Indian Economy After Liberalisation Full 978-93-8117-614-6 2012

Indian Economy after Liberalisation
Performance and Challenges
Edited by
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Dilip Saikia
Indian Economy after Liberalisation Performance and

Challenges
Editor
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Performance and Challenges
To my dear teacher, Prof. Madhurjya Prasad Bezbaruah, who inspires me to reach higher
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putting together works of young budding researchers in a comprehensive volume is enviable on one hand and reassuring on the other.
Forword
Indias economy after liberalisation is filled with challenges and opportunities, which warrants keen introspection into structure and performance of various sectors alongside its human face. This collection of papers drafted by young scholars of the Centre for Development Studies, Trivandrum demonstrates an exemplary cohesion of issues concerning the economy during the post-reform era. They address contentious issues like slowing down of agricultural growth, deviations from the ideal pattern of inter-sectoral linkages, poverty comparisons and regional variations. While this volume may not be exhaustive in terms of addressing all possible areas of the economy having the potential bearing of liberalisation, it undoubtedly deliberates on the essential domains of the economy with its evolving perspective. Apart from agriculture, industry and services, the content extends to an understanding of poverty, regional variations and human development. As such, it serves as an ideal reading of the liberalised Indian economy in a wide-ranging perspective. Varying issues and pertinent questions are being addressed with conceptual justification and empirical exploration, which makes this volume distinct from others on the same topic. This collection of research papers, originated as term papers during the course work of M.Phil course in Applied Economics at the Center for Development Studies, has undergone substantial revision to assume its current shape. Its rigour, veracity, and analytical strength owes a great deal to the suggestions and interventions made by the Centres faculty during its presentation in the seminar. Needless to mention that this initiative of
I put on record my sincere appreciation for Mr. Dilip Saikia and the individual contributors to this volume for this remarkable job, which will encourage peers to make similar attempts at disseminating their early career works. Finally, it is a dream come true for a sincere teacher and I wish many more similar collections of works to take shape in future. Udaya S. Mishra Associate Professor Centre for Development Studies Trivandrum
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these studies were formulated and to all the faculties and fellow students for their insightful comments during the presentation of the studies. I express my sincere gratitude to Dr. U. S. Mishra of Centre for Development Studies for his guidance and encouragement as the Coordinator of M.Phil Programme and for writing the forward of the book. I also take this opportunity to record my sincere thanks to Prof. M. P. Bezbaruah (of Gauhati University) for his consent encouragement and inspiring me to reach higher. I also extend my gratitude to the administration of the Institute for Financial Management and Research (IFMR), Chennai, where I am currently pursuing PhD programme, for providing a workable environment and to the faculties and fellow research scholars of the Institute for exchanging their ideas on diverse areas. I am indebted to the SSDN Publishers & Distributors for publishing the book. Mr. Sat Parkash Katla of the SSDN Publishers & Distributors provided indispensable oversight for getting the book to publication. I owe gratitude to my family for the care and support I received throughout my life. Lastly, but not the least, I duly acknowledge my sincere thanks to all those who helped me in the course of this work. All may not be mentioned but none is forgotten. Needless to say, the views expressed in the book are of the views of the authors, and do not necessarily reflect the views of the organisations they belong to and the editor of the book. Nevertheless the editorial errors are mine. Dilip Saikia
Preface
Indias economic reform since 1991 has been catalyst in shaping the performance of the economy. No doubt the economy has been brought to a higher growth trajectory, emerged as one of the fastest growing economies in the world and minimised many of the apparent inefficiencies that were persistent before the reform; however, it is overwhelmed by various socioeconomic problems and there are new challenges in the process and backlashes in various areas, such as growing inequalities, low levels of employment, and agrarian distress, etc. The book provides a comprehensive review of the performance of Indias economy in the context of two decades of structural reforms and the growth and development challenges thereof. It covers the main features of Indias post-reform economic development and addresses issues such as sluggish growth of agriculture, inter-sectoral linkages, poverty, rural development and human development in the context of the economic reforms. The book grew out of a series of term papers carried out by the authors during the course work of M.Phil Programme in Applied Economics at the Centre for Development Studies, Trivandrum. I am thankful to the authors for their contribution and their diligence in revising the chapters according to the broader theme of the book Their suggestions helped me incalculably at various stages during editing the book. The editor and the other authors are all grateful to the Centre for Development Studies for providing a radiant academic ambiance and research facilities. Sincere thanks are due to the concerned faculties under whose able guidance
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SWATI DUTTA is doing Ph.D in Economics under Madras University at Institute of Financial Management and Research. She did her M.Phil in Applied Economics from Center for Development Studies under Jawaharlal Nehru University. Previously she worked as project linked personnel in the project entitled Construction and Analysis of Regional Variation of Social Development Indices in India, sponsored by Ministry of Statistics and Programme Implementation, Government of India in Indian Statistical Institute, Kolkata. Her area of interest is Development Economics. KHANINDRA CH. DAS is research scholar at Institute for Financial Management and Research (IFMR), Chennai, India. He received Masters Degree in Economics from Gauhati University, Guwahati and M.Phil in Applied Economics from Centre for Development Studies, Trivandrum. His research interests are diverse that include, among others, Development Economics and International Trade & Finance. His recent publications include Risk Behaviour of Commercial Banks under Reform: The Indian Experience. KALYANY SANKAR is currently a Project Assistant at Centre for Development Studies (CDS), Trivandrum. She completed M.Phil in Applied Economics from Centre for Development Studies. Her areas of interest are Poverty and Human Development and worked on the Social and Economic Mobility of Slum Dwellers.
List of Contributors
DILIP SAIKIA is research scholar of Economics at Institute for Financial Management and Research, Chennai (India). He received M.Phil in Applied Economics of Jawaharlal Nehru University from Centre for Development Studies (CDS), Trivandrum and Masters Degree in Economics from Gauhati University, Assam. His research interests include macroeconomics, economic development and trade, industrial organisation, regional economics and economic geography. His recent books include Industrial Location under Globalisation in India: Evidence from Unorganised Manufacturing Industries and Agriculture-Industry Linkages in India: Some Issues and Evidences . VACHASPATI SHUKLA is currently research scholar at Centre for Development Studies (CDS), Trivandrum, India. He received M.Phil in Applied Economics from Centre for Development Studies and MA in Economics from Faculty of Social Science, Banaras Hindu University, Varanasi. His research interests include labour economics and human development. KIRAN KUMAR KAKARLAPUDI is currently doctoral scholar in Economics at the Centre for Development Studies, Trivandrum. He has completed M.Phil in Applied Economics from Centre for Development Studies during 2008-10 and M.A. in Economics from University of Hyderabad. His area of interest includes labour economics, economics of technological change, issues related to globalisation and inequality. He is currently working on implications of technological change on growth and employment.
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Contents
4. Forword Preface Contributors List of Tables List of Figures List of Boxes Abbreviations 1. Introduction: Indias Economy after Liberalisation Dilip Saikia 1.1 Introduction 1.2 Indias Performance: 1951-52 to 2009-10 1.3 Overview of the Volume References Indias Road to Economic Reforms Dilip Saikia and Vachaspati Shukla 2.1 Indias Development Strategy in the Post-Independence Period 2.2 Reforms of the 1980s 2.3 The Crisis of 1991 2.4 Major Reforms of the 1990s 2.5 Conclusion References Annexure 2.1 viii ix xi xvii xxi xxiii xxv 1 1 6 39 44 47
3.5 Summary and Conclusion References Agriculture and Industry: Analysing Linkages for Pre- and Post-reform Periods in India Dilip Saikia 4.1 Introduction 4.2 Nature of Agriculture-Industry Linkages 4.3 A Reprise of Theories 4.4 Methodologies of Estimating Sectoral Linkages 4.5 Trends of Agriculture-Industry Interlinkages in India 4.6 Conclusion References Annexure 4.1 Annexure 4.2 Differential Growth of Poor and non-Poor and Its Implication on Poverty Reduction Vachaspati Shukla 5.1 Introduction 5.2 Conceptual Framework 5.3 An Alternative Way to Measure the Poverty Reduction 5.4 Empirical Evidence from Indian States 5.5 Conclusion References Regional Patterns of Agricultural Growth and Its Bearing on the Incidence of Poverty in India Swati Dutta 6.1 Introduction 6.2 Literature Review 6.3 Objectives 6.4 Performance of Indian Agriculture
115 117
122 122 123 127 131 135 155 157 164 169
5.
2.
174 174 176 183 185 191 193
47 53 57 64 75 77 80 6.
3.
Agricultural Growth in the Post-reform Era: A Critical Assessment 81 Kiran Kumar Kakarlapuri 3.1 Introduction 81 3.2 Review of Literature 84 3.3 Sources of Agricultural Growth since Independence 89 3.4 Factors Affecting Agricultural Growth 104
194 194 197 200 200
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6.5 Present Scenario of Poverty in India 6.6 How Increased Agricultural Productivity Reduces Poverty 6.7 Analytical Framework 6.8 Results 6.9 Conclusion References 7. Access to Finance and Its Association with Development in Rural India Khanindra Ch. Das 7.1 Introduction 7.2 Access to Finance and Development: A Brief Review 7.3 Extent of Inequality in the Access to Finance from Institutional Sources 7.4 Association of Inequality in Institutional Access to Finance and Development 7.5 Conclusion References 8. Human Development in India: An Analysis of Inter-state and Intra-state Convergence/Divergence Kalyany Sankar 8.1 Introduction 8.2 Review of Literature 8.3 Data Source and Methodology 8.4 Analytical Framework 8.5 Results 8.6 Conclusion References Annexure 8.1 Annexure 8.2 207 211 217 221 224 226
228 228 231 235 237 245 248
251 251 253 258 259 262 279 282 286 288 293
Index
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2.2 3.1 Selected Balance of Payment (BoP) Indicators (as percentage of GDP) Growth Rate in GDP Agriculture and non-Agriculture before and after Reforms Growth Rate in Output of various SubSectors of Agriculture
61
List of Tables
3.2 1.1 Selected Indicators of Indias Economy: 1950-51 to 2009-10 1.2 Indias Growth Performance during Planning period 1.3 Indias Economic Growth during Pre-independence period 1.4 Growth during Selected Pre-reforms periods 1.5 Post-reform Growth Performance 1.6 Volatility in Growth Rate: Coefficient of Variation 1.7 Contributions to Growth 1.8 Combined Deficits of Central and State Governments 1.9 Gross Domestic Saving and Gross Domestic Capital Formation 1.10 Selected Balance of Payments Indicators 1.11 Percentage of People below Poverty Line 1.12 Rate of Growth of Organised Sector Employment 1.13 Unemployment Rate (per 1000) according to Usual Status, Current Weekly Status (CWS) and Current Daily Status (CDS) approach 2.1 Selected Fiscal Indicators during the 1980s (as percentage of GDP) 4 9 3.4 11 13 18 3.6 20 21 25 4.1 28 29 33 34 4.3 4.2 3.7 3.5 3.3
