American Economic Association

Economic Reforms in India since 1991: Has Gradualism Worked? Author(s): Montek S. Ahluwalia Reviewed work(s): Source: The Journal of Economic Perspectives, Vol. 16, No. 3 (Summer, 2002), pp. 67-88 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/3216951 . Accessed: 10/11/2012 17:53
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Journal

of Economic Perspectives?Volume

16, Number 3?Summer

2002?Pages

67-88

Economic Has Gradualism

Reforms

in Worked?

India

Since

1991:

Montek

S.

Ahluwalia

was a latecomer

to economic

earnest only in 1991, in the wake of India payments crisis. The need for a policy shift had become evident much earlier, as many countries in east Asia achieved high growth and poverty reduction through that emphasized of the and encouragement policies greater export orientation in the 1980s, but it was not private sector. India took some steps in this direction until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector of the role of government. and a restructuring including foreign investment, in the postreform India's economic period has many positive performance features. to from 1992-1993 growth rate in the ten-year period 6.0 percent, as shown in Table 1, which puts India among in the 1990s. This growth record is only the fastest growing developing countries slightly better than the annual average of 5.7 percent in the 1980s, but it can be fuelled by a buildup of external argued that the 1980s growth was unsustainable, The 2001-2002 average was around debt that culminated accompanied also declined 1980s, by remarkable in the crisis of 1991. In sharp contrast, growth in the 1990s was external stability despite the east Asian crisis. Poverty

reforms, embarking of an exceptionally

on the process severe balance

in

in the postreform period and at a faster rate than in the studies (as Ravallion and Datt discuss in this issue). the ten-year average growth performance hides the fact that while However, the economy at an impressive in the first five years after the 6.7 percent grew reforms, it slowed down to 5.4 percent in the next five years. India remained among significantly to some according the fastest developing in the second subperiod countries because other growing developing countries also slowed down after the east Asian crisis, but the annual

is Director, Independent Evaluation Office, International Monetary D. C. Prior tojuly 2001, he served in the Government of India as Member, Fund, Washington, Planning Commission, and before that as Finance Secretary in the Ministry of Finance.

? Montek S. Ahluwalia

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68

Journal

of Economic Perspectives

Table 1 India's Growth Performance

(percentage per year)

Note:Growth rates for 2001-2002 are projections of the Ministryof Finance based on partial information. Source: Economic Survey 2001-2002, Ministry of Finance, Government of India, 2002.

growth

was much below the percent had set for the period. Inevitably, government of the reforms. about the effectiveness

of 5.4

which the target of 7.5 percent, this has led to some questioning

on the causes of India's growth deceleration vary. World economic Opinions was slower in the second half of the 1990s, and that would have had some growth effect, but India's dependence dampening for this to account for the slowdown. enough the slowdown on the world economy Critics of liberalization is not large have blamed

on the effect of trade policy reforms on domestic (for industry Nambiar, Mumgekar and Tadas, 1999; Chaudhuri, 2002).: However, the example, opposite view is that the slowdown is due not to the effects of reforms, but rather to the failure to implement the reforms effectively. This in turn is often attributed approach to reform, which has meant a frustratingly slow pace even a gradualist However, pace should be able to achieve over ten years. This paper examines India's experience policy changes significant with gradualist reforms from this perspective. to India's gradualist of implementation. in several major areas covered by the reform policy changes and trade policy, agricultural fiscal deficit reduction, industrial policy, program: infrastructure financial and social development, development, privatization We review

approach reflects, to some extent, the revisionist view of the role of trade policy reforms being expressed internationally as, for example, by Rodrik (1999). For a critique of the revisionist view, see Bhagwati and Srinivasan (2001).

1 This

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Montek S. Ahluwalia

69

sector of ten ment

the cumulative outcome Based on this review, we consider development. an the reforms have created of gradualism to assess whether years that can support 8 percent GDP growth, which is now the govern? target.

environment

Savings,

Investment

and

Fiscal

Discipline

Fiscal profligacy was seen to have caused India's balance of payments crisis in in the fiscal deficit was therefore an urgent priority at the 1991, and a reduction fiscal deficit of the central and state governstart of the reforms. The combined in both to 7 percent ments was successfully reduced from 9.4 percent of GDP in 1990-1991 and the balance of payments crisis was over by and 1992-1993, 1991-1992 1993. However, the reforms also had a medium-term fiscal objective of improving

