services
          FDI in India's Service Sector
     –Liberalisation of Services in India
          India Moving towards a Services-
            led Export Growth
          India and Trade Negotiations 
            in Services
          –Challenges and Outlook

19.Foreign Direct Investment.    
     –Introduction 
     –Role of FDI
     –FDI Policy: A Historical Perspective
     –FDI Policy Changes Announced in 
       the Budget 2014-15
     –Trends in FDI Inflows
          Investment Climate and Prospects 
            for FDI Inflows
     –Quality of FDI Inflows
          Sectoral Composition
          Changes in the Sources of FDI
          Changes in Sectoral Composition
     –FDI Inflows and their Impact
     –India as an Emerging Source of 
       FDI Outflows
          Impact of FDI on Growth and 
            Domestic Investment
          FDI and Export-Platform Production
     –Concluding Remarks and Policy Lessons
          Policy Lessons
          FDI Outlook

Section- V Financial Sector and External 
                 Sector Financial Sector:

20.The Financial Sector: Structure, 
     Performance and Reforms.
     –Growing Importance of Finance
       in India
     –Financial Sector Development
       in India
          Institutional Structure
          Capital Markets 
          Money Markets
          1991 and After: The Reform 
             Years
          Role of Competition 
          Capital Adequacy and Government
             Ownership in the Banking Sector 
     –Conclusion
     –The Road Ahead
          Indian Financial Code (IFC)

External Sector:

21.Foreign Trade and Trade Policy.
     –Constraints Arising from Foreign 
       Trade and Import Substitution-based 
       Policies
     –Exports and Imports: Broad Trends 
          •Exports 
          •Export Performance of India 
            and the EDEs
          •Export Composition and Sectoral 
            Performance
               –Direction of Exports 
               –Export Diversification 
          •Imports 
          •India’s Import Growth 
               –Composition of Imports 
     –Trade Deficit
     –Direction of Trade
     –World Trade
          •India’s Merchandise Trade 
            2001-02 to 2013-14
          •Services Trade
     –Special Economic Zones (SEZs)
     –Appendix: Balance of Trade
     –Trade Policy: An Overview
          •Import Substitution based Strategy
          •Towards Efficient Import Substitution
          •Trade Policy since 1991
     –Outward Orientation Focusing on
       Export Promotion
          •Recent Trade Policy Measures
     –Bilateral and Regional Trade Agreements
     –Challenges and Outlook

22.Balance of Payments.
     –Concepts
     –India’s Balance of Payment 
       Trends: 1950-51 to 2013-14
          •First and Second Oil Shocks 
            of 1973 and 1980
          •External Payment Crisis 
            of 1991
     –The Crisis: 1990-1992
          •India’s BoP during 2011-12 
            to 2013-14
          •Current Account Developments 
            in 2012-13 and 2013-14
          •Financing Aspect of Current Account
     –Sustainability of Current Account
     –Capital Account
     –Managing Capital Flows
     –External Debt
     –International Comparison 
     – Foreign Exchange Reserves
          •Approach 
          •Developments
          •Issues
               –Foreign Exchange Rate Policy
                    ¡ Nominal Effective Exchange 
                      Rate (NEER) and Real Effective
                      Exchange Rate (REER)
     –Exchange Rate Management
     –Concluding Remarks

23.India and the WTO .
     –World Trade Organization 13-18, 2005) 
     –India and the WTO
     –India's Participation in WTO Meetings,
      2005) 
     –WTO Negotiations and India 2005) 

     Glossary.

     Select Bibliography.