92 93
Share of Foodgrain and Non-Foodgrain Crops in Cropping pattern and Value of Output in India 95 Sources of Agricultural Growth in different Regions of India during 1980s and 1990s Share of different Commodities in the Sources of Agricultural Growth in India during 1980s and 1990s Rate of Growth of Area, Production, Yield and Area under Irrigation for major Crops percent Growth Rate in Area, Input Use, Credit and Capital Formation in Agriculture before and after Reforms Sectoral Share Matrices (Production Linkages) Sectoral Demand Matrices [(I - A)-1] (Demand Linkages) Changes in Sectoral Linkages: Summery 96
99 102
104 146 152 154 169 169 170 171
4.1.A Sectoral share of GDP at factor cost 4.2.A Sector-wise Trend Growth Rate of GDP
35 58
4.3.A Share of Agro-based and non Agro-based Industries (Organised Sector) 4.4.A Share of Agricultures Final and Intermediate Consumption
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4.5.A Share of Modern and Traditional Inputs in Agriculture 4.6.A Consumption of Fertilisers and Pesticides 4.7.A Per Hectare Consumption of Fertilisers and Pesticides 5.1 5.2 5.3 5.4 6.1 6.2 6.3 6.4 6.5 An Illustration Number and Proportion of People below Poverty Line across Indian States Decadal Population Growth across India States Average Household Size of Poor and nonPoor across States in 1993-94 Annual Average Growth Rate in Agriculture and the GDP Growth Rate of Yields for Foodgrains and Oilseeds: 1980-1 to 2005-6 Growth Rate of GDP in Agriculture State-wise Incidence of Poverty Correlation Matrix among Poverty Head Count Ratio, Yield and NSDP per worker in 1994-95 level values Correlation Matrix among Poverty Head Count Ratio, Yield and NSDP per worker in 2004-05 level values OLS Estimates 1 OLS Estimates 2 Percentage of Rural Households getting Access to Finance from different Sources across Asset-holding Classes (All India) ANOVA Test of Difference of Proportion 7.3 171 172 7.4 173 183 187 188 192 201 8.3 202 204 209 8.4 8.5 218 8.6 8.7 220 222 223 7.5 7.6 8.1
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Correlation Matrix of Poverty, Literacy, Electricity Use, Access and Inequality in Access to Finance Classifying Poverty and Inequality in Access to Finance into Low and High Classification of States by Inequality in Access to Finance and Poverty Poverty, Inequality, NSDP, Electricity Usage, Literacy Rate, 2002 State-wise Literacy Rate, IMR, Proportion of Households with Safe Water, Electricity and Toilet Facilities District-wise Literacy Rate, IMr,Proportion of Households with Safe Water, Electricity and Toilet Facility in Kerala District-wise Literacy Rate, IMR and Proportion of Households with Safe Water, Electricity and Toilet Facility in Bihar Sigma- Convergence of SDI Summary Statistics of all India SDI in 1991 and 2001 Summary Statistics of SDI for Kerala in 1991 and 2001 Summary Statistics of SDI for Bihar in 1991 and 2001
243 243 245 246
263
8.2
267
270 276 277 278 279
6.6
6.7 6.8 7.1
240 241
7.2
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4.2 4.3 Sector-wise Trend Growth Rate of GDP Comparison between different TOT Series Relative Prices of Agriculture and Industry
140 150 151 173 191 219 238
List of Figures
1.1 1.2 1.3 2.1 Annual Growth Rate of GDP and Per Capita NNP: 1951/52-2009/10 Combined Deficits of Central and State Governments Annual Inflation Rate in India in the Post-reform period Average Annual Growth Rates of Non-Oil Merchandise Exports and Imports Merchandise Non-oil Exports and Imports as Percentage of GDP Annual Inflation Rate Real Exchange Rate Indias Foreign Exchange Reserves (as percentage to GDP) 8 24
4.4
4.1.A Agricultures Purchase from nonAgricultural Sector 5.1 6.1 Decomposition of total Increase in Population of non-Poor Theoretical Framework Percentage of Rural Household getting Finance from Institutional Sources
37
7.1 7.2
56 8.1 56 59 60 8.3 63 80 80 97 107 140 8.4 8.2
Percentage Share of Institutional Agencies in Cash Debt Outstanding of Rural Households 239 State-wise Social Development Index, 1991 and 2001 Social Development Index for Kerala, 1991 and 2001 Districts with below Bihar State Average SDI Districts with above Bihar State Average SDI 265 268 273 274
2.2 2.3 2.4 2.5
2.1.A External Debt (as percentage to GDP) 2.2.A Indias Current Account (as percentage to GDP) 3.1 3.2 4.1 Share of different Sources of Growth in Agriculture in India Capital Formation in Agriculture Sectoral Composition of GDP at factor cost
List of Boxes
1.1 1.2 Major Econmic Reforms of 1991-93 Construction of Variables and Data Sources 65 244
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HCR HDI head count ratio Human Development Index high yielding variety Industrial Entrepreneur Memorandum International Monetary Fund infant mortality rate Indian National Congress Integrated Rural Development Programme International Rice Research Institute Jawahar Gram Samridhi Yojana Jawahar Rojgar Yojana Memorandum of Understanding Monopolies and Restrictive Trade Practices minimum support prices National Family Benefit Scheme net national product National Old Age Pension Scheme National Rural Employment Guarantee Programme National Rural Employment Programme National Social Assistance Programme net state domestic product National Sample Survey petroleum, oil, and lubricants
Abbreviations
ADB CAD CDS CGE CMIE CPI CRR CSO CV CWS EPW FEMA FER FERA FODI FRBM FYP GDCF GDP Asian Development Bank current account deficit
HYV IEM IMF IMR INC
current daily status IRDP computable general equilibrium IRRI Centre for Monitoring Indian Economy JGSY consumer price index JRY cash reserve ratio MoU Central Statical Organisation MRTP coefficient of variation MSP current weekly status NFBS Economic and Political Weekly NNP Foreign Exchange Management Act NOAPS foreign exchange reserve NREGP Foreign Exchange Regulation Act outward foreign direct investment Fiscal Responsibility and Budget Management Five Year Plan gross domestic capital formation gross domestic product NREP NSAP NSDP NSS POL
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PPP PSU RBI RDP RLEGP SAM SDI SEBI SGRY SGSY SIA SLR TFP ToT TPDS UBSP UPA UPDS VAT WPI WSBI WTO purchasing power parity public sector undertakings Reserve Bank of India Rural Development Programme Rural Development and Poverty Alleviation Programme social accounting matrix Social Development Index Security and Exchange Board of India Sampoorna Grameen Rozgar Yojna Swarnjayanti Gram Swarozgar Yojana Secretariat of Industrial Approvals statutory liquidity ratio total factor productivity terms of trade Targeted Public Distribution System Urban Basic Services Programme United Progressive Alliance Union Pacific Distribution Services value added tax wholesale price index World Saving Bank Institutes World Trade Organisation
Introduction
1
Introduction: Indias Economy after Liberalisation
Dilip Saikia
1.1. Introduction
India had undergone structural changes in policies from import substitution regime to free market regime in the early 1990s. It has been two decades since India liberalised its policies. Therefore, it is now reasonable to review the performance of Indias economy during this period, and look at the future challenges. The stabilisation-cum-structural adjustment reforms, (see chapter 2 by Saikia and Shukla for a discussion) have become one of the landmarks for the recent spate of Indias economic development. Following the economic reforms, the economy has been performing extremely well and presently the economy is regarded as one of the fastest growing economies in the world. It has been growing at an annual average rate of 6.86 per cent during the two decades of economic reforms (1992-93 to 2009-10) as against 4.07 per cent during the four decades prior to the economic reforms (i.e. 1950-51 to 1991-92). Moreover, the growth of the economy scaled up particularly after the year 2000, with the growth averaging at an annual rate of 7.32 per cent during 2000-01 to 2009-10 and 8.46 per cent during
Introduction
2003-04 to 2009-10. As per World Bank data1 India is now the 10th largest economy in the world in terms of nominal Gross Domestic Product (GDP) which stood at US$1377.26 billion in 2009 and the 4th largest in terms of purchasing power parity (US$ 3808.44 billion in 2009). The countrys GDP per capita (PPP) recorded at US$ 2,993 (at constant 2005 international dollar) in 2009, as against US$ 1831.66 in 2001 and US$ 1232.19 in 1991. The success story of the economy is mainly attributed to the rise in the quantum of investment during this period. The gross domestic capital formation (GDCF) stood at 36.5 per cent of GDP in 2009-10 as against 26 per cent in 199091 and gross domestic savings stood at 33.7 per cent of GDP in 2009-10 as against 22.8 per cent in 1990-91 (Table 1.1). The industry and services sectors continued to fuel the economic growth. Industrys contribution (including construction sector) to GDP has steadily increased from 25.92 per cent in 1990-91 to 28.47 per cent in 2009-10, while services sector continued to contribute about 57 per cent to GDP in 2009-10. The economy has been doing well in the external sector, especially in trade, foreign investment, and accumulating foreign reserves. The volume of exports and imports recorded at Rs. 845534 crore and Rs. 1363736 crore respectively and the foreign exchange reserves stood at Rs. 1149650 crore in 2009-10 (Table 1.1). The economy has not only become a major destination of foreign investment; but also emerged as one of the emerging source of outward foreign direct investment (OFDI). The macro-economic condition of the economy has been stronger over the period compared to the pre-reform decade, albeit inflation has been a major concern from time to time.The social sector performance has also been impressive during this period.
1. World bank online data.worldbank.org database available at http://
Birth rate has declined to 22.5 per thousand of population, death rate declined to 7.3 per thousand of population, life expectancy at birth increased to 64.1 years and literacy rate increased to 74 per cent in 2009-10 (Table 1.1). The spectacular performance of the economy in the last two decades helps in improving the investors confidence and business environment in India. In this regard The Economist (2010) quotes, Indian firms are increasingly global and sometimes world-class. Arcelor Mittal, based in Luxembourg, is the worlds largest steel firm. Tata Motors, best known for making cars that cost only $2,000, also owns Jaguar and Land Rover, two luxury brands. Bharti Airtel, a mobilephone firm with 140m subscribers in India, is rapidly expanding into Africa, too. Thus, we can see that the economy has been doing superbly since the initiation of the free market principle through economic reforms in the early 1990s. To summarise the present scenario of Indias economy it is worthwhile to quote Acharya and Mohan (2011), Overall economic growth has accelerated, inflation has moderated, and financial stability has been maintained. The fiscal position has fluctuated, registering periods of both successful consolidations and backsliding. The economy has seen substantial opening to the rest of the world as the currency has become convertible on the current account, and the capital account has been liberalised subsequently. The industrial sector has been deregulated and exposed to international competition, thereby making it more competitive. The services sector has exhibited a new vibrancy in some areas, with the information technology sector showing the potential of Indian enterprise. The aim of this book is to uncover some aspects of Indias development in the post-reform period and highlight on the future challenges. Before presenting an overview of the book we briefly review Indias performances in the post-
Table 1.1: Selected Indicators of Indias Economy: 1950-51 to 2009-10