could be financed with a smaller public savings so that essential public investment This part of the reform fiscal deficit to avoid "crowding out" private investment. never implemented. strategy was unfortunately in Table 2, public savings deteriorated steadily from +1.7 percent of in a compaThis was reflected GDP in 1996-1997 to -1.7 percent in 2000-2001. As shown in the fiscal deficit, taking it to 9.6 percent of GDP in 2000deterioration 2001. Not only is this among the highest in the developing world, it is particularly because India's public debt to GDP ratio is also very high, at around worrisome to only 11 amount 80 percent. Since the total financial savings of households rable about 90 percent of house? percent of GDP, the fiscal deficit effectively preempts hold financial savings for the government. What is worse, the rising fiscal deficit in the second half of the 1990s was not financing higher levels of public investment, which was more trends in future. or less constant east serious These ability to achieve higher rates of The growth rate of 6 percent per year in the postreform period of GDP. rate of around with an average investment 23 percent doubts in this period. on India's

growth was achieved

increase in invest? to 8 percent growth will require a commensurate Accelerating of this magnitude in east Asia were associated with investment ment. Growth rates rates ranging from 36 to 38 percent of GDP. While it can be argued that there was overinvestment accelerate 29-30 direct in east Asia, especially in recent years, it is unlikely that India can to around to 8 percent growth unless it can raise the rate of investment of GDP. Part of the increase

can be financed by increasing foreign but even if foreign direct investment increases from the present investment, but not impossible level of 0.5 percent of GDP to 2.0 percent?an optimistic would still have to increase by at least 5 percentage points target?domestic savings percent of GDP. savings be increased by this amount? have been buoyant in the postreform private savings period, Can domestic As shown but public in Table 2, savings have

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TO Journal

of Economic Perspectives

Table 2 Major Macroeconomic (percentage of GDP) Indicators

Notes:Public sector capital formation minus public sector savings does not equal the fiscal deficit because the definition of public sector for estimate of savings and capital formation includes nondepartmental enterprises. Estimates of public sector savings and capital formation distinguishing general government from nondepartmental enterprises are not readily available for recent years.

steadily. This trend needs to be reversed.2 Both the central government and the state governments would have to take a number of hard decisions to bring declined about in their respective improvements spheres. The central government's effort must be directed because primarily toward improving in this area has deteriorated in the performance significantly Total tax revenues of the center were 9.7 percent of GDP in period. to only 8.8 percent in 2000-2001, whereas they should They declined

revenues, postreform 1990-1991.

have increased

by at least two percentage points. Tax reforms involving lowering of tax rates, broadening the tax base and reducing loopholes to raise were expected the tax ratio, and they did succeed in the case of personal and corporate income of GDP. This was expected taxation, but indirect taxes have fallen as a percentage of customs duties, which were but this decline should have been

in the case reforms,

as part of trade reduced deliberately from offset by improving collections domestic indirect taxes on goods and by extending indirect taxation to services. This part of the revenue strategy has not worked as expected. The Advisory Group on Tax Policy for the Tenth Plan recently of proposals for made a number tax administration, modernizing reducing including especially computerization, the degree of exemption of services taxation for small-scale units and integration

2 An increase in public savings will have some negative effect on private savings as, for example, when higher tax revenues lead to a reduction in disposable income in the private sector, which in turn reduces private savings, but the net effect will still be positive.

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Economic Reforms in India Since 1991: Has Gradualism

Worked?

71

with taxation need

subsidies, which are known subsidies on food and to be highly distortionary and poorly targeted (for example, and to introduce rational user charges for services such as passenger fertilizers), was traffic on the railways, the postal system and university education. Overstaffing government recently estimated at 30 percent, State governments also need be modernized and downsizing would help reduce expenditure. to take corrective steps. Sales tax systems need to in most states. Agricultural income tax is constitutionally assigned

of goods to be implemented There is also room

(Planning

Commission,

2001a).

These

recommendations

urgently.3 to reduce central

to tax agricultural income. Land revenue to the states, but no state has attempted and is a traditional but it has been generally neglected tax based on landholding, in many states. Urban property abolished taxation could yield much larger re? been if suitably modernized, but this tax base has also governments State governments suffer from very large losses in state generally neglected. losses in substantial electricity boards (about 1 percent of GDP) and experience sources for municipal water supply, state road transport corporations and in managing is greater in the states than in the center. of both the central irrigation

urban

systems. Overstaffing The fiscal failures

the capacity of both the center and have also crowded out private investment. High levels of government borrowing the potential benefits from reforms investment. Unless this problem is addressed, in other areas will be eroded, and it may be difficult even to maintain the average in the first ten years after the reforms, let growth rate of 6 percent experienced alone accelerate to 8 percent.

have squeezed and the state governments the states to undertake essential public

Reforms Reforms reform terized private

in lndustrial

and

Trade

Policy

in industrial and trade policy were a central focus of much of India's effort in the early stages. Industrial policy prior to the reforms was characthat limited the areas in which by multiple controls over private investment investors were allowed to operate and often also determined the scale of the location structure to be of new investment evolved under by a highly to each sector that this and even the technology was highly regime to be used. The inefficient and

operations, industrial needed tailor-made

policy, often providing costs imposed by these protection and Desai, 1965; had been extensively studied (for example, policies Bhagwati 1985), and by 1991, a broad consensus Bhagwati and Srinivasan, 1971; Ahluwalia, A great deal has had emerged on the need for greater liberalization and openness. supported trade protective of industry. The been achieved in this area after ten years of gradualist reforms.

