- Tim Callen, Christopher Towe, and Patricia Reynolds
- Published Date:
- February 2001
Acharya, S.,1999, “Managing External Economic Challenges in the Nineties: Lessons for the Future,”Anniversary Lecture delivered at the Centre for Banking Studies, Central Bank of Sri Lanka, September19.
Ahluwulia, M.S.,2000, “Economic Performance of States in Post-Reforms Period,”Economic and Political Weekly, May6, pp. 1637–48.
Ahluwulia, M.S.,1999, “Priorities for Economic Reforms,”13th Jawaharlal Nehru Memorial IFFCO Lecture, November.
Aiyar, S.,2001, “Growth Theory and Convergence Across States: A Panel Study,” in India: Prospects and Challenges, ed. byT.Callen, P.Reynolds, and C.Towe (Washington: International Monetary Fund), Chapter 8.
Bajpai, N.,T.Jian, and J.D.Sachs,1999, “Economic Reforms in China and India: Selected Issues in Industrial Policy,”Development Discussion Paper No 580, Harvard Institute for International Development.
Bajpai, N., and J.D.Sachs,1997, “India’s Economic Reforms: Some Lessons from East Asia,”The Journal of International Trade & Economic Development, Vol. 6, No. 2, pp. 135–64.
Bajpai, N., and J.D.Sachs,1999, “The Progress of Policy Reform and Variations in Performance at the Sub-National Level in India,”Development Discussion Paper No. 730, Harvard Institute for International Development.
Basu, K.,G.S.Fields, and S.Desgupta,1999, “Retrenchment, Labor Laws and Government Policy: An Analysis with Special Reference to India,”World Bank, unpublished mimeo.
Desai, A.V.,1999, “The Economics and Politics of Transition to an Open Market Economy,”OECD Technical Paper No. 155, October.
Economist Intelligence Unit, 2000, India Country Report, First Quarter.
Government of India, Ministry of Finance, Economic Survey, various issues.
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Tendulkar, S.,1998, “Indian Economic Policy Reforms and Poverty: An Assessment,” in India’s Economic Reforms and Development: Essays for Manmohan Singh, ed. byI.J.Ahluwalia and I.M.D.Little (Delhi: Oxford University Press).
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This deficit appears to have been acknowledged by the government, which requested the Economic Advisory Council in July 2000 to prepare a strategy paper identifying reform priorities, as a vehicle for establishing a political consensus for action on a broad front.
Interpretation of poverty trends is complicated by the fact that the results of mote recent smaller-sample surveys have not yet been confirmed by the official large-sample survey that is due to be released in 2001. Moreover, analysts have suggested that the decline in poverty in the 1970s and 1980s was overstated by underestimates of in-kind income during the early part of the period, while other analysts argue that the downward trend has been underestimated by overestimates of inflation. For a discussion, see Chapter 8 and Ahluwalia (2000).
In particular, see the discussions by the Ministry of Finance and Reserve Bank of India in various issues of the Economic Survey and Annual Report, respectively; Ahluwalia (1999); Acharya (1999); Rajiv Gandhi Institute for Contemporary Studies (1998); World Bank (2000); and Desai (1999).
Mega power projects are defined as thermal plants that will generate at least 1,000 mw annually, or hydro plants that will generate at least 500 mw annually.
In particular, switching capacity increased by 23 percent in 1998/99 alone. However, telephone density in India is 1.7 percent, compared to 11.4 percent in Thailand, 7.3 percent in China, and 2.9 percent in Indonesia (World Bank, 2000).
Average turnaround time fell from 6.6 days in 1997/98 to 5.9 days in 1998/99, compared to about 8 hours turnaround in competitor ports.
An important example of the adverse effects of these regulatory problems is the recent decision by the U.S. company Cogentrix to pull out of a power project in Karnataka, after 10 years and $27 million in expenditures, due to clearance delays. Approval of power purchase agreements at the state level can require clearances by as many as 27 interministerial committees (Economist Intelligence Unit, 2000).
A discussion of recent trade policy developments is contained in Herderschee (2000).
Companies implementing infrastructure projects via subsidiary joint ventures are permitted to tap ECB up to $200 million (the previous limit was $50 million), and ECB exposure limits on infrastructure projects have been increased to 50 percent from 35 percent (the limit can also exceed 50 percent in special cases). Export units are now allowed ECB exposure up to 60 percent of project cost. ECB clearance procedures were simplified, and 100 percent prepayment of borrowing through export earnings is now allowed.
