International Competitiveness, Investment and Finance: A Case Study of India

By A. Ganesh-Kumar; Kunal Sen et al. | Go to book overview

2

The policy environment in India

Since the First Five-year Plan (beginning in 1951) till the major reform initiative in 1991, India followed a policy of planned industrialisation. 'Self-reliance' as an explicit policy objective was introduced in the Third Plan. Policies governing international trade, exchange rate, industry and finance were designed to complement each other so as to achieve this objective. Given the generally pessimistic assessment of export prospects the planners regarded import substitution as the prime means of achieving self-reliance. This is amply borne out by the nature of the policies followed in this period. Major reforms to the overall policy environment were initiated in 1991, though some of them had roots already in a series of partial reform measures taken up during the mid-1980s. In this chapter, we provide a brief overview of the important policies that have a bearing on international competitiveness, from the early 1970s to the late 1990s. These are macroeconomic policy, trade policy, exchange rate policy, industrial policy, financial sector policy, labour policy and exit policy. Detailed accounts of these policies and their impact on the Indian economy can be found in several earlier studies, notable amongst which are Bhagwati and Desai (1970), Bhagwati and Srinivasan (1975), World Bank (1989), Ahluwalia (1991), Pursell (1992), Joshi and Little (1994) and Agrawal et al. (1995). The overall implications of these policies for India's international competitiveness are assessed in the concluding section of this chapter.


2.1

Macroeconomic policy

For much of the 1970s and the early 1980s, India followed a conservative macroeconomic policy, underpinned by a strong political commitment to low inflation rates (Joshi and Little 1994). 1 However, since the mid-1980s there has been a gradual erosion in macroeconomic discipline. This is evident from the increase in the fiscal deficit as a percentage of GDP from an average of 6.3 in 1980-84 to 8.2 in 1985-89. This in turn was caused by an

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International Competitiveness, Investment and Finance: A Case Study of India
Table of contents

Table of contents

  • Title Page v
  • Contents ix
  • Figures xi
  • Tables xii
  • Preface xv
  • 1 - Competitiveness, Investment and Finance 1
  • 2 - The Policy Environment in India 12
  • 3 - The Balance of Payments and National Competitiveness 27
  • 4 - The Determinants of Sectoral Competitiveness 51
  • 5 - Outward Orientation 63
  • 6 - Finance Constraints, Persistent Exporting and Investment 93
  • 7 - Conclusions and Policy Implications 115
  • Appendix 123
  • Notes 146
  • References 151
  • Index 157
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