Many countries have increased revenues substantially by switching to an integrated value added tax covering both goods and services. This is not possible in India because of the constitutional division of taxation powers between the center (which can tax production) and the states (which can tax sales). The inability to switch to an integrated value added tax is a major hindrance to tax reform.

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72

Journal

of Economic Perspectives

Industrial

Policy Industrial policy has seen the greatest change, with most central government industrial controls being dismantled. The list of industries reserved solely for the iron and steel, heavy used to cover 18 industries, public sector?which including and machinery, telecommunications and telecom equipment, minerals, oil, plant mining, air transport services and electricity generation been and distribution?has reduced to three industries: aircrafts and warships, atomic defense drastically and railway transport. Industrial licensing energy generation by the central gov? ernment has been almost abolished, and environmenexcept for a few hazardous The requirement sensitive industries. that investments tally by large industrial houses needed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic power was abolished, and the act itself is to be replaced by a new competition behavior in other ways. regulate anticompetitive The main area where law that will attempt to

action has been inadequate relates to the long-standing of certain items for the small-scale sector. About 800 of reserving production policy items were covered by this policy since the late 1970s, which meant that investment in plant and machinery in any individual unit producing these items could not exceed $250,000. Many of the reserved items, such as garments, shoes and toys, had of production and the failure to permit development units high export potential, and a larger scale of production restricted with more modern equipment severely on Small Scale India's export competitiveness. The Report of the Committee Economic (1997) and the Report of the Prime Minister's Enterprises Advisory Council (2001) had both pointed to the remarkable success of China in penetratin ing world markets in these areas and stimulating rapid growth of employment that the policy of reservation should to help small-scale industry. While such a radical change in policy was unacceptable, some policy changes have been made 14 items were removed from the reserved list in 2001, and another 50 very recently: in 2002. The removed items include garments, shoes, toys and auto components, all for certain the investment ceiling are very these changes However, recent, and it will take some years before they are reflected in economic performance. Industrial liberalization needs to be accompanied by the central government of which for exports. are potentially important to $1 million. items was increased In addition, Both reports recommended manufacturing. be abolished and other measures adopted

action by state governments. Private investors require many permisby supporting sions from state governments to start operations, like connections to electricity and must also interact with the state water supply and environmental clearances. They in the course of day-to-day operations because of laws governing pollution, of delays, corruption workers' welfare and safety and such. Complaints sanitation, and harassment from these interactions are common. Some states have arising bureaucracy taken initiatives to ease these interactions, but much more needs to be done. A recently completed joint study by the World Bank and the Confederation of Indian Industry found that the investment climate varies widely across states, and these differences in a disproportional are reflected share of investment, especially foreign investment, being concentrated in what are seen as the more

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Montek S. Ahluwalia

73

states (Maharashtra, Andhra Pradesh and investor-friendly Gujarat, Karnataka, Tamil Nadu) to the disadvantage of other states (like Uttar Pradesh, Bihar and West Bengal) Investors a 30 percent cost advantage (Stern, 2001). perceived in some states over others, on account These growth the quality of governance. in the variation in state differences rates, with of infrastructure of the availability and across states have led to an increase with the some of the (Ahluwalia, the less favored states Because from of to with 1980s

decelerating compared actually liberalization has created a more pursuing good policies state level action. Infrastructure remove, sufficient but deficiencies will. has

competitive

environment,

2002). the payoff

increased,

thereby increasing deficiencies will take time could be handled

importance and resources quickly

in governance

more

political

Trade

Policy Trade policy than in industrial

reform

has also made Before import banned.

liberalization.

For capital goods, raw materials and interlists of goods were freely importable, but for most items where mediates, domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were nontransparent, delays were encertain and corruption unavoidable. and also to reduce import licensing Import licensing was abolished diates, which became a flexible demic The economic duties. reforms sought to phase out import

by high tariffs and pervasive sumer goods were completely

progress, though the pace has been slower the reforms, trade policy was characterized restrictions. conImports of manufactured

exchange on the grounds that it was necessary to manage the balance of payments, but the shift to a flexible exchange rate enabled the government to argue that any balance of payments impact would be effectively dealt with through exchange rate flexibilrestrictions on imports of capital goods and intermediity. Removing quantitative ates was relatively Indian

relatively early for capital goods and intermein 1993, simultaneously with the switch to freely importable rate regime. Import licensing had been traditionally defended

was small and easy, because the number of domestic producers welcomed the move as making it more competitive. It was much industry more difhcult in the case of final consumer goods because the number of domestic producers industry imports removed was very large (partly because much of the consumer goods reserved for small-scale production). on restrictions Quantitative of manufactured consumer goods and agricultural products were finally had been affected

on April 1, 2001, almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States. the second element in the trade strategy, Progress in reducing tariff protection, has been even slower and not always steady. As shown in Table 3, the weighted average to import duty rate declined from the very high level of 72.5 percent in 1991-1992 24.6 percent in 1996-1997. However, the average tariff rate then increased by more

