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Sid Harth • 9 years ago

Mr Arun Jaitley, please elaborate on your following statement: "I don't think there is any requirement for a knee-jerk reaction. I consider it (discussions) only a part of a healthy debate".
I consider your attempt to blame previous administrations as less than diplomatic.

Say when....

I am ready to debate with you. Yes sir, You are a non-person, as far as I am concerned. Vilifying has been BJP's sole game. Stand up and talk to me. Your silence means your defeat.

...and I am Sid Harth

Sid Harth • 9 years ago

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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.

Sid Harth • 9 years ago

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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.”

Sid Harth • 9 years ago

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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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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

Sid Harth • 9 years ago

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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.”

Sid Harth • 9 years ago

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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...)

Sid Harth • 9 years ago

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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

Sid Harth • 9 years ago

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.

Sid Harth • 9 years ago

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

Sid Harth • 9 years ago

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.

Sid Harth • 9 years ago

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

Iconoclast • 9 years ago

Who is responsible for the retrospective tax? Only one man, Pranab Mukherjee. Everyone including the media is silent on his role in destroying the Indian Economy single handedly. He was a complete disaster