economic reforms in india: dr. raj agrawal. 2 period 1947- 1990 the historical discontinuity after...
TRANSCRIPT
2
Period 1947- 1990
The historical discontinuity after independence
The Plan strategy
A nation building exercise
The experiment with socialism
3
The Planning era
A Critical Assessment::
A rate of growth of average 3.2 per cent High population growth denies a significant
dent on poverty A huge public sector with minimum returns A protective private sector
4
Philosophy of Reforms
To free the economy from the circumspection of socialist equity in the form of pervasive state control on production, low productivity, a distorted and dis-functional price system and a complacent over-protective private sector.
To establish the supremacy of individual and the role of economic freedom
5
Perspective: year 1990-91
International reserve came down to $ 1.3 billion, less than 1 month import bill, and India was on the verge of default in foreign obligations [ short term debt]
Stagnant exports India’s ratings down High deficits in domestic budget Public sector banks having large NPA PSU incurring huge losses
6
International Scene USSR’s disintegration… the currency rouble
weakened
Overall confusion on the efficacy of command economy
Some east European countries came out of socialist economic structure
Loss of credibility of the ‘command economy’ as disturbing revelation came out on lower productivity and disinformation about planning
7
New Role of IMF The Washington consensus about the
‘transition economies’ Dismantle command economy structure Reduce the size of government Privatization of state undertakings Reduce and remove budget deficit Make currency stable and current account
convertible
8
IMF and new WTO Regime
New WTO regulations make domestic liberalization and globalization an integrated one exercise
9
Mechanism Dismantling of the license and permit raj so that
the rent-seeking system is abolished Minimize the role of the state in production
except in some core and strategic areas Reform of the legal system to end monopoly of
any group/ sector Financial sector reforms
10
continued
Reform of the system to allow free market mechanism by
Dismantling the administered price mechanism Inducing firms to set own targets of production Removing all artificial barriers to unleash
forces of competition Reforms of the tax system Removal of trade barriers
11
Financial sector reforms
Fiscal reforms--- change in the budgetary process makes the government accountable--- discipline in revenue-expenditure process
Low inflation- low interest regime
Changes in the banking sector – making the system of bank credit more transparent_ efficient appraisal system and accountability for decision taking
12
Notes on Banking Crisis
Delegated screening and monitoring of borrowers on behalf of depositors (mitigate information asymmetries).
Transformation of short-term, liquid deposits held by households into illiquid liabilities issued by firms.
13
Results of F.S. reforms Role of capital is appreciated and effort are on to make
capital cheaper at par world standard [ GOI yet to fulfill the just demand of the corporate sector]
More transparent estimate of the need for investment in the infrastructure sector--- how to mobilize the resources
One estimate puts the requirement as $50 billion equivalent---- role of foreign direct investment as perceived by the government. Whether FDI is good for the country is no longer the issue
14
Current position of Reforms The reforms process has been slowed down__
Reasons Inability to carry out reforms in some crucial
sectors like legal infrastructure and education
Resistance by interested groups Lack of political will Role of powerful bureaucracy as they feel
threatened with diminutive public sector A section of corporate sector beneficiary
of old system
15
Reforms__ slowed down?
India’s endemic problems Low literacy _ message of reforms not
reaching Archaic social structure__ at lower level of
society and furthest from the centre of administration exploitation continues
Social and economic discrimination are intertwined in the society
Lack of genuine administrative reforms at the grass-root levels [panchayat system ]--
16
Reforms slowed down?_ cont’d Even when panchayats exist, they are totally
dependent on state government for finance, that erodes their power
Emergence of regional groups based on caste Lack of accountability [ corruption index being at
level 83 among 133 countries surveyed recently]
A permissive society????
17
Slow reforms Some economic issues— Wide gap between rural and urban areas
regarding the availability of public goods like potable water, health services, primary education___ worse situation is that sometime availability is dictated on caste lines
[ a MIT study on rural situation in AP , conducted by Dr. A. Banerjee of MIT, USA ]
No cushion from the lower side regarding social security
Transparency in public policy lacking_ that creates credibility gap__ a breeding ground of violence
18
India
Let us see some developments in economic scene
Let us see some developments in economic scene
19
India__ Growth rates in 1990s
ECONOMIC GROWTHOF INDIA
0
1
2
3
4
5
6
7
81
99
0
19
92
19
94
19
96
19
98
20
00
20
02
PE
RC
EN
T R
EA
L G
DP
20
India__ external sector
INDIA'S MERCHANDISE TRADE
10
20
30
40
50
60
1990 1992 1994 1996 1998 2000
IMPORTS
EXPORTS
21
India__ international liquidity
INTERNATIONAL RESERVES AND FOREIGN DEBT OF INDIA
5
10
15
20
25
30
35
40
45
1993-Q3 1994-Q3 1995-Q3 1996-Q3 1997-Q3 1998-Q3 1999-Q3 2000-Q3 2001-Q3
INTERNATIONALRESERVES
DEBT SECURITIES ISSUED ABROAD
SHORT-TERMCOMPONENT
Source: Joint BIS-IMF-OECD-World Bank Statistics
22
GNP of 12 countries[ as on 2001 ]
Pop GNP Rank GNP/C Rank
million b $ Dollars
USA 284 9901 1 34870 7 Japan 127 4574 2 35590 4 Germany 82 1948 3 23700 20 U.K. 60 1451 4 24230 16 France 59 1377 5 22690 24 China 1272 1130 6 890 138 Italy 58 1123 7 19470 30 Canada 31 662 8 21340 26 Spain 40 587 9 14860 39 Mexico 99 550 10 5540 68 Brazil 173 529 11 3060 89 India 1033 474 12 460 161
23
Real GDP growth rates of selected countries during 1990--- 2000 [ per cent]
China 10.3 Ireland 7.3 India 6.0 USA 3.5
Japan 1.3 Russia -4.8 Ukraine -9.3
24
Need of the hour
Reforms of the infrastructure sector Education_ universities Legal system Sense of accountability A proper perspective of market mechanism Redefine the role of Government
25
Need……. Spread of innovation Incentive system An effective supervision system as reform process
brings fragility also in the financial system.