1950-51 ECONOMIC INDICATORS GDP at factor cost: at constant prices (in Rs Cr.)% 224786 5708 8.4 8.6 46.2 7.9 6.8 17 606 642 21 38 1535 7.9 14.3 15.6 28.1 68.8 85.9 102.1 43.1 36.8 81 6711 11.2 14.2 18.5 14 15.1 19.9 26.0 22.8 148.4 91.6 73.7 193 32553 7121 8091 8594 11535 329825 474131 641921 1083572 Per capita NNP at constant Prices (in Rs) % Gross Domestic Capital Formation (as % of GDP) Gross Domestic Savings (as % of GDP) Index of agricultural production (Base: 1981-82=100) Index of industrial production (Base: 1993-94 = 100) Wholesale Price Index CPI for Industrial workers Exports (Rs Cr.) 1960-61 1970-71 1980-81 1990-91 2000-01 2009-10
1864300 16172 24.3 23.7 165.7 162.6 155.7 444 203571
4493743Q 33731Q 36.5 33.7 179.9 316.2 130.4 163 845534
Introduction
Imports (Rs Cr.) Foreign exchange reserves @ (Rs Cr.) SOCIAL INDICATORS Population (million) Average Annual Exponential Population Growth (%)* Birth Rate (per 1000) Death Rate (per 1000) Life Expectancy at Birth (Years) (a) Male (b) Female Literacy Ratio (%) (a) Male (b) Female
608 911
1122 186
1634 438
12549 4822
43198 4388
230873 184482
1363736 1149650
359 1.25 39.9 27.4 32.1 32.5 31.7 18.3 27.2 8.9
434 1.96 41.7 22.8 41.3 41.9 40.6 28.3 40.4 15.4
541 2.20 36.9 14.9 45.6 46.4 44.7 34.4 46.0 22.0
679 2.22 33.9 12.5 50.4 50.9 50.0 43.6 56.4 29.8
839 2.14 29.5 9.8 58.7 58.6 59.0 52.2 64.1 39.3
1019 1.93 25.4 8.4 62.5 61.6 63.3 64.8 75.3 53.7
1170 22.5 7.3 64.1$ 64.9$ 62.0$ 74.04# 82.14# 65.46#
Note: Q- quick estimate; % Data relates to 1999-2000 prices up to 2000-01. For 2009-10 data are based on new series (2004-05) prices; @ Excluding gold, SDRs and Reverse Tranche Position at the IMF; # Figures are for 2011 and taken from Census 2011; $ Figures are for 2009 and taken from UNICEF India Statistics; * Figures are for the census year and data collected from Census 2001.Source: Economic Survey, 2009-10
Introduction
reform period as compared to pre-reform period and look at the major challenges facing the economy. In the next section we review Indias growth performance since independence. Thereafter, we will highlight some of the major challenges facing by the economy and finally,we will provide an overview of the book.
1.2. Indias Performance: 1951-52 to 2009-10

