look news india
The whole world connects development with the economy. Our Indian economy has gone through two major phases on the front of policy changes. The first, which is not discussed much these days, is the beginning of planned development in April 1951, when the first five-year plan was launched. The second was the economic liberalization started in July 1991, which is discussed more. In some ways, the process of growth accelerated due to both of these.
It is a different matter that the role of the government in both the scenarios is quite different. The impact of both these changes can be seen in the growth, investment and business trends of the economy. A relatively slow phase of growth also took place from the mid-60s to the end of the 70s, when a decade full of drought, new agricultural growth policy and political turmoil was in front.
The changes brought about by the 1951-52 measures may seem small but were significant because they increased the average annual growth rate from 0.5 per cent in the century before independence by nine times. Between 1951 and 1965, economic policy focused on the development of the public sector, especially heavy industry. However, private investment also increased during this period. Growth through export production was not possible because the value of global trade began to rise only from the late 60s.
The high growth phase began in the 1980s but the shift from public to private investment in the policy sector began after liberalisation in July 1991. Apart from reducing government control in investment and foreign trade, a major change was the entry of the private sector in banking and mutual funds.
Looking at the pre-liberalisation trend, this financial liberalisation has been a bigger change than the delicensing of industrial investment. For example, we have seen a huge increase in the fresh capital raised by non-government public limited companies, from around Rs 600 crore in 1981-82 to nearly Rs 1.5 lakh crore in 2021-22.
The shift to export-led growth appears less pronounced. India's share of global merchandise exports was 1.9 per cent in 1951. In the first transitional phase, it fell to 0.4 per cent by 1980. But it has grown steadily since then, and with eight years of high growth since 2003, India has more than doubled its share of global manufacturing exports. It is now 1.8 per cent, slightly below the 1951 level. India's global share of commercial services exports has increased from 0.6 per cent in 1990 to 4.3 per cent in 2023.
The question is, if we are to become a developed country by 2047, what changes will have to be made in the relationship between government and business? The most obvious change is to change the relationship between the government and the private business sector from a partnership that promotes select companies to a partnership where the government is aligned with the market, not business, and its relationship with all companies is completely neutral.
This is not only an effective policy to avoid collusion and corruption, but also because politicians and bureaucrats do not have as much knowledge about technology, products, processes, market developments, etc. as corporate executives. The production-linked incentive (PLI) scheme, which requires actual demonstration of prioritised technologies and rigorous bureaucratic scrutiny, is an example of what needs to change.
Completely sidelining producer interests in deciding goods and services tax (GST) and trade tax policies would be an important step towards making the government a market-friendly neutral agent. If complete neutrality is difficult, at least it can be ensured that the interests of specific producers are the exception rather than the rule. The most important policy initiative should be to increase the capacity and effectiveness of the Competition Commission.