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74

Journal

of Economic Perspectives

Table 3 Weighted Average Import Duty Rates in India Peak Customs Dutya 150 110 85 65 50 52* 45* 45* 40 38.5 35.8 30.8 No. of Basic Duty Ratesb 22 20 16 16 12 9 8 7 7 5 4 4

All Commodities

a Includes the impact of surcharges in the years indicated by an asterisk. In 2000-2001, duties for many agricultural products were raised above the general peak in anticipation of the removal of quantitative restrictions. This explains why the average for all commodities exceeds the peak rate in 2001-2002. b Refers to ad valorem duty rates. Some items attract a specific duty, and these are not included as separate duty rates. Source: Report of the Task Force on Employment, Planning Commission 2000. Estimates for 2002-2003 have been provided by Archana Mathur of the Planning Commission.

than 10 percentage points in the next four years.4 In February 2002, the government a return to reducing tariff protection. The peak duty rate was reduced to signaled 30 percent, a number of duty rates at the higher end of the existing structure were while many low-end duties were raised to 5 percent. The net result is that the weighted average duty rate is 29 percent in 2002-2003. India's tariff levels are significantly lower than in 1991, they remain Although lowered, coun? world, because most other developing among the highest in the developing tries have also reduced tariffs in this period. The weighted average import duty in China and southeast Asia is currently about half the Indian level. The government has announced that average tariffs will be reduced to around 15 percent by 2004, tariffs in India will be much higher than in China, but even if this is implemented, to reduce weighted average duties to about 9 percent by 2005 which has committed to the World Trade Organization. as a condition for admission Foreign Direct Investment

was another important foreign direct investment part of India's Liberalizing reforms, driven by the belief that this would increase the total volume of investment and increase access to world in the economy, technology improve production 100 percent foreign ownership in a large number markets. The policy now allows 4 The

sharp increase in average duty rates in 2000-2001 reflects the imposition of tariffs on many agricultural commodities in anticipation of the removal of quantitative restrictions. Since these items were protected by quantitative restrictions in the mid-1990s, the combined protection provided by tariffs and quantitative restrictions was probably higher in the mid-1990s.

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Economic Reforms in India Since 1991: Has Gradualism

Workedf

75

and majority ownership in all except banks, insurance companies, for obtaining permission and airlines. Procedures were greatly that are eligible for automatic simplified by listing industries approval up to Potenspecified levels of foreign equity (100 percent, 74 percent and 51 percent). tial foreign investors investing within these limits only need to register with the telecommunications Bank of India. For investments in other industries, or for a higher share of than is automatically in listed industries, are considequity permitted applications ered by a Foreign Investment Promotion Board that has established a track record Reserve of speedy decisions. In 1993, foreign institutional investors in the stock market, chase shares of listed Indian companies in existing companies. portfolio investment These reforms have created India's than existed were opening allowed a window to purfor

of industries

environment for a very different competitive in 1991, which has led to significant Indian industry changes. their technology and expanded to more efficient scales have upgraded companies of production. and They have also restructured through mergers and acquisitions refocused their activities to concentrate on areas of competence. New dynamic ranked firms have displaced older and less dynamic ones: of the top 100 companies market capitalization in 1991, about half are no longer in this group. Foreign by investment inflows increased from virtually nothing in 1991 to about 0.5 percent of emerging the change from the prereform foreign owned firms and their products in the domestic added greatly to the pressure to improve quality. China), These policy ment GDP. Although in many this figure remains market much countries the levels of foreign direct invest? 4 percent of GDP in (not to mention The presence of situation is impressive. below market is evident and has

to generate faster industrial growth and changes were expected in of world markets in industrial but performance greater penetration products, As shown in Table 1, industrial this respect has been disappointing. growth in? creased sharply in the first five years after the reforms, but then slowed to an annual rate of 4.5 percent in the next five years. Export performance has improved, but The share of exports of goods in GDP increased from 5.7 percent in modestly. to 9.7 percent, but this reflects in part an exchange rate depreciation. 1990-1991 India's share in world exports, which had declined since 1960, increased steadily slightly from around much of the increase 0.5 percent in 1990-1991 to 0.6 percent in 1999-2000, but in world market share is due to agricultural exports. India's manufactured exports had a 0.5 percent share in world markets for those items in 1990, and this rose to only 0.55 percent by 1999. Unlike the case in China and southeast in India did not play an important role in Asia, foreign direct investment and was instead oriented market. export penetration mainly toward the domestic One reason why export performance has been modest is the slow progress in less and therefore import duties that make India a high-cost producer as a base for export production. have long been able to import Exporters for obtaining procedure inputs needed for exports at zero duty, but the complex the necessary duty-free import licenses typically involves high transactions cost and lowering attractive also explains why with other countries High levels of protection compared direct investment in India has been much more oriented to the protected foreign delays.