It is relatively a challenging task to review the performance of Indias economy, since there have been many well-known studies on the topic that have evaluated Indias growth story since the independence and specifically after economic reforms both at macro and micro level in different dimensions. One way to look at a countrys performance is to look at the pace of economic growth and its macroeconomic condition during the period (Acharya and Mohan, 2011). It will provide an aggregate assessment of the overall economic performance of the economy. Here, we look at Indias growth performance since 1950-51. Figure 1.1 presents the annual growth of GDP and per capita Net National Product (NNP) for the period 1951-52 to 2009-10. From the figure it is hard to characterise Indias economic growth during this period, though it is clear that there were very few years in the first three decades when the growth rate exceeded 5 per cent. None of the Five Year Plans, during the first three decades, recorded an average annual growth rate of over 5 per cent and the decadal average growth rate hardly exceeded 4 per cent per annum (Table 1.2). The growth that picked up from 3.5 per cent per annum during the First Five Year Plan (FYP) to 4.3 per cent per annum during the Second FYP came to a halt during the Third FYP as growth rate dropped to 2.88 per cent per annum, which slowly bounced back during the Fourth and Fifth FYPs. The performance of industrial sector was average during the period except during the Fourth FYP, while
agriculture sector performance was poor and service sector grew at an average rate. Looking at the decadal annual average growth rate there was continuous decline in each decade compared to previous decade for overall GDP and well as sectoral GDP. Further, there were four years when GDP growth recorded negative rates: 1957-58, 1965-66, 1972-73 and 1979-80. The result was a much slower growth of 3.6 per cent per annum during the first three decades of planned development, what is often referred as the Hindu Rate of Growth.2 However, this 3.6 per cent growth rate during the first three decades was four times greater than the 0.9 per cent estimated for the period 1900-46 during the British rule (Table 1.3), though the post-independence growth was far below potential and much less than the 78 percent rates being achieved in some countries of East Asia and Latin America (Acharya, 2008). Singh (2009) remarked, Using the colonial period as a benchmark, India certainly has done well. Its GDP growth and improvements in human development indicators were both well above the earlier era Infrastructure investment was greater than before, industries were developed in support of modernisation goals, and higher education, in particular, grew dramatically also sustained relatively low inflation rates On the other hand, as early as the 1960s, several East Asian countries began to outstrip Indias economic performance. (emphasis added). Another feature of the pre 1980s growth was high volatility in growth rates as we can see from Figure 1.1. The volatility was highest during the 1970s compared to the previous two decades and agriculture growth remained highly volatile during the entire period (Table 1.6).
2 The Hindu rate of growth, as Basu (2007) noted, is the tonguein-cheek expression coined by the Indian economist, the late Raj Krishna, to capture the frustrations Indias planners faced with growth.
Figure 1.1: Annual Growth Rate of GDP and Per Capita NNP: 1951/52 2009/10
Source: Based on data from Economic Survey 2011 Note: Data are at 1999-00 series up to 2004-05, after which at 2004-05 series.
Table 1.2: Indias Growth Performance during Planning period (percentage per year) GDP Primary Secondary Trade, Hotels, Transport & Communication Financing, Insurance, Real estate,& Business Public Administration, Defense and other Services 3.58 4.28 2.88 Annual Plans (1966-69) Fourth Plan (1969-74) Fifth Plan (1974-79) Annual Plan (1979-80) Sixth Plan (1980-85) Seventh Plan (1985-90) Annual Plans (1990-92) Eighth Plan (1992-97) Ninth Plan (1997-2002) Tenth Plan (2002-2007) Eleventh Plan (3 Years)# 4.03 3.26 4.80 - 4.90 5.60 5.66 3.35 6.56 5.52 7.78 8.03 2.92 3.46 -0.02 4.33 2.70 3.64 - 12.20 5.94 3.40 1.50 4.68 2.60 2.68 2.27 6.12 6.50 6.90 3.97 3.34 6.38 - 3.50 5.08 6.36 3.30 7.74 4.34 9.72 7.70 4.66 6.12 5.64 3.90 3.84 6.86 -0.40 5.44 6.48 3.85 8.74 7.96 11.18 9.40 3.12 2.82 3.30 3.13 3.98 5.30 1.00 7.36 9.96 8.50 6.96 8.02 9.80 11.20 2.98 4.32 5.80 4.33 4.28 3.60 7.30 4.90 6.86 3.50 5.64 7.66 5.20 10.47
Introduction
First Plan (1951-56) Second Plan (1956-61) Third Plan (1961-66)
10
(percentage per year) Public Administration, Defense and other Services
Introduction
11
3.65
5.30
3.98
5.91
6.50
6.83
Table 1.3: Indias Economic Growth during Preindependence period (percentage per year) Year GDP Population Per Capita GDP 0.4 -0.5 0.1
Financing, Insurance, Real estate, ,& Business
2.97
3.43
4.09
9.09
7.84
9.99
1900-29 1930-46
10.37 5.39 5.01 4.86 5.90 7.69
0.9 0.8 0.9
0.5 1.3 0.8
Trade, Hotels, Ttansport & Communication
1900-46
2004-05 the data is in 1999-00 series, after that it is in 2004-05 series
Source: Sivasubramonian (2000), cited in Acharya (2007) The gloomy performance of the economy during the first three decades was mainly due to the development strategy adopted by the policy makers during this period (Singh, 2009). It is well known that India had followed an inwardlooking development strategy with import-substitution policy, restrictions on exports, and many industries were reserved for the public sector until the early 1980s. (These policies have been discussed in Chapter 2 of this book.) The restrictions on trade and international investment did not allow the economy to enjoy the benefit of trade as an engine of growth, while some East-Asian economies such as South Korea and Taiwan had benefited from opening their economy. Krueger (2008) pointed out three policies, viz. a neglect of infrastructure, higher regulations in the labor market, and the license raj that deterred the growth during this period. However, growth rate picked up during early years of the 1980s. The Sixth and Seventh FYPs recorded over 5.5 per cent annual average growth rate and a decadal growth rate of 5.4 per cent (Table 1.2). The growth of agriculture sector was impressive compared to the earlier three decades, while industry continued to grow above the average and
Secondary
6.31
5.61
3.96
5.97
5.75 2.90
Table 1.2: (Contd.)
Primary
3.19
2.58
1.95
3.83
2.90
8.28
Source: Calculated based on data from Economic Survey 2011
Decadal Average Growth
1951-52 to 1960-61
1961-62 to 1970-71
1971-72 to 1980-81
1981-82 to 1990-91
1991-92 to 2000-01
2001-02 to 2009-10
Note:
For the first three years of 11th Plan (2007-08 to 2009-10)
GDP
3.93
3.78
3.17
5.40
5.60
7.64
*Up to
12
Introduction
13
service sector picked up. However, the growth during the second half of the 1980s was more pronounced compared to the first half (Table 1.4). During 1981-82 to 1985-86 growth recorded at 4.92 per cent per annum, which jumped to 5.88 per cent per annum during 1986-87 to 1990-91.The interesting part of the decade was the exceptionally high growth rate of 7.2 per cent per annum during the three years period between 1988-89 and 1990-91, which is also coincide with the crisis period due to which Panagariya (2005) remarked, [...] any explanation of growth in the 1980s must explain the exceptionally high growth during 1988-91. Panagariya further noted some facts of Indias growth during the 1980s [] the earliest break in the growth rate occurs in 1977-78 [] though the average growth rate over a whole decade hit the 5 per cent mark for the first time during 1980-90, year-to-year growth during this period exhibited considerable fragility [] the average of the growth rates over the ten-year period spanning from 1978-79 to 1987-88 was an unimpressive 4.1 per cent [] the economy was still on the Hindu growth path. Even the average of growth rates during the seven-year period from 1981-82 to 1987-88 [recorded] at 4.8 percent [] It is only when we include the ultra-high growth rates [7.6 per cent] of the last three years of 1980s that the average growth rate from 1981-82 to 1990-91 jumps to 5.6 percent [...] Without these three years, there would be no debate on growth during 1980s versus 1990s. (emphasis added). However, there have been diverse explanations about the acceleration of growth during the pre-reform period. For instance, DeLong (2003) pointed out that the post-1984 reforms was responsible for growth acceleration, whereas
Table 1.4: Growth during Selected Pre-reform periods (percentage per year)
Year GDP Primary Secondary Trade, Financing, Public Hotels, Insurance, AdministraTransport Real tion Defense & Communi- estate,& and other cation Business Services
1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1951-52 to 1980-81 1981-82 to 1985-96 1986-87 to 1990-91 1988-89 to 1990-91
5.60 2.90 7.90 4.00 4.20 4.30 3.50 10.20 6.10 5.30
5.10 0.40 9.70 1.60 0.60 0.30 -1.20 15.70 1.60 4.50
7.50 0.50 8.70 4.50 4.20 5.10 5.80 8.20 8.50 6.70
6.20 5.40 5.10 4.80 7.90 6.00 5.30 5.80 7.40 5.10
8.10 9.50 9.80 7.50 9.80 10.50 7.30 9.80 12.40 6.20
2.10 7.70 3.70 6.90 5.70 7.50 7.20 6.00 7.90 4.40
3.63
2.57
5.29
5.09
3.50
4.31
4.92
3.48
5.08
5.88
8.94
5.22
5.88
4.18
6.86
5.92
9.24
6.60
7.20
7.27
7.80
6.10
9.47
6.10
Note: Up to 2004-05 the data is in 1999-00 series, after that it is in 200405 series Source: Calculated based on data from Economic Survey 2011
14
Introduction
15
Rodrik and Subramanian (2004) argued that the transition to a higher growth path had been achieved more than a decade earlier; not 1984 as argued by De-Long but 1980, the year Mrs. Gandhi came back to power. Bhalla (2011b), on the other hand, remarked that [] 5 percent per annum growth in India prior to the 1980s wasnt that unusual; several times the two-year growth average [] had exceeded 5 percent in the period prior to the 1980s [...] the conclusion about a large acceleration or breakout in GDP growth seems to be based on a comparison of 1980s vs. 1970s. But for most countries, 1970s is a bad benchmark and most countries would anyway show a marked acceleration in the 1980s [...] GDP growth in the 1950s and 1960s averaged 4 percent; the 1970s average was only 2.8 percent. So the real acceleration in the 1980s is about 1.7 percentage point (emphasis added). This acceleration in growth was mainly due to a series of deregulation measures initiated during the mid 1980s by the Rajiv Gandhi government in the areas of industrial and trade policies and fiscal reforms (see Chapter 2 by Saikia and Shukla), along with a number of initiatives such as a step-up in public investment, better agricultural performance, etc. (Acharya, 2008). According to Panagariya (2005) two major factors are responsible for the growth in the 1980s, First, liberalisation played a significant role. On the external front, policy measures such as import liberalisation, export incentives, and a more realistic real exchange rate contributed to productive efficiency. On the internal front, freeing up of several sectors from investment licensing reinforced import liberalisation and allowed faster industrial growth. Second, both external and internal borrowing allowed the government to maintain high levels of public expenditures, and thus, boost growth through demand. Joshi and Little (1994) attributed this growth to the fiscal expansion financed by external and internal borrowing,
whereas Ahluwalia (2002) remarked that growth of the 1980s was unsustainable and was fuelled by a buildup of external debt that culminated in the crisis of 1991. Like Ahluwalia, many others also argued that the fiscal profligacy in terms of huge unproductive expenditure in areas like defense spending, interest payments, and subsidies, etc. through mounting external borrowing led to the 1991 crisis (see among others, DeLong, 2003; Panagariya, 2004a,b; Basu and Maertens, 2007; Bhalla, 2011b). To quote Basu and Maertens (2007), By the late 1980s, even though the country was growing fast, it was beginning to borrow heavily from its future, which makes us believe that the growth impulse of the 1980s would not have been sustainable without sharp changes in policy. The fiscal deficit was growing, international debt was reaching record levels, and the debt-service ratio had become untenable. The meltdown happened in 1990/1. As Saikia and Shukla discussed in Chapter 2 of this book, following a rising current and trade account deficit and mounting external debt and debt servicing burden, along with the Gulf War of 1990 and the consequent oil price hike Indias balance of payments (BoP) tapped into crisis in 1990-91. Under such situation India adopted a series of stabilisation-cum-structural adjustment reforms under the leadership of Prime Minister P. V. Narasimha Rao and his Finance Minister Manmohan Singh (see Chapter 2 for the changes in policy under reforms). The economy responded quickly and positively to the policy changes after stagnation in 1991-92. The growth jumped to 5.4 per cent in 1992-93 and then averaged above 7.4 per cent for three consecutive years 1994-95 to 199798 (Table 1.5) and 6.56 per cent per annum during the 8th FYP (Table 1.2). The performance of all the three sectors (agriculture, industry and services), especially agriculture sector, were noticeable during the 8th FYP, as all the sectors grew faster than the pre-reform period. However, growth
16
Introduction
17
declined noticeably to 5.52 per cent during the 9th FYP and then increased to 7.78 per cent during 10th FYP and 8.03 per cent during the first 3 years of 11th FYP (Table 1.2). The average annual growth rate recorded 6.86 per cent during the entire post-reform period, with 5.60 per cent during the first post-reform decade (1991-91 to 2000-01) and 7.64 per cent during the second decade (2001-02 to 2009-10). It can be seen from Table 1.5 growth has accelerated during the first five years of economic reforms, it declined in the next five years before it picked up to 8.5 per cent in 2003-04 and then continued to acclerate. Thus, we have three sub-periods in the post-reform period: (a) the first period 1992-93 to 1996-97 accounted an annual growth rate of 6.56 per cent, (b) the second period 1997-98 to 2002-03 where growth rate declined to 5.52 percent and (c) the third period 2003-04 to 2009-10, which recorded an annual growth rate of 8.46 per cent. Thus, regarding Indias post-reform growth there are three puzzles, and thereby, debate in the literature. First, what cause Indias growth to accelerate immediate after reforms; second, what cause Indias growth to decelerate during 1997-98 to 2002-03 after having an accelerated growth rate in the first five years of economic reforms, and third, what caused the growth rate to sharply accelerate after 2003-04. There have been a corpus of literature dealing with these issues (among others, Ahluwalia, 2002; Basu and Maertens, 2007; Panagariya, 2004a, 2004b, 2005; Acharya, 2007; Bhalla, 2011b), but they differ in opinions. Acharya (2007) listed out a number of factors that contributed to the acceleration of growth during 1992-93 to 1996-97: (a) productivity gains resulting from deregulation of trade, industry and finance, especially in industry and some services sectors; (b) the surge in export growth at about 20 percent per year for three successive years beginning 1993-94, attributable to the substantial devaluation in real effective
terms in the early nineties and a freer policy regime for industry, foreign trade and payments; (c) the investment boom of 1993-96 that exerted expansionary effects on both supply and demand, especially in industry; (d) the success in fiscal consolidation, which kept a check on government borrowings and facilitated expansion of aggregate savings and investments; (e) improvement in the terms of trade for agriculture resulting from a combination of higher procurement prices for important crops and reduction in trade protection for manufactures; (f) availability of capacity in key infrastructure sectors, notably power; and (g) a buoyant world economy which supported expansion of foreign trade and private capital inflows. The slowdown of growth during 1997-98 to 2002-03 has been treated seriously, by among others, Ahluwalia (2002), Basu and Maertens (2007), and Bhalla (2011b). Ahluwalia (2002) invalidated the possibility of the impact of the slowdown of World economic growth in the second half of the 1990s by saying that Indias dependence on the world economy is not large enough for this to account for the slowdown. But he has not provided any conclusive explanation for the same; rather he remarked that Critics of liberalisation have blamed the slowdown on the effect of trade policy reforms on domestic industry []. However, the opposite view is that the slowdown is due not to the effects of reforms, but rather to the failure to implement the reforms effectively. For Acharya (2007), the factors that contributed the deceleration of growth include: (a) the significant worsening of the fiscal deficits, mainly due to large public pay increases following the Fifth Pay Commission; (b) the consequent decline in public savings, (c) slackening of economic reforms after 1995 as coalition governance became the norm, (d) significant slowdown in agricultural growth, (e) a marked downswing in the industrial cycle, and (f) an increasingly unsupportive international economic
18
Introduction
Post-reform Sub-periods (Average) 1992-93 to 1996-97 6.56 1997-98 to 2002-03 5.23 2003-04 to 2007-08 8.88 2003-04 to 2009-10 8.46
19
Table 1.5: Post-reform Growth Performance (percentage per year)

