Stand up and talk to
me, Mr Jaitley
Unsustainable tax demand would only earn bad name: FM
New Delhi: Finance Minister Arun Jaitley on Friday said that an
unsustainable tax demand would only earn the country a bad name as an
investment destination, comments that come in the wake of tax department
losing its battle against Shell in Mumbai High Court.
"Unsustainable
demand won't get you taxes. Unsustainable demands in the books can show
you in good glory, but eventually those taxes will be blocked in some
judicial court proceedings...They would have only earned us a bad name
as an investment destination," he said.
He, however, maintained that those who are supposed to pay taxes must pay.
Jaitley's
comments come in the wake of Mumbai High Court order earlier this week
wherein Income-Tax Department lost its Rs 18,000-crore transfer pricing
cases against oil major Shell India.
Already the government is engaged in a Rs 20,000 crore tax dispute with British telecom major Vodafone.
Referring
to retrospective amendments to the tax laws by the UPA government,
Jaitley said, if it is not investor friendly, people would start looking
elsewhere.
He further said making taxation regime investor
friendly and streamlining the procedure for land acquisition are the big
challenges facing the government.
"Undoing
a lot of taxation decisions is quite challenging, but that necessarily
does not involve a legislative action. Only some areas require action,"
he told the gathering.
Jaitley, however, took comfort from the fact that taxation laws are the domain of the Lok Sabha in which the NDA has majority.
The
Minister said though it managed to get the mess concerning allocation
of coal blocks cleared with ease, resolving other issues remain a
challenge.
When asked the three specific reforms he would like
to get passed in the ensuing Winter session of Parliament, Jaitley said
he would like insurance, coal laws and Goods and Services tax (GST) to
be cleared.
He said there are political risks to reforms and
those in government would have to adequately blend the economic reforms
with politics.
"Economic reforms have also to be blended with
competent and clever politics. Reforms alone by themselves are not
enough, if they have to survive politically, the blending has to be
adequately done by those involved. And I am sure it is one area both my
party and government is paying adequate attention," Jaitley said.
On
black money in the country, he said, real estate, jewellery market,
luxury market and mining are the sectors in which they are prevalent.
The Minister said he has asked the chief commissioners of direct taxes
to look into these sectors.
As regards black money stashed abroad, he said his government would follow legally the right course.
"If
you make an adventurist step and make every name available, without any
supporting evidence, breach your international treaties, you are not
going to be only disadvantaged by future non-cooperation, but also
nobody will want to provide you with supporting evidence," he said.
On
privatisation, he said, principally he has always been for
privatisation in sectors where government can get out. "Not only the
mindset of polity has to change but also all other agencies will have to
change," he said, adding that the civil servants cannot work in an
oppressive environment.
"While our accountability norms has to be
very tight, but government taking commercial decision can never do it
in an oppressive environment. As part of our reform process, we will
also have areas which at some stage require to be considered by the
larger political system," he said.
Jaitley also said government
would be able to meet the direct tax target, though indirect tax remains
a "challenge" as manufacturing sector was a great source of worry.
The Finance Minister also expressed concern over banks become defensive in lending in the wake of high stressed assets.
He
said the NPAs had come down to 2 percent of total advances after
implementation of SARFAESI Act, but have now again risen to 5 percent.
"This
has put banks on backfoot and made them defensive," he said, adding
slowdown in credit offtake was a cause of concern. Bankers, he said,
have been asked to push up lending.
Referring to the land
acquisition bill, Jaitley said, the NDA government did not have any
problem in farmers getting higher compensation but the real issue was
procedure.
"I have really no quarrel with the compensation part.
Farmers in India are entitled for higher compensation, but the
procedural part of the land law is a big problem and it will require a
lot of efforts to simplify those procedures", he said.
When asked if he expect RBI to cut interest rate in its December 2 monetary policy, Jaitley said: "I have lot of patience."
On
relationship between the Finance Ministry and Reserve Bank, he said "I
don't think there is any requirement for a knee-jerk reaction. I
consider it (discussions) only a part of a healthy debate".