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76

Journal

of Economic Perspectives

domestic

market, rather than using India as a base for exports. However, high for poor export performance. tariffs are only part of the explanation The reservation of many potentially items for production in the small-scale sector exportable (which has only recently been relaxed) was also a relevant factor. The poor quality in east and southeast Asia, with infrastructure compared later in this paper, is yet another. of the labor market is a major factor reducing India's competitiveInflexibility ness in exports and also reducing industrial (Planning productivity generally Commission, 2001b). Any firm wishing to close down a plant or to retrench labor infrastructure is discussed in any unit employing more than 100 workers can only do so with the permission of the state government, and this permission is rarely granted. These provisions and are especially onerous for labor-intensive sectors. The discourage employment increased share. other reasonable in the goods market has made labor more willing lack of flexibility only leads to firms losing positions, the legal provisions However, clearly remain much more onerous competition because to take market than in

of India's which

This is an important area of reform that has yet to be addressed. The lack of any system of unemployment insurance makes it difficult to push for in labor flexibility unless a suitable contributory system that is major changes has recently announced its financially viable can be put in place. The government intention have to amend to seek the law and raise the level of employment for retrenchment from 100 workers permission above which at present firms to 1000,

countries.

the scale of retrenchment while simultaneously However, increasing compensation. the amendment has yet to be enacted. for the slowdown in These gaps in the reforms provide a possible explanation industrial relaxation growth in the second half of the 1990s. It can be argued that the initial of controls led to an investment but this could have been boom,

sustained only if industrial investment had been oriented to tapping export markets, as was the case in east Asia. As it happened, India's industrial and trade reforms were not strong enough, nor adequately and labor market supported by infrastructure to generate such a thrust. The one area that has shown robust growth reforms, and is software development through the 1990s with a strong export orientation like medical technology, services. Export earnings in transcription, backup accounting this area have grown from $100 million in 1990-1991 to over $6 billion in and are expected to continue to grow at 20 to 30 percent per year. India's 2000-2001 of trade policy reforms, success in this area is one of the most visible achievements which allow access to imports and technology at exceptionally low rates of duty, and various new types enabled also of the fact that exports in this area depend which has improved infrastructure, considerably primarily on telecommunications in the post-reform period. of services by information and customer related

Reforms

in Agriculture criticism on of India's industrial and economic trade reforms policy, is that they have been that

A common excessively

focused

neglecting

agriculture

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Montek S. Ahluwalia

77

the livelihood of 60 percent of the population. Critics point to the provides deceleration in agricultural growth in the second half of the 1990s (shown in Table 1) as proof of this neglect.5 However, the notion that trade policy changes have not is clearly a misconception. The reduction of protection to helped agriculture and the accompanying in the exchange rate, has tilted industry, depreciation and helped agricultural relative prices in favor of agriculture exports. The index of has increased agricultural prices relative to manufactured products by almost 30 percent in the past ten years (Ministry of Finance, 2002, chapter 5). The share of India's agricultural increased exports in world exports of the same commodities from 1.1 percent in 1990 to 1.9 percent years before the reforms. But while in other critical Bathla in 1999, whereas it had declined in the ten

has benefited from trade policy changes, it has suffered agriculture most notably from the decline in public investment in areas respects, for agricultural such as irrigation and drainage, soil conservation growth,

out by Gulati and management systems and rural roads. As pointed (2001), this decline began much before the reforms and was actually sharper in the 1980s than in the 1990s. They also point out that while public investment this was more than offset by a rise in private investment in agriculture, declined, after the reforms. However, there is no doubt that investment in which accelerated infrastructure is critical for achieving and agriculture-related higher productivity, this investment is only likely to come from the public sector. Indeed, the rising trend in private investment in agriculture if public could easily be dampened in these critical areas is not increased. investment The main reason the deterioration in rural infrastructure has declined is why public investment in the fiscal position of the state governments and the tendency

and water

for politically popular but inefficient and even inequitable subsidies to crowd out fertilmore productive For example, investment. the direct benefit of subsidizing izer and underpricing farmers high-income duction, prices and even and and goes mainly to fertilizer producers and pro? effects on the environment having negative on income of small farmers.6 A phased increase in fertilizer water while and power

of economically rational user charges for irrigation and resources to finance investment in rural infrastructure, electricity both growth and equity. Competitive makes it politically benefiting populism difficult to restructure subsidies in this way, but there is also no alternative solution imposition could raise in sight.