4.68
7.74
8.74
6.96
5.64
1.18
4.77
8.20
8.02
7.03
4.96
10.40
11.50
10.58
5.80
1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09P 2009-10Q
1.40 5.40 5.70 6.40 7.30 8.00 4.30 6.70 6.40 4.40 5.80 3.80 8.50 7.50 9.50 9.60 9.30 6.80 8.00
-1.50 6.20 3.20 5.10 -0.20 9.10 -1.60 6.00 2.70 0.00 5.90 -5.90 9.30 0.80 4.60 4.60 5.50 0.00 1.30
-0.10 3.60 6.30 9.30 12.20 7.30 3.10 4.30 4.70 6.80 2.80 6.90 7.80 10.50 10.70 12.70 10.30 4.70 8.10
2.60 5.60 6.90 9.90 13.20 8.10 7.50 7.60 8.20 7.30 9.20 9.40 12.00 10.70 12.20 11.60 11.00 7.50 9.70
10.80 5.40 11.20 3.90 8.10 6.20 11.70 7.80 9.20 4.10 7.30 8.00 5.60 8.70 12.70 14.00 11.90 12.50 9.20
2.60 6.00 4.50 2.30 7.30 8.10 8.30 9.70 11.50 4.70 4.10 3.90 5.40 6.80 7.00 2.90 6.90 12.70 11.80
3.73
9.26
10.67
10.66
7.64
Note: Up to 2004-05 the data is in 1999-00 series, after that it is in 2004-05 series. P-Provisional estimate; Q- Quick estimate Source: Based on data from Economic Survey 2011
1992-93 to 2009-10 6.86
environment, which includes the Asian financial crisis of 1997-98, rising energy prices and the global recession of 2001. Bhalla (2011b), on the other hand, pointed out the mindset of the Indian politicians and policymakers towards the acceleration of GDP growth to above 7 per cent per annum: In the mindset of the Indian politicians, and most policy makers, it was inconceivable that the Indian economy could grow at East Asian growth rates; [] the 7 plus percent growth rate was considered as an overheating phase deserving a strong policy response. [] When this acceleration coincided with global and domestic inflation, the RBI panicked and tightened monetary policy to an unprecedented degree. Further, the RBI did not cut interest rates in response to the decline in worldwide, and domestic, inflation in the mid to late 1990s. By keeping deposit rates at high double digit levels, and inflation collapsing, the RBI ensured that real rates reached double digit levels. This caused the growth to collapse [] (emphasis added). Whatever the reasons of acceleration during 1992-93 to 1996-97 and the deceleration during 1997-98 to 2002-03,
3.14
7.34
9.31
8.75
6.88
20
Introduction
21
Table 1.6: Volatility in Growth Rate: Coefficient of Variation3