On
Supreme Court's observations on CBI Director Ranjit Sinha, Jaitley said
governments should be extremely careful while making appointments to
such high posts.
"I have been looking at the law that applies,
whether it's a gap in the law or otherwise. One has to seriously examine
who has the power to do that. Because now the new appointing authority
is a collegium, I think governments have to be extremely careful when
they make appointments for this purpose," he said.
In a
humiliation just days before retirement, CBI Director Sinha was
yesterday removed by the Supreme Court from the 2G scam cases, saying
the allegations against him of protecting some accused appears to be
"prima facie credible".
Recalling the events leading to
appointment of Sinha in 2012, Jaitley said the CBI Director was
appointed by the previous UPA government just a day before a Parliament
select committee report on Lok Pal Bill that provided for the procedure
of such appointment was to be tabled in Rajya Sabha.
"At 11 am
that report was to be tabled and this appointment was made the previous
evening at 9 pm. The next day Sushma Sushma Swaraj and I wrote to the
Prime Minister (Manmohan Singh) that on what criteria have you done
this..." he said.
PTI
First Published: Friday, November 21, 2014, 18:06
- 10 -
7.6 percent are critical to obtaining an average growth rate during the 1980s that is
comparable
to the growth rate in 1990s. Second, the variance of growth rates
during the 1980s is statistically significantly higher than that in the
1990s. In this sense, growth during the first period was fragile
relative to that in the second and, indeed, culminated in the June 1991
crisis. Thus, consider Table 2, which offers the
average growth rates for several selected periods. The average annual growth rate
during
the eleven-year period from 1992–93 to 2002–03 that I have defined as
the post-1991 reform period or the “1990s” is 5.9 percent.
One
obvious criterion for defining the pre-1991 reform period or the “1980s”
is to select 11 years immediately preceding the post-1991 reform
period: 1981–82 to 1991–92. Average annual growth rate during this
period is 5.3 percent. If the inclusion of the crisis year, 1991–92,
into this period is objectionable, we can
consider the ten-year period between 1981–82 and 1990–91. In this case, the average growth rate rises to 5.7 percent.
8
Either way, growth rates between the 1980s and 1990s are comparable.
But
consider for a moment annual average growth rates until 1987–88. If we
take the ten-year period from 1978–79 to 1987–88, the average growth
rate is an unimpressive 4.1 percent. In 1988, anyone looking back at the
ten-year experience would have concluded that India was still on the
Hindu growth path. Indeed, even limiting ourselves to 1981–82 to
1987–88, we get an average growth rate of only 4.8 percent, which is
strictly below the growth rate of 4.9 percent achieved during the Fifth
Five Year Plan (1974–79). Thus, had it not been for the unusually high
growth rate of 7.6 percent during 1988–91, we would not have reason to
debate whether the reforms of 1990s made a significant contribution to
growth. The implication is that any explanation of growth in the 1980s
must explain the
exceptionally high growth during 1988–91.
- 9 -
Figure 1: Annual Growth Rates: GNP and GDP
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1951-52
1953-54
1955-56
1957-58
1959-60
1961-62
1963-64
1965-66
1967-68
1969-70
1971-72
1973-74
1975-76
1977-78
1979-80
1981-82
1983-84
1985-86
1987-88
1989-90
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
Year
Growth Rate
GNP
GDP
Thus, even though growth rates of GDP and GNP follow nearly
identical, overlapping paths (see Figure 1), Wallack’s cutoff dates for
the shift in the growth rate turn out to be vastly different for them.
6
The outcome is highly sensitive to small movements in the data. When we
recognize the fact that the errors in the measurement of GNP and GDP
perhaps
dwarf the differences between the two series as measured, we
cannot place a high degree of confidence in the cutoff dates obtained
by Wallack.
7
Besides, by construction, the calculated cutoff
date is itself influenced by the events following the cutoff date.
