The Economy of India by V. N. Balasubramanyam

Author:V. N. Balasubramanyam [Balasubramanyam, V. N.]
Language: eng
Format: epub
Tags: History, Asia, General
ISBN: 9780813302997
Google: M3-uAAAAIAAJ
Goodreads: 15305185
Publisher: Westview Press
Published: 1985-12-12T00:00:00+00:00

The strategy and its consequences

The main features of the import-substituting industrialization strategy and its consequences have been analysed in detail in the seminal studies by Bhagwati and Desai, and Bhagwati and Srinvasan;8 we note only the main points here. The main policy instruments of the strategy were tariffs and quantitative restrictions on imports, coupled with a detailed system of foreign-exchange allocation and a complicated system of industrial licensing. In addition there were price and distribution controls over key industrial inputs. The stated objectives of the system of industrial licensing and controls were to regulate industrial investments according to plan priorities, limit the concentration of ownership of industries, protect and promote small-scale industries and promote balanced regional development.

Bhagwati and Desai conclude from their detailed analysis that these policy instruments lacked any sort of economic rationale and were subject to ad hoc bureaucratic decision-making; that the industrial licensing and import control policies had served to eliminate competition to existing firms from both prospective domestic rivals and imports; and that the policy of allocating import licences on the basis of existing capacity had created an artificial and wasteful incentive to overbuild capacity. Further, the policies had imparted a bias in favour of producing for the relatively profitable domestic markets, and against exporting. In sum, the policy instruments, far from promoting the stated objectives, had contributed to widespread economic inefficiencies in resource allocation, increased concentration of incomes and wealth, and slow growth in employment.

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