WHY ECONOMIC FREEDOM IS NECESSARY AND FOR THAT A CONGENIAL ATMOSPHERE IS TO BE CREATED __ THAT SHOULD BE THE GOAL OF ECONOMIC REFORM
27
Economic freedom__ parameters
Trade Policy Taxation Government Ownership Monetary Policy Restrictions on Foreign Investment Restrictions on Banking Wage and Price Controls Property Rights Regulations Black Market
29
Freedom and income
-1.5-1
-0.50
0.51
1.52
2.53
Average Annual
Real per Capita GDP
Growth, 1980-1993
Repressed MostlyFree
30
Freedom__ bop of some countries[ 2001]
-20
-10
0
10
20
30
40
50
Bil
lio
ns
of
U.S
. $
Aus
tral
ia
Hon
g K
ong
(97)
Indi
a
Japa
n
Kor
ea
Mal
aysi
a (9
7)
New
Zea
land
Phi
lippi
nes
(97)
Sin
gapo
re
Thai
land
Indo
nesi
a
Vie
tnam
(97
)
Chi
na
31
Currency __ INR [ a depreciating real exchange rate over time]
Rupee/$
05
1015202530354045
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
Spot
PPP
Real Exchange Rate
32
India’s exports to USA [ Issue is Capital flight]
Direction of Trade between India and US - I
0
2000
4000
6000
8000
10000
12000
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Val
ue
of
Trad
e (m
n $
s)
India Exportsto US
US Importsfrom India
33
India’s imports
Direction of Trade between India & US - II
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Val
ue o
f Tra
de (
mn
$s)
IndiaImportsfrom US
US Exportsfrom India
34
Restrictions in bop
Import prohibitions applied since 1960 to a wide range of consumer goods
The European Commission has received complaints from business
The European Commission raised the issue in the framework of the World Trade Organization (WTO)
Negotiations led to a progressive elimination of restrictions between 2000 (for priority products) and 2003
Expected additional turnover for EU industry: 2 Billion €
35
Restrictions
Country Course of action
India WTO dispute settlement system - negotiated settlement
Korea WTO dispute settlement system - panel proceeding
Brazil TBR procedure
Taiwan Accession to the WTO
UkraineConsultations and the initiation of a dispute settlement procedure under the PCA
Mexico Free trade agreement negotiation
36
Global scene
Next few slides we will see the experience of economic transition in former command economies and its impact on several parameters___ a cross-section sample
37
Comparison
We can make comparison with the transition process that started in China ( 1985) and Russia ( 1989-90)
Russia__ lack of experience of running enterprise…. Corruption in privatization of state enterprises….. Financial mess….. Emergence of mafia
China___ lack of knowledge compensated by allowing foreign capital free run in limited areas ( eastern provinces) __ slow transition___ mess in financial system…. Large scale corruption
38
Growth & agriculture
-20
-15
-10
-5
0
5
10
0 10 20 30 40
Share of agriculture in labor force 1990 (in per cent)
Gro
wth
of
GN
P p
er
ca
pit
a 1
99
0-9
7 (
in p
er
ce
nt
pe
r ye
ar)
Slovenia Poland
Azerbaijan
Georgia Turkmenistan
Ukraine
Uzbekistan
RomaniaHungarySlovakRep.
Czech Rep.Bulgaria
Estonia
Belarus
KazakhstanLithuania
LatviaRussia
Moldova
Kyrgiz Rep.
39
Openness & share of agriculture
-30
-20
-10
0
10
20
30
40
0 10 20 30 40 50 60
Share of agriculture in labor force 1990 (in per cent)
Act
ua
l e
xp
ort
s le
ss c
ou
ntr
y-si
ze-a
dju
ste
d
ex
po
rts
1990
-97
(in
pe
r ce
nt
of
GD
P)
Estonia
Czech Rep.Belarus
MoldovaUzbekistan
SloveniaSlovak Rep.
Hungary
Albania
Kyrgyz Rep.Georgia
KazakhstanUkraine
Bulgaria Russia
Lithuania
RomaniaAzerbaijanPoland
Latvia
40
Cross –section example: growth & openness_ 1990 _97
-20
-15
-10
-5
0
5
10
-10 0 10 20 30 40
Actual exports less country-size-adjusted exports 1990-1997 (in per cent of GDP)
Gro
wth
of
GN
P p
er
cap
ita
199
0-97
(in
pe
r ce
nt
pe
r ye
ar)
Poland Slovenia
Romania Czech Rep.
Slovak Rep.
Bulgaria
Azerbaijan
GeorgiaUkraina
Moldova
Kyrgyz Rep.
BelarusUzbekistan
RussiaLatvia
Lithuania
Estonia
Kazakhstan
Hungary
41
Just for knowledge__ corruption and economic growth
-20
-15
-10
-5
0
5
10
0 1 2 3 4 5 6 7
Corruption perceptions index 1999
Gro
wth
of
GN
P p
er
ca
pit
a 1
99
0-9
7 (
in p
er
ce
nt
pe
r ye
ar)
Albania
Azerbaijan
Belarus
Bulgaria
Czech Rep.
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyz Rep.
LatviaLithuania
Moldova
Poland
Romania
Russia
Slovak Rep.
Slovenia
Ukraine
Uzbekistan
42
conclusion We are in the middle of the process of
reforms….
Only expectations about the better future