1951-52 to 1960-61 1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2009-10
0.707 1.368
0.666
0.384
0.356
0.230
0.915 2.629
0.492
0.334
0.277
0.216
1.367 4.343
0.977
0.585
0.681
0.351
0.409 1.482
0.412
0.165
0.305
0.326
sectors growth as compared to 1980s. This suggests that though the overall growth was more consistent in the 1990s, the sectoral growth was less consistent in the 1990s compared to the 1980s. These observations are consistent with that of Ahluwalia (2002), Panagariya (2005), Acharya (2007), Basu and Maertens (2007), and Bhalla (2011b). These authors argued that growth in the 1980s was not sustainable, since it relied too much on deficit financing and excessive foreign borrowing, and finally, culminated in the crisis of 1991; whereas growth of the 1990s has been sustainable, as it was accompanied by remarkable external stability despite the East Asian crisis. Bosworth et al. (2007), as quoted by Basu and Maertens (2007), observed that the pre-1980 growth was mainly associated with an increase in factors, whereas the post-1980 growth has been associated with some increase in factors, but more importantly an increase in total factor productivity (see Table 1.7). Table 1.7: Contributions to Growth (in annual percentage rate of change)
Years Output Employment Output per Physical worker capital Contribution ofLand Education Factor productivity
0.337 1.267
0.600
0.354
0.368
0.464
0.252 1.519
0.381
0.149
0.288
0.498
Source: Based on data from Economic Survey 2011
the post-reform period performance is more sustainable as compared to that of the 19980s. Looking at Figure 1.1 one can understand that the volatility was higher during the 1980s as compared to the 1990s. This is further confirmed by the coefficient of variation of decadal growth in the 1980s and 1990s as shown in Table 1.6. However, 1990s experienced higher volatility in the industry and services
3 The coefficient of variation (CV) measures the variation of a variable and is defined as the standard deviation divided by mean. A higher value of the CV means that there is more variation in the variable.
196073 197383 198393 199399 19992004 19602004 196080 19802004
3.3 4.2 5.0 7.0 6.0 4.7 3.4 5.8
2.0 2.4 2.1 1.2 2.4 2.0 2.2 1.9
1.3 1.8 2.9 5.8 3.6 2.6 1.3 3.8
1.1 0.9 0.9 2.4 1.2 1.2 1.0 1.4
-0.2 -0.2 -0.1 -0.1 0.1 -0.1 -0.2 0.0
0.1 0.3 0.3 0.4 0.4 0.3 0.2 0.4
0.2 0.6 1.7 2.8 2.0 1.2 0.2 2.0
Source: Bosworth et al. (2007, Table 3); cited in Basu (2007, Table 4)
22
Introduction
23
The momentum of growth picked up in 2003-04 and since then the economy has not looked back. The growth rate thrice crossed 9 per cent mark (years 2005-06, 200607 and 2007-08) and has not dropped below 7.5 per cent until 2008-09 when the global financial crisis hit the economy (but still managed a comfortable growth rate of 6.8 per cent). With the impressive growth of secondary sector (including industry, construction and water supply, electricity and gas) and services sector, GDP growth averaged at 8.88 per cent during the five years before the crisis (2003-04 to 2007-08) and 8.46 per cent during the entire post 2003-04 period (2003-04 to 2009-10) including the period of global financial crisis; despite the gloomy performance of the agriculture sector (though the sector started with an impressive growth rate of 9.30 per cent in 2003-04). Regarding the sources of the latest economic surge Bhalla (2011b) remarked that [the high growth] was preceded by a decline in real interest rates of around 600 basis points [] in a matter of four years (1999 to 2002). However, many commentators, and analysts, believe that the recent high growth has been a consequence of overheating, and not because of a structural shift in the economy; []. Some others believe that the recent acceleration was part of a global phenomena of a rising tide lifting all boats; all emerging economies grew faster, and India was part of this upliftment (emphasis added). On the other hand, Acharya (2007) suggested seven major ingredients of the recent surge in economic growth: (a) the momentum of a quarter of a century of strong economic growth, (b) a much more open economy to external trade and investment, (c) a growing middle class fuelling domestic consumption, (d) the demographic dividends of a young population, (e) strong companies in a modernised capital market, (f) some recent economic reforms, and finally, (g) a supportive international economic environment.
There have been many positive features of Indias postreform performance apart from the recent surge of economic growth. One of the urgent priorities of the policy makers at the start of economic reforms was to reduce fiscal deficit, as fiscal profligacy was seen as the major cause of BoP crisis in 1991 (Ahluwalia, 2002). The combined fiscal deficit of the central and state governments was successfully reduced to 7 per cent of GDP in 1991-92 and 1992-93 from 9.41 per cent in 1990-91 (Figure 1.2). The primary deficit came down from 5.02 percent of GDP to 2.27 per cent and revenue deficit came down from 4.19 per cent to 3.35 per cent during the same period. The intensive effort by the government kept the fiscal deficit at a manageable level of 6.47 and 6.28 per cent per cent of GDP respectively in 1995-96 and 1996-97, and an average of 6.98 per cent of GDP between 1991-92 and 199697 (Table 1.8). However, the increase in public pay since 1996-97 along with low revenue buoyancy and weak expenditure control policies reversed the fiscal position and for 4 consecutive years between 1998-99 and 2002-03 fiscal deficit recorded above 9 per cent of GDP. For the five years period between 1998-99 and 2002-03 fiscal deficit averaged at 9.42 per cent of GDP, while primary deficit and revenue deficit averaged at 3.52 and 6.62 per cent. However, due to governments sustained efforts at fiscal consolidation after 2002-03, fiscal deficit reduced to 4.09 per cent in 2007-08 and revenue deficit to 0.19 per cent during the same. The five years period between 2003-04 and 2007-08 averaged fiscal deficit at 6.31 per cent and revenue deficit averaged at 2.73 per cent, whereas between 2005-06 and 2007-08 the fiscal position was even better with fiscal and revenue deficits averaged at 5.31 and 1.39 per cent respectively. However, both the fiscal and revenue deficits shot up during 200809 and 2009-10 (Figure 1.2).
24
Introduction Table 1.8: Combined Deficits of Central and State Governments (as % of GDP)
Gross fiscal deficit 5 years average 1981-82 to 1985-86 1986-87 to 1990-91 1991-92 to 1995-96 1996-97 to 2000-01 7.18 9.11 7.12 8.24 8.29 6.77 4.60 5.21 2.19 2.84 2.20 1.57 0.92 3.11 3.53 5.42 5.19 2.61 Gross primary deficit Revenue deficit
25
Figure 1.2: Combined Deficits of Central and State Governments
2001-02 to 2005-06
Source: Handbook of Statistics on Indian Economy, 2010-11
2006-07 to 2009-10 Selected periods 1991-92 to 2000-01 2001-02 to 2009-10 1991-92 to 1996-97 1997-98 to 2004-05 1998-99 to 2002-03 2003-04 to 2007-08 2005-06 to 2007-08 2008-09 to 2009-10
7.68 7.61 6.98 8.74 9.42 6.31 5.31 8.81
2.52 1.92 2.03 2.88 3.52 0.63 -0.06 3.71
4.47 4.04 3.54 5.84 6.62 2.73 1.39 4.47
Source: Handbook of Statistics on Indian Economy, 2010-11
26
Introduction
27
Another area where the economy has achieved remarkable success in the post-reform period is the level and composition of savings and capital formation. The gross domestic capital formation increased from 22 per cent of GDP in 1991-92 to 35.8 per cent in 2009-10 (Table 1.9). The increase in capital formation was more pronounced in the post 2002-03 periods, whereas in the 1990s and initial years of 2000s capital formation fluctuated around 24 per cent. This increase is mostly contributed by the private capital, which increased from 18.6 per cent in 2002-03 to 24.9 per cent in 2009-10, whereas public sector capital increased from 6.1 per cent to 9.2 per cent during the same period. This increase in capital formation is accompanied by substantial increase in domestic savings, which increased from 21.5 per cent of GDP in 1991-92 to 26.3 per cent in 2002-03 and then to 33.7 per cent in 2009-10. The household sector is the largest single component of domestic savings, which share rising from 15.8 per cent in 1991-92 to 23.5 per cent in 2009-10. The private corporate sector savings has steadily increased in the post 2003-04 periods, with its share rising from 4 to 8.1 per cent between 2002-03 and 2009-10. The public sector savings in India has been very small and it was negative between 1998-99 and 2002-03. However, there has been steady increase in the public sector savings from 1.1 per cent to 5 per cent between 2003-04 and 2007-08, but it declined to 0.5 per cent in 2008-09 and then increased to 2.1 per cent in 2009-10. The performance of the economy in the external sector is also satisfactory in the post-reform period. Considering the current account balance, which is the single most widely monitored indicator of a nations external balance position (Acharya, 2008) Indias external balance position has been comfortable throughout the post-reform period (1991-92 to 2009-10), with highest surplus of 2.3 per cent of GDP in 2003-04 and lowest deficit of 2.9 per cent in 2009-10 (Table
1.10). At the same time the ratio of merchandise trade to GDP steadily increased from 14.8 per cent in 1991-92 to 22.5 per cent in 2000-01 and then 36.7 per cent in 2009-10. However, the gap between exports to GDP and imports to GDP increased substantially from -1.0 per cent in 1991-92 to -2.7 per cent in 2000-01 and then -8.9 per cent in 200910. Some other aspects of Indias post-reform BoP position are- steady rise in net invisibles, increase in current account balance, increase in foreign exchange reserves and relatively steady exchange rate (Table 1.10). The ratio of net invisibles to GDP increased from 0.7 per cent in 1991-92 to 7.4 per cent in 2008-09 (though it declined to 6 per cent in 200910), of which half of the share came from software exports in the later period. The economy experienced a steady surge of foreign capital in the post-reform period, especially after 2002-03, with foreign investment to GDP ratio increased from 1.2 per cent in 2002-03 to 4.9 per cent in 2009-10. With a steady current account balance during this period, the improvement in the current account balance led to increase the foreign exchange reserves. These reserves increased from US$ 42.28 billion in 2000-01 to US$ 309.72 billion in 2007-08 and then declined to US$ 279.06 in 2009-10. This amount of reserves is sufficient to cover the imports requirement of the country for about 11.2 months in 200910. However, this capital surge and the consequent accumulation of foreign exchange reserves poised macroeconomic challenges for the country, especially in the areas of exchange rate, convertibility of BoP accounts and monetary policies (see Acharya, 2008).
28
Introduction
(Percentage of GDP at current market prices) 1999-00
29
38.04
(as % of GDP)
Years Gross Domestic Saving Gross Domestic Capital Formation
1995-96 1996-97 1997-98 1998-99
32.49
29.37
Table 1.10: Selected Balance of Payments Indicators
26.42
1960-61 1970-71 1980-81 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
6.5 9.5 12.9 18.4 15.8 16.4 17.3 18.6 16.9 16.0 17.7 18.8 21.1 21.6 22.1 22.9 24.1 23.6 23.5 23.2 22.5
1.6 1.5 1.6 2.7 3.1 2.7 3.4 3.5 5.0 4.5 4.3 3.9 4.5 3.9 3.4 4.0 4.6 6.6 7.5 7.9 9.4 7.9 8.1
3.1 3.3 4.0 1.8 2.6 2.2 1.2 2.3 2.6 2.2 1.8 -0.5 -0.8 -1.8 -2.0 -0.6 1.1 2.3 2.4 3.6 5.0 0.5 2.1
11.2 14.2 18.5 22.8 21.5 21.2 21.9 24.4 24.4 22.7 23.8 22.3 24.8 23.7 23.5 26.3 29.8 32.4 33.5 34.6 36.9 32.2 33.7
7.2 6.7 8.9 10.0 9.5 9.1 8.8 9.3 8.2 7.5 7.1 7.0 7.4 6.9 6.9 6.1 6.3 7.4 7.9 8.3 8.9 9.5 9.2
7.2 8.9 9.6 14.2 12.5 14.7 12.5 14.2 18.4 14.6 16.8 15.6 17.9 16.6 16.7 18.6 19.6 23.8 25.2 26.4 28.1 24.6 24.9
0.8 0.7 0.6 0.6 0.9 1.3 1.1 1.2 1.1 1.3 1.7
14.4 15.6 18.5 24.2 22.0 23.8 21.2 23.5 26.6 22.1 23.9 22.6 26.1 24.2 24.2 25.2 26.8 32.5 34.3 35.9 38.0
21.69
1993-94 1994-95
25.19
19.25
1992-93
1991-92
1990-91
Current Account Balance -3.0
Foreign Exchange Reserves (US$ billions)
2009-10Q 23.5
35.8
Imports Exports
Note: Up to 2004-05 the data is in 1999-00 series, after that it is in 200405 series P-Provisional estimate; Q- Quick estimate Source : Economic Survey, 2011
Exchange Rate (Rs/US $)
Trade Balance
Net Invisibles
2008-09P 23.8
35.4
Import cover of Reserves (in months)
Foreign Investment
17.94
5.83
-3.0
-0.1
5.8
8.8
0.0
2.5
24.47
9.22
-1.0
-0.3
6.9
7.9
0.7
0.1
5.3
30.65
9.83
-2.3
-1.7
7.3
9.6
0.6
0.2
4.9
31.37
-1.5
-0.4
8.2
9.7
1.0
1.5
8.6
31.40
11.1
-2.8
-1.0
8.3
1.8
1.5
8.4
33.45
12.3
-3.2
-1.6
9.1
1.5
1.4
6.0
35.50
1950-51
5.7
0.9
2.0
8.6
2.9
7.4
10.3
12.6
-3.8
-1.2
8.8
2.6
1.6
6.5
37.17
12.5
-3.8
-1.4
8.7
2.4
1.3
6.9
House hold sector
Corporate Public sector sector
Total
Public sector
Private Valua- Total sector bles
42.07
11.4
-3.2
-1.0
8.2
2.2
0.6
8.2
43.33
12.3
-4.0
-1.0
8.3
2.9
1.2
8.2
Table 1.9: Gross Domestic Saving and Gross Domestic Capital Formation
30
2009-10
Introduction
31
2005-06 2006-07 2007-08 2008-09
No doubt that Indias economy has achieved fabulous growth in the post-reform period, especially in the first decade of the 21st century, emerged as one of the fastest growing economies in the world and substantially managed her external as well as internal balances; but the performance of the economy has been debated throughout the period (even before reforms) in some areas such as poverty and inequality, human development, agriculture growth, employment, inflation management, and so on. Reduction of poverty and inequality has been one of the oldest agenda of planning in India. The post-reform period witnessed significant decline in poverty and at a faster rate than the 1980s (Ahluwalia, 2002). Table 1.11 reports the percentage of population below poverty line by both the planning commission estimates based on the Lakdawala Committee method (for 1951-52 to 2004-05) and the new Tendulkar committee estimates (for 1993-94 and 2004-05). The poverty estimates of the Tendulkar committee are higher than the planning commission estimates, but both the estimates show decline in poverty. However, the pace of reduction is very slow; from 36.0 to 27.5 by the planning commission estimates and from 45.3 to 37.2 by the Tendulkar committee estimates between 1993-94and 2004-05. The estimates by Abhijit Sen (2010), as quoted by Ahluwalia (2011), showed that poverty has declined from 37% in 200405 to 29% in 2007-08, which is much more than the 11th FYPs target of reducing poverty by 2 percentage points per year. Another estimate by C. Ravi reported the percentage of population below poverty line at 32 per cent in 2009-10 (cited in Ahluwalia, 2011). Though these estimates showed decline in poverty in the post-reform period, poverty in absolute term remained at a higher level, with about 303 million population living below the poverty line. Further, there have been substantial differences across the states in poverty reduction. This is, further, fuelled by increased
279.06
251.99
309.72
199.18
151.62
2003-04 2004-05
141.51
Table 1.10: Contd...
112.96
45.95 Exchange Rate (Rs/US $) 45.68 47.69 48.40
11.0
13.3
16.9
-2.3
4.6
2.3
2.6
44.93 Source: Handbook of Statistics on Indian Economy, 2010-11
12.1
16.9
2002-03
75.43
10.6
12.7
2001-02
54.11
11.8
2000-01
Current Account Balance -0.6
42.28
12.6
-2.7
9.9
2.1
1.5
Import cover of Reserves (in months)
Foreign Exchange Reserves (US$ billions)
Foreign Investment
Trade Balance
Net Invisibles
Imports
Exports
8.8
11.5
-2.4
9.4
3.1
0.7
1.7
14.2
-2.1
3.4
1.2
1.2
14.3
-4.8
-0.4
4.4
2.2
44.27
13.0
19.4
11.6
-6.4
-1.2
5.2
2.6
42.25
13.6
20.1
12.5
-6.5
-1.0
5.5
3.1
40.26
13.5
21.0
14.4
-7.5
-1.3
6.2
5.0
45.99
15.6
25.4
-9.8
-2.4
7.4
1.7
9.8
47.42
13.9
22.8
11.2
-8.9
-2.9
6.0
4.9
32
Introduction
33
differences across the states in terms of growth and development. The post-reform period witnessed significant increase in inter-state and intra-state inequality in terms of rate of economic growth, level of income and level of industrialisation. Ahluwalia (2011) observed that the interstate Gini coefficient of GSDP growth increased from 0.145 in 1980-81 to 0.17 in 1992-93 and then 0.22 in 2001-02 and 0.25 in 2008-09. Thus, the increase in inter-state inequality was much faster in the 1990s compared to 19980s, but it has stabilised in the 2000s. In recent years, intra-state inequality is seen as another critical form of inter-regional inequality, which hinders achievement of inclusive growth, the high profile objective of the 11th FYP. Inequality among different sections of the population has also remained a major issue over the years. Ahluwalia (2011) found that consumption inequality (measured by Gini coefficient) modestly increased in the urban areas between 1993-94 and 2009-10, where in the rural area it increased between 1993-94 and 2004-05 and then declined in 2009-10. The caste and social group based inequality has received a new momentum in recent years. Thorat (2010), as quoted by Ahluwalia (2011), showed that the percentage of the SC/ST and Muslim minority population in poverty is much higher than for the population as a whole, though the reduction in the percentage in poverty for these groups is roughly comparable to that for the population as a whole. There are more issues associated with the inclusive growth debate in India, for instance gender inequality, inter-personal/ group/caste and inter-regional inequality in access to basic services such as education, finance, health care, safe drinking water, sanitation, etc. These issues should be addressed with care as they are sensible and improvements on these areas not only represent welfare gain, but also social development.
Table 1.11: Percentage of People below Poverty Line