Future policies that influence future growth can automatically change
the calculated date of the shift in the growth rate. For example, had
the policies and therefore growth experience in the 1990s been
vastly different, the cutoff date would also be different. Alternatively,
addition or deletion of data points can alter the cutoff point. Even
holding the data set fixed, Wallack finds multiple candidates for the
shift. Thus, while she reports only the year with the maximum
F-statistic (that is, the strongest rejection
of the null hypothesis
that average growth was the same in the two periods), for each series
she finds additional years in the 1980s with test statistics close
to
the maximum value and above the 10 percent critical value. The
difficulty in pinpointing the date of shift in the growth rate does not
allow us to precisely define the starting point of the “1980s” growth
period. Fortunately, however, two important related facts remain valid
regardless of which starting date we choose. First, the
years 1988–91 during which the economy grew at the super high average annual rate of
6
Table 1 lists the GDP growth rates from 1951–52 to 2002–03.
7
Wallack (2003, p. 4314) herself is careful to recognize this fragility.
Thus, she notes, “Although the evidence for the existence of a break is
strong, the data are more ambiguous on its exact timing in the early
and mid-1980s.”
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- 8 -
former period was fragile and unsustainable. In Section III, I link the shift in the
growth rate in the 1980s to the conventional economic reforms both in terms of the
policy
changes and outcomes. In Section IV, I discuss the role played by
expansionary fiscal policies supported by both internal and external
borrowing that
made the growth process unsustainable. In Section V, I describe briefly the main
reforms undertaken since 1991 and their impact. In Section VI, I offer remarks on
why growth in the 1990s has continued to fall behind that of China and what India
could do to catch up with the latter. Finally, in Section VII, I summarize the paper
and offer concluding remarks. II. THE FRAGILITY OF GROWTH IN THE 1980S
In
comparing the performance prior to the July 1991 reforms and that
following them, the conventional practice is to draw the line at 1990–91
and thus divide the time period into the decades of 1980s and 1990s.
But this division does not accurately reflect the division into periods
prior to and following the July 1991 re
forms. Indeed, because
1991–92 was the crisis year and the 1991 reforms were a response to
rather than the cause of the crisis, the conventional practice creates a
serious distortion by including the year 1991–92 into the post-1991
reform period. The July 1991 reforms and subsequent changes could not
have begun to bear fruit prior to 1992–93. Therefore, for the purpose of
this paper, I take 1991–92 as the dividing line between the two
periods. The post-1991 reform period is defined to start in 1992–93 and
last until the latest year for which data are available, 2002–03.
Pre-1991 reform period precedes this period with the starting date left
vague at this point. Though it may be argued that the June 1991 crisis
was the result of the policies of the pre-1991 reform period and
therefore the year
1991–92 legitimately belongs in it, where
appropriate, I present the analysis with and without this year included
in the pre-1991 reform period.
Throughout the paper, unless otherwise stated, the terms “1980s” and “
1990s” refer to the pre- and post-1991 reform periods as per these definitions
.
At the outset, it may be noted that it is difficult to pinpoint the timing of the upward
shift
in India’s growth rate. Thus, in a recent attempt to pinpoint
structural breaks in the growth series, Wallack (2003) is able to
achieve at best partial success. She finds that with a 90 percent
probability the shift in the growth rate of GDP took place between 1973
and 1987. The associated point estimate of the shift, statistically
significant at 10 percent level, is 1980.
When Wallack replaces GDP
by gross national product (GNP), however, the cutoff point with 90
percent probability shifts to the years between 1980 and 1994. The
associated point estimate, statistically significant at 10 percent
level, now turns out to be 1987.
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- 7 -
taken here is that the liberalization in the 1980s served as
the necessary groundwork for the more systemic and systematic reforms
of the 1990s. The 1990s reforms were qualitatively different from those
in the 1980s in that they represented a broad acceptance of the idea
that entrepreneurs and markets were to be given priority over government
in the conduct of economic activity and that government interventions
required proper justification rather accepted by default.