5 India's reforms are often unfavorably compared with the very different sequencing adopted in China, which began with reforms in agriculture in 1978, extending them to industry only in 1984. The comparison is not entirely fair, since Chinese agriculture faced an extremely distorted incentive structure, with virtually no role for markets, that provided an obvious area for high-priority action with potentially large benefits. Since Indian agriculture operated to a much greater extent under market conditions, the situation was very different. 6 Underpricing of water and fertilizer leads to excess usage and waterlogged soil. Free electricity enables larger farmers to pump water from deep wells at relatively low cost. This encourages a much more water-using cropping pattern than would be optimal and also leads to overexploitation of ground water and lowering the water table, which in turn hurts poorer farmers relying upon shallow wells.

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78

Journal

of Economic Perspectives

earlier

in of the policies that were crucial in promoting food grain production are now hindering when this was the prime objective, agricultural years, diversification. Government price support levels for food grains, such as wheat, are Some to be set on the basis of the recommendations of the Commission on

supposed

to calibrate price Costs and Prices, a technical body that is expected Agricultural to reasonable levels. In recent years, support prices have been fixed at support much higher levels, encouraging Indeed, public food grain stocks overproduction. reached 58 million tons on January 1, 2002, against a norm of around 17 million if farmers products. The diversification also calls for radical changes in some outdated laws. Agricultural to impose state governments Essential Commodities Act, which empowers on movement of agricultural across state and sometimes even restrictions products and to limit the maximum and retailers can district boundaries stocks wholesalers carry for certain commodities, diverting local supplies to other Its consequence national market. integrated prices. to prevent exploitive traders from was designed areas of scarcity or from hoarding supplies to raise are denied the benefit of an is that farmers and consumers tons! The support price system clearly needs to be better aligned to market demand are to be encouraged to shift from food grain production toward other

It also prevents the development of modern trading which have a key role to play in the next stage of agricultural diversi? companies, The government has recognized the need for change and recently re? fication. moved certain products?including wheat, rice, coarse grains, edible oil, oilseeds and sugar?from the purview of the act. However, this step may not suffice, since state governments may be able to take similar action. What is needed is a repeal of the existing act and central legislation that would make it illegal for government or stocking of agricultural authorities at any level to restrict movement products

on Employment has made comprehensive outdated agricultural laws (Planning Commis? proposals For example, to protect land tenants, undoubtedly an laws designed sion, 2001b). marginal farmers from leasing out nonimportant objective, end up discouraging viable holdings to larger farmers for fear of being unable to reclaim the land from for review of several other Produce Acts in various states compel tenant. The Agricultural Marketing traders to buy agricultural produce only in regulated markets, making it difficult for commercial traders to enter into contractual with farmers. Develop? relationships the sector, which is essential to the next stage of processing is also hampered and often contradictory development, by outdated agricultural These and other outdated laws need to be changed if the logic laws and regulations. of liberalization is to be extended to agriculture. ment food of a modern

(Planning The

Commission, 2001a). of the Task Force report

Infrastructure

Development

infra? environment Rapid growth in a globalized requires a well-functioning telecomelectric power, road and rail connectivity, structure, including especially

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Economic Reforms in India Since 1991: Has Gradualism

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air transport and efficient ports. India lags behind east and southeast munications, Asia in these areas. These services were traditionally by public sector provided but since the investment to expand needed monopolies, capacity and improve not be mobilized to by the public sector, these sectors were opened investment. investment, However, the difficulty in creatprivate foreign including that would make it possible for private investors to enter on ing an environment terms that would appear reasonable to consumers, an adequate while providing risk-return profile to investors, was greatly underestimated. Many false starts and have resulted. disappointments quality The greatest disappointment has been in the electric power sector, which was the first area opened for private investment. Private investors were expected to for sale to the State Electricity Boards, which would control produce electricity the State Electricity Boards were finanHowever, of consumers because electricity tariffs for many categories cially very weak, partly too low and also because very large amounts of power were lost in transmission were and distribution. This loss, which should be between 10 to 15 percent on technical on the extent of the rural network), varies from 35 to grounds (depending transmission 50 percent. The difference reflects theft of electricity, usually with the connivance the distribution of staff. Private investors, fearing nonpayment by the State Elec? that guaranteed tricity Boards, insisted on arrangements purchase of electricity by state governments with additional from the central government. These guarantees attracted criticism because of controversies about the reasonableness arrangements of the tariffs demanded a large by private sector power producers. Although number of proposals for private sector projects amounting to about 80 percent of existing generation capacity were initiated, very few reached financial closure, and some of those that were implemented ran into trouble subsequently. of these difficulties, the expansion of generation Because capacity by the utilities in the 1990s has been only about half of what was targeted, and the quality of power remained poor, with large voltage fluctuations and frequent interruptions. The flaws hensive and distribution. could

reform

statutory be perceived

and a more comprepolicy have now been recognized, is being attempted by several state governments. Independent to set tariffs in a manner that would have been established regulators to be fair to both consumers in the hope distribution Several states are producers. that this will overcome the corruplosses. However, these reforms are and

in the

trying to privatize distribution tion that leads to the enormous

not easy to implement. Rationalization of power tariffs is likely to be resisted by consumers used to subsidized long power, even though the quality of the power in the prereform situation was very poor. The establishment of comprovided petent and credible regulatory authorities takes time. Private investors may not

7 The best known of these was the Dabhol project of the Enron cooperation, which became mired in controversy because of the high cost of power from the project, especially as a consequence of a pricing arrangement that meant that most of the tariff was U.S. dollar denominated and that the risk of rupee depreciation against the dollar was borne by the buyer.

