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

Kalpana Kochhar,
Senior Advisor, Asia and
Pacific Department,
International Monetary Fund,
Washington D.C.
India’s Unique Pattern Of
Development: Quo vadis? 1
"If I were asked under what
sky the human mind has
most fully developed some of
its choicest gifts, has most
deeply pondered on the greatest
problems of life, and has
found solutions, I should point
to India."
-Max Muller
Introduction
Much has been written about India’s ongoing
demographic transition and the
dividend from the rise in working age
population that is expected to continue
well into this century. But, of course, this
dividend will only be realized if the 13 million
or so people that will enter the labor
force each year for the next four decades
can be gainfully employed. Has India specialized
in labor intensive as one would
expect in a labor abundant country? And,
if not, how will India be able to foster
growth in labor-intensive manufacturing
going forward so that jobs can be provided
for India’s vast and growing pool of lowskilled
labor?
We start with an examination of how
India’s policies since independence have
influenced its pattern of development.
Then we ask whether the wide-ranging
reforms beginning in the 1980s and accelerating
in the 1990s changed this pattern
of specialization. Finally, we look at the
way India’s states have developed to consider
what the future might look like?
What were the main elements of India’s
development strategy in the first three and
a half decades since Independence? A
simplified view of the main aspects include:
(i) the emphasis on self-sufficiency,
which led to the creation of industries producing
capital goods and extensive trade
restrictions; (ii) the combination of heavy
public sector involvement in production
being reserved only for the public sector
and controlled private sector involvement
to take account of the fact that India was
capital poor. Licenses were required for
investment, capacity expansion, production,
and imports, while foreign exchange,
credit allocation, and even prices were
controlled; (iii) avoidance of undue concentration
of economic power through the
Monopoly and Restrictive Trade Practices
act (MRTP)—which imposed severe
constraints on expansion by large firms
and groups, and the Foreign Exchange
Regulation Act (FERA); (iv) geographically
balanced development with investment
directed towards underdeveloped
areas, even if these areas were not near
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