The main
conclusions of this paper can be summarized as follows: •Growth during
the 1980s was higher than in the preceding decades but fragile. It not
only culminated in a crisis in June 1991 but also exhibited
significantly higher variance than growth in the 1990s. Central to the
high growth rate in the 1980s was
the super high growth of 7.6
percent during 1988–91. Absent this growth, the average growth in the
1980s would be significantly lower than in the 1990s. •The fragile but
faster growth during the 1980s took place in the context of significant
reforms throughout the decade but especially starting in 1985. While this
liberalization was ad hoc and implemented quietly (“reforms by stealth” is the term
often used to describe them), it made inroads into virtually all areas of industry and
laid the foundation of the more extensive reforms in July 1991 and beyond. The
liberalization pushed industrial growth to a hefty 9.2 percent during the crucial high-
growth
period of 1988–91. •Growth during the 1980s was also propelled by
fiscal expansion financed by borrowing abroad and at home. But this was
unsustainable and led to the crisis of June 1991. •The reforms in the
1990s were more systematic
and systemic and they gave rise to a
decidedly more stable and sustainable growth from 1992 on.
•Nevertheless, India continues to lag behind China, growing at an
average rate of 5 to 6 percent compared to the latter’s average growth
rate of 8 percent. The key reason for the difference is that industry
has failed to grow rapidly in India and still accounts for only a
quarter of the GDP compared with half in the case of China. •If India is
to catch up with China, some key reforms aimed at helping industry grow
faster are essential: labor laws that give firms the right to reassign
and lay off workers under reasonable conditions, end to the small-scale
industry reservation that currently reserves most of the labor-intensive
products for
small firms, bankruptcy laws, and tariff levels comparable to or lower than
those
in the East Asian economies. The remainder of the paper is organized as
follows. In Section II, I contrast the experience during the 1980s with
that in the 1990s, arguing that growth in the
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- 6 -
Joshi and Little (1994, chapter 13), who have been champions of reforms and have
extensively
studied Indian macroeconomic policies in the 1980s, recognize the role
of reforms but regard fiscal expansion financed by external and internal
borrowing as the key to the acceleration of growth during the 1980s.
5
This is also the view expressed indirectly by Ahluwalia (2002a, p. 67)
who states that while the growth record in the 1990s was only slightly
better than that in the 1980s, the 1980s growth was unsustainable ,
“fuelled by a build up of external debt that culminated in the crisis of
1991.” Srinivasan and Tendulkar (2003) attribute some role to the
reforms but they too underplay them when they state: “India’s exports
increased over this period [1980s] of piecemeal reforms, but this was
more
due to a real exchange rate depreciation mostly as a result of
exogenous forces than due to an active policy of nominal devaluation or
due to explicit policy reforms aimed at reducing trade barriers. Growth
performance was also distinctly better in the 1980s than in the earlier
period. This surge in growth, however, was supported on the demand side
by unsustainable fiscal policies, and it ended with an economic crisis
in 1991.”[Emphasis added.] Finally, Das (2000), as quoted by DeLong,
gives the strongest impression of all writers that reforms originated
with the July 1991 package announced by Manmohan Singh: “...in July
1991... with the announcement of sweeping liberalization by the minority
government of P.V. Narasimha Rao... opened the economy... dismantled
import controls, lowered
customs duties, and devalued the
currency... virtually abolished licensing controls on private
investment, dropped tax rates, and broke public sector monopolies.... We
felt as though our second independence had arrived: we were going to be
free from a rapacious and domineering state..." Among those who have
ventured to attri
bute the acceleration in growth in the 1980s to
liberalization are Desai (1999), Pursell (1992), and Virmani (1997).
Desai focuses on liberalization in the industry a
nd industrial
growth and Pursell on trade liberalization in the 1980s. I draw on their
work later, particularly the latter. The discussion in Virmani is brief
but he attributes the shift in the growth rate in the 1980s virtually
entirely to liberalization. Moreove
r, he views the liberalization
measures during the 1980s and 1990s as “subphases” of an overall phase.
In contrast, the view many reform-minded economists, especially from
India including the author, have advocated caution in this area.
