Page 118 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes Thus, during the five-year period (1990-91 to 1995-96), exports increased from $18,477 million in
1990-91 to $32,311 million in 1995-96, indicating a growth rate of 11.8%. Similarly, imports grew from
$27,194 million in 1990-91 to $43,670 million in 1995-96, indicating a growth rate of 9.3%. It may
noted that balance of payments was adverse to the extent of an annual average of $3,028 million and
the situation worsened during 1996-97 and 2000-01. at the same time, trade balance was unfavourable
to the extent of $15,156 million but India was able to get a favourable net invisibles balance of $10,667
million. During the period, the annual growth of exports was of the order of 6.3 per cent. However,
the situation took a turn during the three-year period (2001-02 to 2003-04) and annual average growth
of exports was 12.9% and that of imports was 10.5%. India had a positive balance on current account
of the annual average of $5,896 million. A liberal import policy, removal of all quantitative restrictions
and reduction of import tariffs has resulted, in a deepening of adverse trade deficit. It means that
during the 13-year period of economic reforms, India was able to increase her exports from $18.26
billion in 1991-92 to $79.59 billion in 2004-05, but as against them, imports had shot up from $21.06
billion in 1991-92 to $106.12 billion in 2004-05. Obviously, foreigners have been able to penetrate the
Indian market much more than India has been able to extend her reach to foreign markets. But, India
has gained on account of net invisibles and the positive balance of net invisibles has continued its
upward trend. At present, there is a sharp increase in net software exports rising to $11.75 billion in
2003-04.
Economic Reforms and Foreign Investment Inflows : Foreign investment helps to increase capital
formation of the economy without creating foreign debt. Thus, raising it was a major objective of
economic reforms. Foreign investment flows take two forms -foreign direct investment and portfolio
investment. During the 13-year period (1991-92 to 2003-04), out of a total foreign investment of $70.98
billion, foreign direct investment accounted for $35.35 billion (49.8%) and portfolio investment was
$35.63 billion (51.2%). However, China has been able to attract a much higher level of foreign
investment than India. Moreover, the gap between actual flows and approvals is another problem in
India. There is bound to be a gap between actual flows and approvals because it does take time to
actualise a promise, but the gap is too wide in the case of India. Therefore, it must be bridged and
taken care of.
Economic Reforms and Infrastructure Growth : The base year of infrastructure data for post-reform
period (1993-94 to 2003-04) is 1993-94. Thus, the growth rates are not strictly comparable with the pre-
reform period. In case of saleable steel and cement, growth rates in the post-reform period were higher
than in the pre-reform period. Similarly, for steel, growth rate during 1993-94 to 2002-03 was 9.5% as
against only 4.9% in the 1980s. Moreover, for cement, growth rate in the post-reform period was 8.2%
as against 4.0% in the prereform period. In the post-reform period, the withdrawal of state control in
pricing carried out in the 1980s was responsible for the uptrend. At the same time, we find that other
infrastructure industries like electricity, coal and petroleum showed lower growth rates in the post-
reform period than in the pre-reform period. Similarly, the sharpest decline was noticed in petroleum
from 12.2% in the eighties to merely 2.2% in the post-reform period. It may be noted that the much
trumpeted claim that foreign private investment could boost infrastructure growth could not be realized.
Economic Reforms and Reduction of Regional Disparities : The objective of development must
include reduction of regional disparities. As such, government has been supporting the backward
states with higher locations. The reform is now emphasising the use of market forces to attract
Investments and it has been observed that the relatively developed regions are able to attract more
resources. Thus, the issue of reducing regional disparities is sidelined. Looking at the data, we find
that NSDP in forward states indicated a growth rate 6.0% per annum during the period 1990-91 to
2000-01, but as against them, it grew in backward states at merely 1.4%. Thus, the period of economic
reforms has resulted in increasing regional disparities. It was found that approval of investment
proposals and grant of financial assistance helped the forward states to further accelerate growth.
Economic Reforms and Human Development : Economic reforms should step up investment in
education and health infrastructure for the progress of human development. There are examples of
Kerala and Tamil Nadu which have achieved higher levels of human development even with relatively
lower levels of economic development, yet, by and large, better levels of per capita NSDP are associated
with higher levels of human development in terms of education and health. It may be noted that

112 LOVELY PROFESSIONAL UNIVERSITY