For example, foreign ownership of equity is limited to 49 percent in telecommunications; 74 percent in bulk pharmaceuticals, mining of diamonds and precious stones, and advertising; and 51 percent in hotels and tourism-related industry. Also, foreign investment in small-scale industries is limited to 24 percent of capital.
See footnote 7 for an example.
Chapter 2 contains a more detailed discussion of capital account restrictions and their impact in recent years.
Small-scale industries are defined as firms with investment in plant and machinery not exceeding Rs 1 million—the limit was reduced to this level in FY 1999/2000. after having been increased from Rs 10 million to Rs 50 million in FY 1998/99. Production of over 800 manufactured items is reserved for SSIs, and they account for roughly 40 percent of manufacturing. See Hussain Committee (1997).
The report suggested reducing the export requirement for larger firms producing reserved items from 50 percent to 30 percent, indexing of investment ceilings, raising the investment ceilings for six sectors, trimming the list of reserved items, and raising the limit on foreign equity participation in SSI units from 24 percent to 49 percent.
As of end-November 1999, less chao 1 percent of companies referred to the BIFR had been revived.
The operations and profitability of PSUs are discussed in greater detail in Hemming (1996).
PSUs in strategic sectors—defense, railways, and atomic energy—would not be divested.
Report IX, Disinvestment Commission, March 1999. In 1998, then Finance Secretary Kelkar also proposed to overcome bureaucratic resistance to assets sales by transferring majority ownership of PSUs to a Special Purpose Vehicle, which would then be responsible for asset sales.
List of Contributors
Shekhar Aiyar is a doctoral student at Brown University. He was an intern in the IMF’s Asia and Pacific Department while the work presented in this book was being prepared.
Tim Callen is a Senior Economist in the IMF’s Asia and Pacific Department. Prior to joining the IMF, he worked for the Bank of England, the Reserve Bank of Australia, and Hamhros Merchant Bank. He holds a master’s degree from Warwick University.
Paul Cashin is an Economist in the Commodities and Special Issues Division of the IMF’s Research Department. During his career at the IMF he has undertaken research on industrial and developing countries, including fiscal and current account sustainability issues. He holds a doctorate from Yale University.
Anna Ilyina is an Economist in the IMF’s Research Department. While the work for this book was being prepared, she was in the IMF’s Asia and Pacific Department. She holds a doctorate from the University of Pennsylvania.
Daniel Kanda is an Economist in the IMF’s Asia and Pacific Department. He holds a doctorate from Queen’s University.
Nilss Okkains is Associate Professor of economics in the Department of Economics of the University of Melbourne, Australia. While the work on this book was being prepared, he was a Visiting Scholar in the IMF’s Research Department. He holds a doctorate from La Trobe University.
Patricia Reynolds is a Senior Economist in the IMF’s Asia and Pacific Department. Prior to joining the IMF, she was Assistant Professor at the University of Southern California. She holds a doctorate from Northwestern University.
Ratna Sahay is the Advisor to the First Deputy Managing Director of the IMF. While work for this book was completed, she was in the IMF’s Research Department, where she worked on a variety of issues related to developing and transition countries. She holds a doctorate from New York University.
Christopher Towe is a Division Chief in the IMF’s Asia and Pacific Department. Prior to joining the Fund, he worked at the Bank of Canada and holds a Ph.D. from the University of Western Ontario.
Nearly ten years after its balance of payments crisis in 1991, the Indian economy today stands at a crossroads. Since the early 1990s, India has undertaken wide-ranging reforms that helped foster a strong recovery and helped the economy maintain strong growth even during the period of the Asian financial crisis. Nonetheless, the process of reform is still incomplete, the fiscal situation has deteriorated, and significant policy challenges remain to be addressed for India to enjoy the full benefit from the growing globalization of financial and goods markets and achieve the sustained growth necessary for poverty reduction.
India at the Crossroads brings together the IMF’s latest research and analysis of India’s macroeconomic policies and fiscal health. The authors examine the numerous structural and policy changes the Indian authorities have adopted since 1991, how these changes helped India weather the Asian financial crisis of 1997–98, the risks to fiscal sustainability and their implications for growth, the challenges facing monetary policy in the face of financial market liberalization, and the benefits of structural reform and fiscal policy for growth, poverty, and the reduction of regional disparities.