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India in Transition: Population, Economy, and Planning Strategies

India, the world's second most populous country with over 1.09 billion people, has seen a population growth rate of 1.5% from 2001 to 2005. With a diverse cultural landscape featuring 81% Hindus, 13% Muslims, and others, India’s official languages include English and Hindi. The nation boasts the 10th largest GNP and significant GDP growth. Post-independence, it established an indicative planning system to address market failures. Although economic reforms in the 1990s spurred growth, underlying issues remain. The path forward still requires careful navigation to ensure inclusive progress.

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India in Transition: Population, Economy, and Planning Strategies

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  1. India in Transition

  2. Population • Population(m)    1,095 • Population growth (’01-05) 1.5%       •  Second most populous country • 81% Hindu, 13% Muslim, 2% Christian, 2% Sikh • Official Languages: English, Hindi, 14 others

  3. Geography • South Asia • 3,287,590 sq km • 28 States • Borders China, Pakistan

  4. History • 550 bc independent kingdoms • Invasions from Central Asia • 3rd century Gupta dynasty “golden age” • Islamic Invasions • Mughal Dynasty • European Traders/Colonizers • British Rule (1857) • Independence 8/15/47

  5. Politics • World’s Largest Democracy • Indian National Congress (INC) • Emergency Rule (Indira Gandhi ’75-77) • Janata Party • Bharatiya Janata Party (1996) • INC (2004)

  6. Economy • 10th Largest GNP • 4th Largest GNP (PPP) • GDP Growth 8.1% 2005(4) • Per-Capita Income (PPP) $3100 • Agriculture accounts for 21% of GDP • Major Industries include; mining, petroleum, diamond polishing, films, textiles, IT and business process outsourcing (BPO) services, pharmaceuticals and chemicals, and handicrafts.

  7. Indicative Planning • Instituted as a response to perceived failures of the market system in attaining socially desirable objectives • No formal obligation to fulfill objectives of the plan • Authorities rely on ‘indirect government levers’ (taxes, subsidies, etc.)

  8. The Lewis two-sector Model • Agricultural Labor is redundant • ‘Commercial’ sector is efficient • Purchasing capital goods results in increased demand for industrial labor • Agricultural labor becomes more productive and produces a surplus

  9. The Nehru-Mahalanobis Approach

  10. N-M Approach pt. 2origins of Indian planning • Didn’t Curb power of wealthy interests • Mahalanobis’ 2-sector model akin to Lewis’ model • Sought to industrialize the economy by increasing production of capital goods • Development economics was dominated by the idea of overcoming the ‘savings constraint’ • Similar in approach to USSR • Fabian Influence • Planning Commission Set up in 1950

  11. Origins of Implementation • Defense of India Act (1939) • India Act (1946) • Many other acts PRIOR to independence • War-time controls set up by the British • Suited to regulation and control • Industrial Policy Resolution (1948) • Industries Act (1951)

  12. The Plans • 1st plan (’51-56) – Not so ambitious • 2nd plan (’56-61) – Inspired by Mahalanobis, move towards industrial growth • 3rd plan followed by one year plans – no significant change • 4th plan (’69-74) -- based on input-output model • 5th plan – 7th plan – included concerns for the redress of poverty

  13. GDP growth (1960-2004) 1988 1991 1979

  14. The Crisis • In 1990-91 gross fiscal deficit reached 8.4% of GDP • Inflation peaked at almost 17% • External debt reached 23% of GDP • Low foreign exchange reserves • Resulted in $2.3bn loan from IMF

  15. The Reforms • Consisted of decontrol of private investment, opening the economy to foreign trade and foreign investment, financial sector reforms, etc.

  16. Controls on Private Investment • Removal of industrial licensing • Allowance of private companies into industries once reserved for the state • Little done about small-scale sector rules • Little done about state-level controls

  17. Openness to Trade • Lowering of Import Tariffs • Domestic v. external liberalization – gradual approach • Lowering of quantitative restrictions • Devaluation of Rupee 20:1-31:1 from ’91-’93

  18. Trade (% of GDP) ’80-’04

  19. Foreign direct investment

  20. Price Controls • Hydrocarbon prices • Electricity prices (not changed) Labor Market Controls • Still in effect

  21. Public Sector Reforms • Outright privatization was eschewed in favor of more ‘cautious’ reform • Partial Privatization • Board for Industrial and Financial Reconstruction • Allowance of Private Investment in Infrastructure

  22. Financial System • Banking Reform • Capital Market Reform

  23. Inflation (annual %) 1998 1991

  24. East Asian ‘Miracle’ economies • Stable business environment • Fiscal policies aimed at equity • Pro-export exchange rates • Progressive liberalization of the financial sector • Minimal price distortions • Education

  25. Indian Reforms in comparison • Macroeconomic stabilization • More rigid Labor Markets • Education is not compulsory

  26. Conclusion • Reforms were largely successful • Fail to address underlying problems • Gains are not widespread • Much remains to be done

  27. Questions • What are the effects of government policies towards children in terms of economic growth • What role does primary education play in attracting investment to labor-intensive, unskilled industries

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