Year 1951-52 1977-78 1983 1993-94 2004-05 1993-94* 2004-05* * Rural 47.4 53.1 45.7 37.3 28.3 50.1 41.8 Urban 35.5 45.2 40.8 32.4 25.7 31.8 25.7 All India 45.3 51.3 44.5 36.0 27.5 45.3 37.2
Tendulkar Estimates. The remaining are the Planning Commission estimates based on official poverty line.
Source: Planning Commission, Government of India
One of the key strategies for achieving inclusive growth has been generation of productive and gainful employment. The 11 th FYP aims at generating 58 million work opportunities and bring the unemployment rate to 4 per cent by the end of the plan.4 Looking at the growth of organised sector employment, it is observed that employment growth has decelerated in the reforms period. The organised sector employment grew at 1.2 per cent per annum during 1983 to 1994, which decelerated to 0.05 per cent during 1994 to 2008 (Table 1.12). The decline is mainly due to the severe deceleration of public sector employment growth, which averaged at -0.65 per cent during 1994 to 2008 as against 1.53 per cent during 1983 to 1994. However, the private organised sector experienced significant increase in
4 Economic Survey- 2010-11, Government of India, Chapter 12, pp. 291-331.
34
Introduction
35
employment growth from 0.44 per cent during 1983 to 1994 to 1.75 per cent during 1994 to 2008, so that the overall employment during the post-reform period recorded a positive growth (though very small). However, the organised sector accounted for only 15 per cent of employment in India, and the remaining 85 per cent engaged in informal sector (including agriculture). Table 1.12: Rate of Growth of Organised Sector Employment
(per cent per annum) Sectors Public Sector Private Sector Total Organised 1983-1994 1.53 0.44 1.20 1994-2008 -0.65 1.75 0.05
first decade of the 2000s. The unemployment rate is high in terms of CDS approach being it the broadest approach, which implies a higher degree of underemployment in the economy.
Table 1.13: Unemployment Rate (per 1000) according to Usual Status, Current Weekly Status (CWS) and Current Daily Status (CDS) Approach
Rural Usual 64th Round (2007-08) Male Female Person 60
th
Urban CDS Usual CWS CDS
CWS
23 19 22 24 22 23 21 15 19 20 14 18 28 35 21 14
41 35 39 47 45 46 39 37 38 30 30 30 42 44 37 43
85 81 84 90 93 91 72 70 71 56 56 56 46 67 75 90
40 66 45 46 89 53 48 71 52 45 83 52 61 85 59 69
47 65 50 57 90 64 56 73 59 52 84 58 66 92 67 75
69 95 74 81 117 88 73 94 77 67 105 74 88 120 92 110
round (2004)
Male Female Person 55

th
Source: Economic Survey, 2010-11
round (1999 2000)
As per National Sample Survey (NSS) data on the basis of current daily status about 24 million work opportunities were created between 1993-94 and 1999-00, which increased to 47 million between 1999-00 and 2004-05; and thus an acceleration of employment growth rate from 1.25 per cent per annum during 1993-94 to 1999-00 to 2.62 per cent during 1999-00 to 2004-05. The 64th round of NSS survey reported creation of about 4 million work opportunities during 2004-05 to 2007-08. However, the unemployment rate (per 1000) has steadily increased between 1993-94 and 2004 in both the rural and urban areas in terms of all the three concepts of employment (Usual, CWS and CDS), though it marginally declined in 2007-08 (Table 1.13). This is mainly because of the faster rate of labour force growth compared to the growth in work opportunities in the 1990s and the

th
round (1993-94)

rd
round (1987-88)
Male Female 38th round (1983) Male Female
Source: NSSO Employment-Unemployment Survey, various rounds
36
Introduction
37
Figure 1.3: Annual Inflation Rate in India in the Post-reform period Source: Handbook of Statistics on Indian Economy, 2010-11 Note: WPI (AC)-Wholesale Price Index (All Commodities), CPI (IW)-Consumer Price Index (Industrial Workers)
Another weak spot of Indias economic performance in the post-reform period is the inflationary pressure in the last couple of years. Though a modest rate of inflation is tolerable and may even be necessary to accommodate relative price changes, inflation beyond this level- usually put at 5 to 6 per cent by the government and 4 to 5 per cent by the Reserve Bank of India- is regressive and distortionary (Ahluwalia, 2011). Without looking at the issues related to measurement of inflation in India, we have reported three available series of inflation namely GDP deflator, wholesale price index for all commodities (WPI AC) and consumer price index for industrial workers (CPI IW) for the period 1991-91 to 2010-11 in Figure 1.3. It is obvious that the annual inflation has been steadily declining during 199192 to 1999-00 and then it fluctuated within a comfort zone of around 5 per cent till 2008-09. However, in the last two years, inflation has been well above the comfort zone. The GDP deflator, which is perhaps the best measure of overall inflation, averaged at 4 per cent during 2000-01 to 200809 and then jumped to 7.5 and 9.6 per cent respectively in 2009-10 and 2010-11. Similarly, CPI (AC) reached double digit level during 2009-11 and WPI (AC) shot up to 8.2 per cent in 2010-11 from 4.6 per cent during 2000-01 to 200809. The high rates of inflation in food prices, especially vegetables, fruits, milk, eggs, etc., have been a matter of special concern in the last couple of years. According to Acharya (2008) the factors that contributed to the favourable inflationary situation until 2008-09 include- low world inflation (until 2008), more liberal Indian foreign trade policies, alert and anticipatory monetary policy, declining fiscal deficits and downward revision of inflationary expectations; which have turned sharply adverse since March 2008 and giving rise inflationary pressure in the last two years.
38
Introduction
39
The economy has confronted with many other challenges since the initiation of reforms in the early 1990s (or even before), which have been discussed in well referred sources (see Ahluwalia, 2002 & 2011; Acharya, 2008; Bhalla, 2011a & 2011b; Singh, 2009; Kelkar, 1999). In discussing Indias development strategies, Singh (2009) pointed out that development of human capital, reduction of income and regional inequality, achieving social and gender equity, improving agricultural productivity, developing physical infrastructure, macroeconomic management on the fiscal and monetary sides, etc. are the major future challenges of Indias economy. Acharya (2007 and 2008) listed a number of risk factors and key issues for Indias sustainable future growth, which include: restoring fiscal balance, infrastructure bottlenecks, labour market rigidities, weak performance of agriculture, pace of economic reforms, convertibility and exchange rate management, role of the reserve bank, weaknesses in human resource development programs, coping with international uncertainty, etc. Similarly, Basu and Maertens (2007) also commented in the same line: If India wants to sustain and raise even higher its current growth, the main bottlenecks in the Indian economy will need to be addressed. These are infrastructure (roads, expensive freight rates, power supply, ports, and airports), labour and bankruptcy regulations, and the high level of corruption in the government bureaucracy. In addition, the current erratic and low growth pattern of the agricultural sector and the rising inequality- between states, between rural and urban areas, and within urban and within rural areas mainly since the 1990s- are a concern. Each of these factors deserves inquiry, research, and policy initiative []. Adding to the list, Ahluwalia (2011) emphasised on financial sector reforms, managing energy challenges through reducing energy intensity and increasing domestic energy supply, managing
water resources, managing urban transition, environment protection and sustainability, as critical issues for achieving sustainable growth for the 12th FYP. Though all these issues are equally important and deserve special attention, covering all those issues is not possible in a single volume. Therefore, the present volume is restricted in and around the following three issues of contemporary Indias economy namely sectoral performance of the economy; poverty, inequality and rural development; and human development with special reference to the economic reforms initiated in the early 1990s.
1.3 Overview of the Volume

