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

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 . . . .

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

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