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be

able

to enforce

nonpayment private investors terms

without

that imply of distribution. privatization

nor to disconnect supply for the police. For all these reasons, adequate backing by demand perceive high risks in the early stages and therefore to very high rates of return. Finally, labor unions are opposed collection of amounts due

These problems are formidable, and many state governments now realize that a great deal of preliminary can be successfully work is needed before privatization Some of the initial steps, like tariff rationalization and enforcing implemented.8 for nonpayment of dues and for theft of power, are perhaps best imple? penalties mented within the existing public sector framework so that these features, which are essential for viability of the power sector, are not attributed solely to privatiza? tion. If the efforts a visible The results now being within improvement made in half a dozen been states succeed, much better, it could and lead to a few years. in telecommunications have

this is an There

India's success was technology. private investors offered excessively high license fees in and for licenses that they could not sustain, which led to a protracted bidding of terms. Since then, the policy appears to be working controversial renegotiation Several private sector service providers of both fixed line and cellular satisfactorily. and comwith foreign investors, are now operating services, many in partnership which had doubled peting with the pre-existing public sector supplier. Teledensity, in 1981 to 0.6 in 1991, increased sevenfold in the from 0.3 lines per 100 population in 2002. Waiting periods for next ten years to reach 4.4 lines per 100 population rates were heavily connections have shrunk dramatically. Telephone telephone local calls earlier, with very high long distance charges cross-subsidizing in operation. and covering inefficiencies have now been rebalanced They by the of 30 percent in long distance charges. regulatory authority, leading to a reduction re? the erstwhile public sector monopoly Interestingly, supplier has aggressively distorted duced prices in a bid to retain market share. Civil aviation and ports are two other areas where reforms appear to be sector domestic

factor underlying important a false start initially because

in information

to be done. Two private much remains succeeding, though after the reforms, now have more than half the airlines, which began operations air travel. However, to attract private investment market for domestic proposals to upgrade the major airports at Mumbai and Delhi have yet to make visible progress. capacity of 60 million In the case of ports, 17 private sector projects involving tons, about 20 percent of the total capacity

port handling at present, are

problems surfaced in a recent effort to privatize the distribution system in Delhi. The terms offered were publicly criticized as being too generous, because tariff setting was based on a relatively modest pace of reduction in transmission and distribution losses. Nevertheless, all bids received were below the reserve price set by the government. This was a consequence of several factors: information on the quality of assets and the financial position of the system was very poor; private investors were expected to take on the responsibility of excess staff with inadequate information on the costs of retrenchment; enforcement of payment and disconnection for nonpayment can create law and order problems in parts of the city; and there was lack of regulatory certainty about the way tariffs would be set in the future. These deficiencies inevitably led to very low bids.

8 These

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81

Some being implemented. standards of productivity. India's road network

of the new private

sector

port facilities

have set high

is extensive, but most of it is low quality, which is a major constraint for interior locations. The major arterial routes have low capacity (comand also suffer from poor maintenance. monly just two lanes in most stretches) some promising initiatives have been taken recently. In 1998, a tax was However, on gasoline to diesel), the proceeds of which are ear(later extended imposed marked for the development of the national highways, state roads and rural roads. This will help finance a major program of upgrading the national highways conand Calcutta to four lanes or more, to be Chennai Delhi, Mumbai, necting to levy modest tolls on these by the end of 2003. It is also planned completed highways to ensure a stream of revenue that could be used for maintenance. toll roads and bridges in areas of high traffic density have been awarded private sector for development. The but this financial which A few to the

means of freight railways are a potentially transportation, important area is untouched as yet. The sector suffers from severe by reforms

determined fare structure in constraints, partly due to a politically rates have been set excessively to subsidize fares freight high passenger and partly because has led to wasteful government ownership operating practices. Excess staff is currently estimated at around Resources are 25 percent. demands for new passenger trains to political typically spread thinly to respond at the cost of investments that would strengthen the capacity of the railways as a freight carrier. The Expert Group on Indian Railways (2002) recently submitted a comprehensive of reform converting the railways from a departprogram mentally

ity fixing yet on these

run government to a corporation, enterprise the fares in a rational manner. No decisions recommendations.