The present volume consists of seven chapters (excluding this introduction chapter) contributed by six authors. As mentioned earlier, these chapters are broadly on three issues of contemporary Indias economy- sectoral performance of the economy; poverty, inequality and rural development; and human development, and have been written with the reference to Indias economic reforms of the 1990s. Chapter 2 by Dilip Saikia and Vachaspati Shukla outlines on Indias Road to Economic Reforms. The main objective of the chapter is to provide a comprehensive review of Indias development strategy after independence and the context in which economic reforms were initiated in the economy. It also highlights the major policy reforms initiated in India since July 1991. By doing this, the chapter provides a complete perspective in which the rest of the chapters of the volume stand. Chapter 3 on Agricultural Growth in the Post-reform Era by Kiran Kumar Kakarlapudi critically evaluates the performance of the Indian agriculture before and after
40
Introduction
41
economic reforms. The fantabulous growth performance of Indias economy after reforms, to a large extent, has been driven by service sector and improvements in the secondary sector. However, this growth process bypassed the agricultural sector, which showed sharp deceleration in the growth rate (3.62 percent during 1984/85 1995/96 to 1.97 percent during 1995/96 2004/05). At the same time the sector has recorded wide variations in yield and productivity and a shift towards cash crop cultivations. The chapter presents a systematic and critical review of literature to comprehend the poor performance of Indian agriculture. It mainly focuses on the growth of agriculture in terms of area, yield and cropping pattern, the pattern and determinants (price and non-price) of agricultural growth, and evaluates the influence of policy and environmental factors on the sectors performance. It unveils that in the post-reform period there has been an increase in prices of cash crops and the changing cropping pattern towards non-foodgrains has a significant impact on agricultural growth. The chapter concludes that much of the slowdown in agriculture is caused due to other pertinent factors such as infrastructure, technology and environmental factors, lack of political commitment and poor implementation of policies, etc. Chapter 4 by Dilip Saikia examines the inter-sectoral linkages, especially agriculture-industry linkages in India in the pre- and post-reform period. The chapter discusses different dimensions of theoretical and measurement issues underlying the agriculture-industry interlinkages. Many studies, which are based on the traditional two-sector model in a closed-economy framework, have provided a partial picture of inter-sectoral linkages in Indias economy. The author argues for the need of a general macroeconomic framework that could measure the potential direct and indirect impact of agricultural growth on the economy and its different sectors. Further, notwithstanding many argued
that agriculture-industry linkage is no longer exist and the share of agriculture in the economys GDP has declined, the author argues that it need not necessarily imply that the sector has no meaningful implication for the growth of the economy as well as industry. Even now, the sector accounts for approximately one-fifth of national income and supports more than 52 per cent of the population. The chapter unveils that other than declining the agriculture-industry linkages, the dimension of the linkages between the two sectors has changed over time. While the linkage was primarily through the production channel in the 1960s through 1980s, it translates primarily through the demand channel since 1990s. Further both the production and demand linkages were primarily industry to agriculture before reforms, which changes to agriculture to industry after reforms. On the other hand, the linkages between industry and services sector has been very strong for both before and after reforms, whereas agricultures linkage with services sector has been very poor and it has been worsened after reforms. Chapter 5 entitled Differential Growth of Poor and Nonpoor and Its Implication on Poverty Reduction by Vachaspati Shukla presents the anomaly between poverty reduction and the differential growth among the poor and non-poor population. The chapter conceptualises the Head Count Ratio (HCR) of measuring poverty and contrasts that though a decline in HCR informs us that the probability of encountering a poor person in a given state has decreased (likelihood principle), nevertheless it offers no insights whether the decrease in HCR is due to poverty eradication or due to increase in the size of non-poor population. Therefore, the chapter develops a theoretical approach to comprehend poverty reduction in the context of differential growth of poor and non-poor population. The model decomposes poverty reduction into two components: a)
42
Introduction
43
transition from poor to non-poor and b) role of population growth in poverty reduction. The chapter concludes that poverty comparisons across variable populations should be indicative of likelihood as well as aggregate headcount. Chapter 6 by Swati Dutta on Regional Patterns of Agricultural Growth and Its Bearing on the Incidence of Poverty in India examines the impact of agricultural growth on poverty reduction across Indian states. Given the vastness of the agriculture sector in terms of employment creation in Indias economy, the sectors influence on the incidence of poverty is very high and it varies across the states. The chapter highlights the pattern of agricultural growth across Indian states during 1984-85 to 2004-05, and also the consumption based poverty level across states using national sample survey (NSS) data on Consumption Expenditure Survey for 1987-88, 1993-94 and 2004-05. The chapter unveils that the agricultural growth and poverty level across states is negatively correlated, and that agricultural NSDP per worker, share of agricultural and manufacturing worker and education level of workers have negative impact on incidence of poverty. The chapter concludes that agricultural growth is necessary but not sufficient for poverty reduction for various reasons and government policy needs to assume greater role in poverty reduction. Chapter 7 on Access to Finance and Its Association with Development in Rural India by Khanindra Ch. Das throws light on the nuances of horizontal inequality in the access to finance from institutional sources and development outcomes such as poverty, educational attainment and standard of living in rural area of Indian states since the initiation of economic reforms. It is observed that the percentage of rural households getting access to finance from institutional agencies has remained considerably low
which declined further during the first decade of economic reforms. Further, there is significant amount of horizontal inequality in the access to finance from institutional sources across states. The chapter unveils that better development outcomes in the rural India are associated with better access to finance. More importantly, it is observed that lower (higher) inequality in the access to finance from institutional sources is associated with better (worse) development outcomes. The chapter urges for improving access to finance especially for the poor through various innovative means including microfinance in order to improve the development outcomes in rural India, which need to be accompanied by the provision of complementary infrastructure, institutional strengthening and prudent regulatory initiatives to deliver better access to financial services. Chapter 8 by Kalyani Shankar on Human Development in India examines the trends in inter-state and intra-state disparity in social sector attainment in India between 1991 and 2001. The chapter has developed a Social Development Index (SDI) with five human development indicators, such as literacy rate, infant mortality rate (IMR), percentage of households with electricity connection, percentage of households with toilet facility and percentage of households with safe drinking water. This SDI has been computed for fourteen major states for the years 1991 and 2001. The findings suggest that though there has been improvement in human development in India, persistent inter-state and intra-state disparity is also evident. While Kerala, Punjab and Tamil Nadu have been among the states with better SDI for both the period, Bihar, Madhya Pradesh, Rajasthan and Orissa have been at the other end.
44
Introduction
45
References
Desai, A. (1999), The Economics and Politics of Transition to an Open Market Economy: India, OECD Working Papers, Vol, 7, No. 100. Kelkar, V. (1999), Indias Emerging Economic Challenges, Economic and Political Weekly, Vol. 34, No. 33, pp. 232629. Kochhar, K, U Kumar, R. Rajan, A. Subramanian and I. Tokatlidis (2006), Indias Pattern of Development: What Happened, What Follows, IMF Working Paper No. 06/22, IMF. Krueger, A. O. (2008), The Role of Trade and International Economic Policy in Indian Economic Performance, Asian Economic Policy Review, Vol. 3, pp. 26685. Mohan, R. (2008), The Growth Record of the Indian Economy, 1950-2008: A Story of Sustained Savings and Investment, Working Paper No. 360, Stanford Center for International Development. OECD (2007), Economic Survey of India 2007, OECD Policy Brief, October 2007. Panagariya, A. (2004a), India in the 1980s and 1990s: A Triumph of Reforms, IMF Working Paper WP/04/43. Panagariya, A. (2004b), Growth and Reforms during 1980s and 1990s, Economic and Political Weekly, Vol. 39, No. 25, pp. 2581-94. Panagariya, A. (2005), The Triumph of Indias Market Reforms: The Record of the 1980s and 1990s, Policy Analysis, No 554, CATO Institute. Rodrik, D. and A. Subramanian (2004), Why India Can Grow at 7 Per Cent a Year or More: Projections and Reflections, Economic and Political Weekly, Vol. 39, No. 16, pp. 159196. Singh, N. (2009), Indias Development Strategy: Accidents, Design and Replicability, Research Paper No. 2009/31, UNUWIDER.
Acharya, S. (2004), Indias Growth Prospects Revisited, Economic and Political Weekly, Vol. 39, No. 41, pp. 4537-41. Acharya, S. (2007), Indias Growth: Past Performance and Future Prospects, Paper presented at Tokyo Club Macro Economy Conference on India and China rising, December 6-7, 2006, Tokyo. Acharya, S. (2008), Indias Macroeconomic Performance and Policies since 2000", Working Paper No. 225, Indian Council for Research on International Economic Relations, New Delhi. Ahluwalia, M. S. (2002), Economic Reforms in India since 1991: Has Gradualism Worked? Journal of Economic Perspectives, Vol. 16, No. 3, pp. 6788. Ahluwalia, M. S. (2011), Prospects and Policy Challenges in the Twelfth Plan, Economic and Political Weekly, Vol. 46, No. 21, pp. 88-105. Basu, K. and A. Maertens. (2007), The Pattern and Causes of Economic Growth in India Oxford Review of Economic Policy, Vol. 23, No. 2, , pp.143167. Bhalla, S. S. (2011a), Inclusion and Growth in India: Some facts, some conclusions, Asia Research Centre Working Paper 39, London School of Economics & Political Science. Bhalla, S. S. (2011b), Indian Economic Growth 1950-2008: Facts and Beliefs, Puzzles and Policies, in Shankar AcharyaandRakesh Mohan (2011) ed. Indias Economy: Performances and Challenges, OUP: New Delhi. DeLong, J. B. (2003), India since Independence: An Analytic Growth Narrative, in Dani Rodrik (ed.) In Search of Prosperity: Analytic Narratives on Economic Growth , Princeton University Press, Princeton, New Jersey.
46
Srinivasan, T. N. (2006), Indias Economic Growth and Global Integration: Experience since Reforms and Future Challenges, available at- http://www.kc.frb.org/publicat/ sympos/2006/PDF/Srinivasan.paper.0824.pdf The Economists (2010), Business in India-A Bumpier but Freer Road, Sept. 30, 2010. Virmani, A. (2004a), Indias Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of Growth, Working Paper No. 122, Indian Council for Research on International Economic Relations, New Delhi. Virmani, A. (2004b), Sources of Indias Economic Growth: Trends in Total Factor Productivity, Working Paper No. 131, Indian Council for Research on International Economic Relations, New Delhi.

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Performance and Challenges

Indian Economy after Liberalisation Performance and

First edition: 2012 ISBN No 978-93-8117-614-6

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