[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
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Paul Conway Richard Herd<br />
Sean Dougherty<br />
Organisation For Economic Co-operation And Development (OECD), Paris<br />
Just How Free Are India's Labour<br />
And Product Markets?<br />
"Freedom in economic arrangements<br />
is itself a component<br />
of freedom broadly understood,<br />
so economic<br />
freedom is an end in itself ...<br />
Economic freedom is also an<br />
indispensable means toward<br />
the achievement of political<br />
freedom."<br />
-Milton Friedman<br />
1. Since the mid 1980s India has undergone<br />
a profound shift in economic management<br />
as successive reforms have<br />
progressively moved the economy towards<br />
a market-based system. State intervention<br />
and control over economic<br />
activity has been reduced significantly<br />
and the role of private-sector entrepreneurship<br />
increased. Overall, reform has<br />
had a major beneficial impact on the<br />
economy. Annual growth in GDP per<br />
capita has accelerated from just 1¼ per<br />
cent in the three decades after Independence<br />
to 7½ per cent currently, a<br />
rate of growth that will double average<br />
income in a decade. <strong>The</strong> sustainable<br />
growth rate of the economy is currently<br />
estimated to be 8½ per cent and India<br />
is now the fourth largest economy in the<br />
world when measured using the most<br />
up-to-date purchasing power parities.<br />
Increased economic growth has helped<br />
reduce poverty, which has begun to fall<br />
in absolute terms.<br />
2. In general, areas of the Indian business<br />
sector that have been opened to<br />
private sector involvement have responded<br />
well. In service sectors where<br />
government regulation has either been<br />
eased significantly or was less burdensome<br />
to start with, such as insurance,<br />
asset management and information<br />
technology, output has grown rapidly<br />
with exports of information technology<br />
enabled services being particularly<br />
strong and a key component of India’s<br />
economic transformation. In some of<br />
the former fully government-owned infrastructure<br />
sectors, such as telecommunications<br />
and domestic civil aviation,<br />
opening to the private sector has produced<br />
exemplary results and growth has<br />
been phenomenal. <strong>The</strong> market shares<br />
of new entrants in both these sectors are<br />
now over 75% while consumer choice<br />
has expanded and prices have fallen.<br />
3. Notwithstanding these and other success<br />
stories, government regulation is<br />
still excessively restrictive and acts as a<br />
barrier to private sector involvement in<br />
a number of areas. In this article we<br />
draw on the OECD’s first Economic<br />
138 THE <strong>IIPM</strong> THINK TANK