5
Specifically,
Joshi and Little (1994, p. 190) note, “It appears that "Keynesian"
expansion, reflected in large fiscal deficits, was a major cause of fast
growth.” In personal correspondence, Vijay Joshi has recently changed
his mind, however. Commenting on an earlier draft of this paper, he
writes, “Joshi and Little did point to the importance of the mildly
liberalizing reforms in the 1980s but in retrospect we should have put
greater stress on them exactly as you have done.”
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-
- 5 -
entrepreneurs without a change in the policy or its
implementation? It is only through policy changes such as the expansion
of the Open General Licensing list at the expense of the banned and
restricted import licensing lists, and change in the implementation
strategy such as, for instance, by issuing import licenses more
liberally so that officials could convey the change in their attitudes
to entrepreneurs. By extension, the absence of further reforms would
have surely signaled to entrepreneurs a reversion back to the old
attitudes.
The policy versus attitude change issue apart, the key question is whether minor
changes
in either policy or attitudes in the 1980s produced the same outcome as
the major reforms in the 1990s. In this paper, I demonstrate that the
skeptical view offered by Rodrik and DeLong overstates the growth and
understates the reforms during 1980s. Growth during the 1980s was
fragile, highly variable from year
to year, and unsustainable. In
contrast, once the 1991 reforms took root, growth became less variable
and more sustainable with even a slight upward shift in the mean growth
rate. At the same time, reforms played a significant role in spurring
growth in the 1980s. The difference between the reforms in the 1980s and
those in the 1990s is that the former were limited in scope and without
a clear road map whereas the latter were systematic and systemic.
3
This said the reforms in the 1980s must be viewed as precursor to those in the
1990s
rather than a part of the isolated and sporadic liberalizing actions
during the 1960s and 1970s, which were often reversed within a short
period. The 1980s reforms proved particularly crucial to building the
confidence of politicians regarding the ability of policy changes such
as devaluation, trade liberalization, and delicensing of investment to
spur growth without disruption. It is questionable,
for example,
whether the July 1991 package would have been politically acceptable in
the absence of the experience and confidence in liberal policies
acquired during 1980s.
Before I move to the next section, let me note that the view that liberal economic
policies
did not make a significant contribution to the shift in growth during
the 1980s extends well beyond reform skeptics and includes some of the
ardent advocates of reform.
4
3
This is not unlike the stop-go
reforms in China though the latter did go much farther during the
1980s, especially in the Special Economic Zones and Open Cities.
4
Among skeptics, Joseph Stiglitz too seems to have bought into the
DeLong-Rodrik story, though with a different twist. Thus, in an exchange
with economist Kenneth Rogoff published in the Wall Street Journal
Europe (October 18, 2002), he is reported to have said,
“The two
countries that have the most impressive economies now are China and
India. They happen to be the two that bought the least into the
globalization story that the IMF and others are selling.” But there is
little basis for such a claim. All the reforms undertaken by India,
described below, are those that reform-minded economists and the IMF
would recommend.
The pace of reforms has been slower but this is to
be attributed not so much to conscious choice as to the country’s
democratic political process that demands consensus that is slow to
build. It is true that India has chosen not to embrace capital-account
convertibility to-date but (continued...)
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the significantly more ambitious reforms of the 1990s actually had a smaller impact
on India's long run growth path. DeLong speculates that the change in official
attitudes
in the 1980s, towards encouraging rather than discouraging
entrepreneurial activities and integration into the world economy, and a
belief that the rules of the economic game had changed for good may
have had a bigger impact on growth than any specific policy reforms.”
It
is not entirely clear as to what policymessage is to be gleaned from
this skepticism. Neither DeLong nor Rodrik suggests that the reforms of
the 1990s were detrimental to the growth process. DeLong explicitly
states that in the absence of the second wave of reforms in the 1990s,
it is unlikely that the rapid growth of
the second half of the 1980s could have been sustained. Rodrik is more tentative,
emphasizing
the change in official attitudes about the change in policies, possibly
implying that the attitudes having changed for good, growth would have
been sustained even without the reforms of the 1990s.This interpretation
itself raises two immediate questions: Is there evidence demonstrating
that official attitudes changed significantly during the 1980s and if so
how was this change conveyed to the public? Most observers of India are
likely to question the view that there had been a significant shift in
official attitudes in the 1980s. Indirect evidence of the general
dominance of the old attitudes can be found in the care Manmohan Singh
took in packaging the bold reforms of 1991, describing them as a
continuation of the old policies.
