[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

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