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

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

7

Conclusions and policy implications

A country can achieve a standard of living that is both rising and sustainable if it is able to produce goods and services that meet the test of international competitiveness. Using India as a case study, in this book we have made an attempt to analyse the evolution of competitiveness of the manufacturing sector, both at the aggregate level and various levels of disaggregation. In addition, we have also identified the factors that affect competitiveness at various levels. The Indian case is particularly relevant from a developing-country viewpoint given the complexity of controls that prevailed in the economy for about four decades and the large changes in policy that have taken place in the 1990s.

Till the 1980s, as in many other developing countries, Indian policy-makers had a generally pessimistic assessment of export prospects. As a consequence import substitution was considered the prime means of achieving self-reliance which was one of the primary objectives of planning. This is amply borne out by the nature of industrial, trade and financial policies followed in this period. While generally conservative macroeconomic policies were followed till the mid-1980s there was a gradual erosion in macroeco-nomic discipline subsequently. The resulting deficits of the central government were financed both by monetary expansion and through borrowings from the public. The balance of payments (BOP) crisis of 1991 could be linked to the large and growing fiscal imbalances witnessed in India since the mid-1980s. The structural adjustment programme initiated in 1991 involved a significant change in the emphasis placed on market forces as opposed to centralised planning in allocating resources. The elaborate controls on industry, trade and the financial system were gradually dismantled. In the new regime international trade in general and exports in particular were given much greater emphasis. Self-reliance was no longer a major policy goal and the emphasis shifted to achieving higher rates of growth of GDP.

Even though the period between 1985 and 1990 saw a large erosion of fiscal discipline this period was marked by a significant rise in exports.

-115-

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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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