A careful reader of Singh’s
historic 1991 budget speech is bound to be struck by the effort he made
to draw a close connection between his proposals and the policies
initiated by India’s first Prime Minister Jawaharlal Nehru and carried
forward by his grandson Rajiv Gandhi. As I noted in Panagariya (1994),
Singh continuously
reiterated the usefulness of the past policies in
the speech and repeatedly referred to the contributions of Nehru to
development, while also recalling the just-assassinated former Prime
Minister Rajiv Gandhi’s dream of taking India into
the twenty-first
century. More directly, commenting on a previous draft of this paper,
N.K. Singh who has been directly involved in policymaking in India
during the 1980s as well as the 1990s and is currently Member, Planning
Commission wrote the following to the author:
“I am somewhat intrigued by the statement of Delong & Rodrik stressing change in
official attitude over change in policies implying that if attitude changed for good,
growth would have been sustained even without reforms in the 1990s. Even today,
more than change in policies we are struggling with change in attitude. The first
reflex of any observer of Indian economy or potential foreign investor would be that
while policies may not be so bad it is the attitude particularly of official ones which
becomes
the Achilles heel. In fact the 80s and even the 90s have seen
far-reaching change in policies which have not translated themselves
fully into changes in attitudes. This attitudinal change indeed
constitutes a major challenge in our reform agenda.”
But even
conceding that a change in attitude on the part of officials had taken
place, one must confront the question how officials could have conveyed
this change to
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I. I
NTRODUCTION
While public opinion in India continues to move toward the view that liberalization
has
been good, that more of it is needed, and that its pace must be
accelerated, the view in some scholarly and policy circles has turned
skeptical. It is being pointed out that the average annual growth rate
of gross domestic product (GDP) hit the 5.6 percent mark in the 1980s,
well before the launch of the July 1991 reforms.
Alternatively, the
growth rate in the 1990s was not much higher. Therefore, liberalization
cannot be credited with having made a significant difference to growth
in India.
2
The key contribution expressing this skepticism has come from economic historian
J. Bradford DeLong (2001, pp. 5–6) who writes in an article on growth in India:
“What are the sources of India's recent acceleration in economic growth?
Conventional
wisdom traces them to policy reforms at the start of the 1990s. Yet the
aggregate growth data tells us that the acceleration of economic growth
began earlier, in the early or mid-1980s, long before the exchange
crisis of 1991 and the shift of the government of Narasimha Rao and
Manmohan Singh toward neoliberal economic reforms.”
DeLong continues:
“Thus apparently the policy changes in the mid- and late-1980s under
the last governments of the Nehru dynasty were sufficient to start the
acceleration of growth, small as those policy reforms appear in
retrospect. Would they have just produced a short-lived flash in the
pan—a decade or so of fast growth followed by a slowdown—in the absence
of the further reforms of the 1990s? My hunch is that the answer is
‘yes.’ In the absence of the second wave of reforms in the 1990s it is
unlikely that the rapid growth of the second half of the 1980s could be
sustained.
But hard evidence to support such a strong counterfactual judgment is lacking
.”
[Emphasis added.] The paper by DeLong appears in a volume edited by
Dani Rodrik. Summarizing the main message of the paper in the
introduction to the volume, Rodrik (2002) carries DeLong’s skepticism to
the next level. He notes:
“How much reform did it take for India to leave behind its ‘Hindu rate of growth' of
three percent a year? J. Bradford DeLong shows that the conventional account of
India, which emphasizes the liberalizing reforms of the early 1990s as the turning
point, is wrong in many ways. He documents that growth took off not in the 1990s,
but in the 1980s. What seems to have setoff growth were some relatively minor
reforms. Under Rajiv Gandhi, the government made some tentative moves to
encourage
capital-goods imports, relax industrial regulations, and rationalize
the tax system. The consequence was an economic boom incommensurate with
the modesty of the reforms. Furthermore, DeLong's back-of-the-envelope
calculations suggest that
2
While the documentation below is
limited to scholarly writings, many opponents of reforms in the
political arena, including some in the Congress party, share this view.
