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MORE MARKETS, LESS GOVERNMENT grew at robust annual rates, with free markets, established rule-of-law and protected private property rights. Using time difference calculation as a measure, today’s time gap between Slovenia and Ireland is approximately 40 years 18 Iceland’s recovery from decades of interrupted Keynesian economic policy lasted from than Icelandic policymakers estimated. Until late 1980s, Icelandic economy was marred by government ownership, periods of high inflation when oil shocks, tight labor markets and devaluation bias caused a spiral of inflationary pressures. 19 In 1990, Icelandic policymakers reduced the corporate tax rate from 50 percent to 33 percent by the mid 1990s. In 2003, the rate was further slashed to 18 percent. The effect of supply-side tax reform was a pure theoretical assertion of the Laffer curve whereby lower tax rates increased revenue from taxes as a share of the GDP respectively. According to Iceland’s Ministry of Finance, in 1985 when corporate tax rate was 50 percent, the share of corporate tax revenue in the GDP was 0.9 percent. In 2003, when the corporate tax rate was 18 percent, corporate tax revenue in the share of the GDP jumped to 1.5 percent. 20 Thus, during the period of a continued reduction of corporate tax rate, overall revenue from corporate tax increased by 67 percent. Noteworthy, the restructuring of Iceland’s economy was primarily based on privatization of nationalized enterprises and assets, strong fiscal management and responsible leadership on the part of labor unions and employers. Now, Iceland is one of the wealthiest countries in the world. In 2006, according to World Bank, 21 Iceland’s gross national income per capita was $50,580 per capita as measured by Atlas method and $36,560 per capita in terms of purchasing power parity. India: High-Growing Tiger Or An Economic Laggard? In this article I highlighted the prospects of the economic reforms in India. After a detailed study of the data and empirical work, I concluded the research and put it in a written and hopefully understandable form. India is an economy in transition currently facing high output growth rates and enviable economic perspective in the future. Growth is expected to remain steady over years in the future. However, substantial change in global environment demand a significant infusion of economic reforms to boost the productive behavior, economic growth while ‘rules-ratherthan-discretion’ monetary policy is essential to the pursuit of price stability instead of discretionary price controls and market regulation that harm competitive forces in the market. In the international arena, India is frequently associated with high-growing East Asian phenomena besides China. 22 By 2040, China will reach $123 trillion USD which is equal to three times of global output by the end of 2000. 23 Growth estimates for India suggest a relatively lower but steady-state growth rate mainly because of political constraints and structural costs such as widespread perception of corruption, government intervention and ownership of enterprises and harmful regulation of the economy through obscure administrative code, fiercely uncompetitive investment environment marred by red-tape, complexity hostile to foreign direct investors, trade protectionism and weak enforcement of private property rights. These particular politically-installed disadvantages may hamper India’s long-term economic performance and impede growth prospects respectively. Relying on neoclassical growth theory and strong growth foundations such as free and deregulated product markets, liberalized labor market, the protection of private property, trade liberalization to the fullest possible extent, an independent judicial system, the rule of law and market institutions would, by experience and empirical premise, significantly boost India’s economic potentials and growth perspectives. Deregulated product and labor markets, protection of private property, trade liberalization to the fullest possible extent, an independent judicial system and the rule of law would signifi cantly boost India’s economic potential A growing burden of taxes, corruption and government size and spending would, contrary to popular assertions, impede India’s economic performance and its prospects as a global economic powerhouse in the 21st century. End Notes 1 See: Edmund S. Phelps, Dynamic Capitalism, Opinion Journal, Tuesday, October 10, 2006 http://www.opinionjournal.com/editorial/feature.html?id=110009068 2 See: World Economic Outlook, International Monetary Fund, October 2007, Washington D.C. http://www.imf.org/external/pubs/ft/ weo/2007/02/index.htm THE INDIA ECONOMY REVIEW 151
REIMAGINING INDIA 3 Aggregate demand is an investment driven by government spending 4 Robert Barro: Economic Growth in a Cross Section of Countries, Quarterly Journal of Economics, Vol. 106, p. 407-43, May, 1991 http://ideas.repec.org/a/tpr/qjecon/ v106y1991i2p407-43.html 5 Kerk Phillips, Kunrong Shen: What Effect does the Size of the State- Owned Sector Have on Regional Growth in China, Birgham Young University, Economics Working Papers, April 2003 http://papers.ssrn.com/sol3/papers. cfm?abstract_id=395890 6 Andrea Bassanini, Stefano Scarpetta: The Driving Forces of Economic Growth: Panel Data Evidence for the OECD Countries, Organization for Economic Cooperation and Development, Economic Studies No.33, February 2001 http://www.oecd.org/dataoecd/26/2/18450995.pdf 7 Vito Tanzi,. Ludger Schuknecht: Reforming Government in Industrial Countries, International Monetary Fund Finance & Development, September 1996 http://www.imf.org/external/pubs/ft/ fandd/1996/09/pdf/tanzi.pdf 8 Index of Economic Freedom 2007 – India, Heritage Foundation http:// www.heritage.org/research/features/ index/country.cfm?id=India 9 Edward Prescott: The Elasticity of the Labor Supply and the Consequences for Tax Policy, Federal Reserve Bank of Minneapolis, February 2005 http://www.minneapolisfed.org/research/prescott/papers/Labor Supply.pdf 10 Simoen Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho, Andrei Schleifer: The Effect of Corporate Taxes on Investment and Entrepreneurship, Public Economics Program Meeting 2007, National Bureau of Economic Research http://www.nber.org/confer/2007/ pef07/shleifer.pdf 11 Hiroko Oura, Wild or Tamed? India’s Potential Growth Rate, International Monetary Fund, Working Paper No. 07/224, September 2007 http://www.imf.org/external/pubs/cat/ longres.cfm?sk=21326.0 12 According to Heritage Foundation’s annual Index of Economic Freedom (2007), India is 84,8 percent free in fiscal terms and 89 percent free in terms of freedom from government http://www.heritage.org/research/features/index/countryFiles/pdfs/India. pdf 13 Transparency International: Corruption Perception Index, 2007 http://www.transparency.org/policy_ research/surveys_indices/cpi 14 Peter van de Hoek: Tax Harmonization and Competition in the European Union, eJournal of Tax Research, 2003 http://www.austlii.edu.au/au/journals/ eJTR/2003/2.html#Heading50 15 A detailed investigation of corruption and its effect on growth and economic performance was conducted by: Paolo Mauro: Corruption and Growth, The Quarterly Journal of Economics, vol. 110, Issue 3, p. 681-712, 1995 http://econpapers.repec.org/article/ tprqjecon/v_3A110_3Ay_3A1995_ 3Ai_3A3_3Ap_3A681-712.htm 16 Brendan Walsh: The Source of Wealth in Small States. Small States as Financial Centers: The Case of Ireland, A presentation at the conference Small States as Financial Centers, University of Iceland, Reykjavik, Friday 14 December, 2007 http://www.skattamal.is/smallstates/ Walsh.SmallStates.14.09.07.ppt 17 Penn World Table http://pwt.econ.upenn.edu/php_site/ pwt_index.php 18 Author’s own calculations 19 Már Guðmundsson, Palle S. Andersen: Inflation and disinflation in Iceland, BIS Working Paper No.52, Bank for International Settlements, June 1998 http://ideas.repec.org/p/bis/biswps/52. html 20 Ministry of Finance, Iceland, »Principal Tax Rates«, July 2006 http://eng.fjarmalaraduneyti.is/media/ Taxes/Principal_tax_rates_2006.pdf. 21 World Bank, GNI per capita 2006, Atlas method and PPP, World Development Indicators database, July 1 2006 http://siteresources.worldbank.org/ DATASTATISTICS/Resources/ GNIPC.pdf 22 Srinivasan (2004) 23 Robert W. Fogel: Capitalism and Democracy in 2040: Forecasts and Speculations, NBER Working Paper No. 13184, National Bureau of Economic Research, June 2007; http://www.nber. org/papers/w13184 References • Barro, Robert J. (1991), Economic Growth in a Cross Section of Countries, Quarterly Journal of Economics, Vol. 106, p. 407-43 http://ideas.repec.org/a/tpr/qjecon/ 152 THE IIPM THINK TANK
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THE INDIA ECONOMY REVIEW 2007 Volum
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ethink edify edify delineate rethin
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SEARCH, SIEVE, SCHEME... “Researc
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Christopher LINGLE, Professor of Ec
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REIMAGINING INDIA rights as group r
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Lawrence Surendra, Planning Commiss
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REIMAGINING INDIA of globalization,
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REIMAGINING INDIA systematic underi
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REIMAGINING INDIA and South-East As
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Pradeep Banerjee, Independent Consu
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REIMAGINING INDIA yet another Scot
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REIMAGINING INDIA ‘native despot
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REIMAGINING INDIA mean a slow down
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Anandajit Goswami, Associate Fellow
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REIMAGINING INDIA country grows it
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Amal Sanyal, Associate Professor, L
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REIMAGINING INDIA then the resource
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REIMAGINING INDIA entry tickets or
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Nilanjan Banik, Associate Professor
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REIMAGINING INDIA Table 2: Reforms
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Shripad Dharmadikary Manthan Adhyay
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REIMAGINING INDIA the same. The pro
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REIMAGINING INDIA has a religious g
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D.M.Diwakar, Professor of Economics
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REIMAGINING INDIA During 1990-91 to
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REIMAGINING INDIA was lowest in STs
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REIMAGINING INDIA cide in Wayanad D
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REIMAGINING INDIA which is always d
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Anu Singh, Professor of Economics,
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REIMAGINING INDIA age in the eighti
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REIMAGINING INDIA period. Also, the
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Anindo Banerjee, Head, Programme In
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REIMAGINING INDIA a complex interpl
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REIMAGINING INDIA solution, or do t
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Anjani Sinha Managing Director & CE
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REIMAGINING INDIA let us take the c
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REIMAGINING INDIA etc. The idea is
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James Tooley, President, The Educat
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REIMAGINING INDIA the reported low
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REIMAGINING INDIA the best educatio
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Stephen P. Heyneman, Professor, Int
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REIMAGINING INDIA Figure I: Ranking
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REIMAGINING INDIA democracy to limi
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REIMAGINING INDIA free of private c
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Jharna Pathak Assistant Professor,
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REIMAGINING INDIA Figure-1: Total G
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Ahmedabad Amreli Banaskantha Baroda
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Page 190 and 191: P LANMAN TECHNOLOGIES KNOWLEDGE . I
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