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The Economy At 60:MANY UNFULFILLED PROMISES, Dr. Vinod Mehta,9 August 2007 Print E-mail

Economic Highlights

New Delhi, 9 August 2007

The Economy At 60

MANY UNFULFILLED PROMISES

By Dr. Vinod Mehta

The past 60 years have been quite momentous for the Indian economy.  Starting almost from scratch, the country has been able to lay the foundation for the development of a modern industrial economy along with a democratic form of governance.  For the past few years India has been enjoying a growth rate of around 9 to 10 per cent and the manufacturing sector is booming for the last three years.

It has, however, not always been a smooth road as we have still to realize many of the promises made when the country embarked on the path of planned industrial development.  On the positive side we have been able to achieve self sufficiency in food, bring down the number of people living below the poverty line, develop and diversify our industrial base and accumulate a reservoir of scientific and managerial skills especially through the development of scientific research and management educational institutes. 

On the negative side we have not been able to provide free elementary education to all children below the age of 14 as per our Constitutional requirement; we have yet to realize the goal of doubling the per capita income and have still to provide housing and health care to people at the lower strata of the society. 

If we compare our performance with some of the Asian countries which started on the development course almost at the same time as India, we find ourselves being left behind in regard to a number of socio-economic indicators. 

Today, Asian countries like China, South Korea, Malaysia, Indonesia etc. have not only achieved a high percentage of literacy among its population but have also been steadily enjoying a rising growth rate along with a rising per capita income.  More. Compared to us, these Asian countries have emerged as major players in two or three important commodities or services in the world market. 

One may legitimately argue that the countries mentioned above have had little respect for democratic norms especially in the earlier phases of their development while India has been continuously following the path of democracy.  Having said that, one can still assert in hindsight that the country erred somewhere on its way towards economic development in the past 60years. 

When we gained Independence in 1947 the Soviet model of economic development through planning was very important as it assured the development of an industrial base. Most of the other socialist countries too boasted of high rates of economic development.  Again, after the Second World War the Marshal Plan, developed by the US, for the reconstruction of a war-ravaged Europe also made an impression on the minds of the Indian leaders and economists. 

Thus, started the country’s journey of economic development through planning in an earnest and forthright manner.  The industrial sector, which involved massive investments and long gestation periods especially the capital goods division were provided an impetus through public sector investments.  For the first time modern steel mills and other heavy industries were established. 

Sadly, after having established the public sector in a big way we did not pay any attention to the efficient running of these units.  Thanks to large scale political interference and the unholy bureaucratic stranglehold, these public sector units instead of either ploughing back the profits for the modernization of its units or contributing to the exchequer, started eating into the revenue resources of the Government.  Now for the past 15 years all the attempts to disinvest these units have miserably failed. The Left parties are not willing to allow the Government to dilute even a part of their equity.

We also erred by giving too much protection for a very long time to our industries.  In the earlier phase of economic development, the nascent Indian industries needed to be protected from foreign competition as they were not in a position to face competition.  This protection was envisaged only for a few years.  However, over the years as things progressed the Indian industry developed vested interests in the continuation of these protectionist policies as it ensured them monopoly profits in the domestic market. 

Thankfully, things have changed a lot in the past 15 years. The system of licence raj has been abolished and competition within the industrial sector has increased. But in terms of efficiency we are still nowhere close to industries in countries like Korea or Taiwan.

Moreover, despite being capable of manufacturing more than 80 per cent of the products we need for our domestic market, the quality is so bad that customers of both consumer and capital goods still find foreign made goods more attractive, even after 60 years.

The monopolistic tendencies and an urge to work only in an uncompetitive market are still very much reflected in the attitude of our people engaged in the financial sector like banking and insurance.  Even though realization has dawned that it is paying a very heavy cost both in the domestic and international financial markets in terms of the lost business opportunities, the sector is finding it very difficult to shed this attitude, nurtured over the past 60 years. Also, the pace of reforms is very slow regardless of the fact that the insurance sector has been opened up and the cap on FDI in the private banks has been raised.

In the agricultural sector though we have achieved self-sufficiency in food we have a long way to traverse before we achieve self-sufficiency in the production of oil seeds and pulses.  No matter that 70 per cent of the population is still dependent upon agriculture.  Nothing has been done in the past 60 years to push the development of the agriculture sector including agro-based industries to international standards. 

After the green revolution, which was limited to only a few states in the country, nothing remarkable can be said to have been achieved in the production of various crops.  In fact, the restrictions imposed on the movement of agriculture products especially grain has worked against the high growth of the agricultural sector as a whole. 

It has been observed that the agricultural policy has never gone beyond ensuring self-sufficiency in food.  What the country needed was that along with self-sufficiency in food production, a big technological push be provided to the production of all other agricultural crops which are in demand not only in the domestic market but which also fetch good prices in the international agricultural market.

Today, when we have entered the 61st year of our Independence, we must pause and think and make a critical assessment of our economic policies. We need to come out with a package which is in keeping with the current developments the world over to ensure faster economic development and more jobs so that the citizens could be assured of a good standard of living. 

We need to speed up reforms in the agricultural and labour sectors. We also need to improve our infrastructure on a war footing, we need world class communication systems, world class roads, airports, railways etc.

The perception of India globally has changed. The country is no longer perceived as a developing country but as an emerging economy which will be a relatively well developed economy in the next 15-20 years. We should endeavour to live up to this perception. ---- INFA

(Copyright India News and Feature Alliance)

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