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Contents Page
I. Introduction ........................................................................3
II. The Fragility of Growth in the 1980s................................................8
III. Connection to Liberalization......................................................12
A. Reforms During the 1980s ...........................................................14
IV. Unsustainable External Borrowing and Public Expenditure ...........................21
V. A Brief Look at 1990s...............................................................22
A. Deregulation of Industry ...........................................................23
B. External Trade......................................................................24
C. Impact of Liberalization............................................................26
VI. Looking Ahead: Why India Lags Behind China ........................................27
VII. Conclusion .......................................................................29
Figures
1. Annual Growth Rates: GNP and GDP.....................................................9
2. Yearly Growth Rates of GDP .........................................................11
Tables1. Annual Growth Ra
tes of GDP: 1951–2003 .................................................................31
2. Average Annual Growth Rates During Selected Periods ................................32
3. Five-yearly Variance of Growth
Rates: Major Sectors and GDP...........................................................32
4. Average Annual Growth Rates of Non-oil Merchandise Exports and Imports in
Current Dollars........................................................................33
5. Merchandise non-oil exports and imports as percent of GDP ..........................33
6. Changes in Protection and Total Factor
Productivity Growth (TFPG) by Industry Classification (unweighted averages) ...........34
7. Fiscal Indicators: 1980–81 to 1989–90...............................................34
8. Composition of GDP (Percent) .......................................................35
References.............................................................................36
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Abstract
This Working Paper should not be reported as representing
the views of the IMF. .The views expressed in this Working Paper are
those of the author(s) and do not necessarily represent those of the IMF
or IMF policy. Working Papers describe research in progress by the
author(s) and are published to elicit comments and to further debate.
Bradford
DeLong and Dani Rodrik have argued that reforms in India cannot be
credited with higher growth because the growth rate crossed the 5
percent mark in the 1980s, well before the launch of the July 1991
reforms. This is a wrong reading of the Indian experience for two
reasons. First, liberalization was already under way during the 1980s
and played a crucial role in stimulating growth during that decade.
Second,
growth in the 1980s was fragile and unsustainable. The more systematic
and systemic reforms of the 1990s, discussed here in detail, gave rise
to more sustainable growth. The paper concludes by explaining why the
growth rate in India nevertheless continues to trail that of China.JEL
Classification Numbers: 019, 024, 053.
Author’s E-Mail Address:
Panagari@econ.umd.edu
The
author is a Bhagwati Professor of Indian Political Economy and
Professor of Economics at Columbia University, New York, NY 10027. I am
grateful to Jagdish Bhagwati and Kalpana Kochhar for numerous helpful
comments and to T.N. Srinivasan for extended email exchanges that led to
many improvements in the
paper. I also thank Rajesh Chadha, Satish Chand, Douglas Irwin, Raghav Jha, Vijay Joshi, Vijay Kelkar,
Ashoka
Mody, Sam Ouliaris, Jairam Ramesh, Jayanta Roy, Ratna Sahay, Kunal Sen,
N.K. Singh, and Roberto Zagha for helpful suggestions on an earlier
draft of the paper. The paper was completed while I was a Resident
Scholar at the International Monetary Fund and has benefited from
comments made at the IMF-NCAER Conference, “A Tale of Two Giants:
India’s and China’s Experience with Reform and Growth,” November 14–16,
2003, New Delhi.
see more
WP/04/43
India in the 1980s and 1990s: A Triumph of Reforms
Arvind Panagariya © 2004 International Monetary Fund WP/04/43
IMF Working Paper
Research Department India in the 1980s and 1990s: A Triumph of Reforms
Prepared by Arvind Panagariya
Authorized for distribution by Raghuram Rajan March 2004
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