with a regulatory authoras have been announced

Financial

Sector

Reform

India's reform program included wide-ranging reforms in the banking system and the capital markets relatively early in the process, with reforms in insurance introduced at a later stage. like disman(a) measures for liberalization, Banking sector reforms included: tling the complex system of interest rate controls, eliminating prior approval of the Reserve Bank of India for large loans and reducing the statutory requirements to invest in government ness, like introducing for banks and securities; capital (b) measures adequacy banking licensing designed to increase and other financial soundrequirements supervision; of private norms prudential measures for increasing (c) banks and freer expansion by

strengthening like more liberal competition, foreign banks. These steps have a sharp reduction in the share

some positive outcomes. There has been produced of nonperforming assets in the portfolio, and more than 90 percent of the banks now meet the new capital adequacy standards. because domestic standards However, these figures may overstate the improvement

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for

classifying standards.

assets

as nonperforming reforms

are

less

stringent

than

international

India's banking

important respect, the banking system. equity control. depend share

countries in one differ from those in other developing and that is the policy toward public sector banks that dominate

its intention to reduce its The government has announced to SSVs percent, but this is to be done while retaining government in the efficiency of the banking system will therefore Improvements of public sector banks. on the ability to increase the efficiency with can be made consistent control government to are bound to respond because bank managers banking if their career advancement depends upon the government. whether

Skeptics doubt commercial efficient

directions political Even if the government does not interfere directly in credit decisions, government means managers of public sector banks are held to standards of accountownership akin to civil servants, which tend to emphasize compliance innovative decision making. and therefore discourage procedures ability trol is also difficult cannot regularly be shut to exercise. means The unstated down that

with rules and

recapitalized since more discipline, to consider If privatization is not politically feasible, it is at least necessary intermediate that could increase efficiency within a public sector framework steps Ahluwalia, 2002). These include shifting effective control from the (for example, to the boards of the banks, including especially the power to appoint government the chairman and executive removing boards; implementing civil servants directors, which is at present with the government; of the Reserve Bank of India from these and representatives that would autoa prompt action framework corrective

presumption public sector banks market out. This obviously weakens rather than weeded efficient banks are not able to expand market share.

Regulatory con? that public sector banks that perform poorly are

action limiting a bank's expansion capability if cer? matically trigger regulatory of cloare breeched; and acceptance tain trigger points of financial soundness for small depossure of insolvent public sector banks (with appropriate protection itors). Unless some initiatives along these lines are taken, it is highly unlikely that public sector banks can rise to the levels of efficiency needed to support rapid growth. Another

of banks is the legal framework, major factor limiting the efficiency which makes it very difficult for creditors to enforce their claims. The government to establish a bankruptcy has recently introduced law, which will be legislation This would be an important standards. much closer to accepted international improvement, cut the delays Reforms that revealed include mented to to be accompanied by reforms in court procedures that are a major weakness of the legal system at present. in the stock market were accelerated by a stock market scam in 1992 but it needs serious weaknesses establishment in the regulatory Reforms implemechanism. of rules and of a statutory regulator; promulgation in the capital market and also types of participants

various governing regulations of electronic activities like insider trading and takeover bids; introduction trading of shares to in establishing and dematerialization to improve transparency prices; eliminate the need for physical movement and storage of paper securities. Effective

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Economic Reforms in India Since 1991: Has Gradualism

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of stock markets requires the development of institutional regulation expertise, which necessarily requires time, but a good start has been made, and India's stock market is much better regulated today than in the past. This is to some extent reflected $21 billion in the fact that foreign institutional investors have invested a cumulative in Indian stocks since 1993, when this avenue for investment was

opened. An important recent reform is the withdrawal of the special privileges enjoyed by the Unit Trust of India, a public sector mutual fund that was the dominant mutual fund investment vehicle when the reforms began. Although the Unit Trust it was widely perceived as having one enjoy a government guarantee, its top management was appointed The Trust had to by the government. be bailed out once in 1998, when its net asset value fell below the declared redemption price of the units, and again in 2001, when the problem recurred. It because has now been decided that in the future, investors in the Unit Trust of India will bear the full risk of any loss in capital value. This removes a major distortion in the schemes was seen as having a capital market, in which one of the investment preferred The sector (including was a public sector moschemes), pension at the start of the reforms. The need to open the sector to private insurance nopoly was recommended (the Malhotra Committee) companies by an expert committee in 1994, but there was strong political resistance. It was only in 2000 that the law was to allow private sector insurance with foreign equity finally amended companies, allowed up to 26 percent, to enter the field. An independent Insurance Develop? ment ance and Regulatory Authority has now been established, and ten new life insur? and six general insurance companies companies, many with well-known international insurance The as partners, have started companies operations. of an active insurance and pensions industry offering attractive prod? development ucts tailored to different types of requirements could stimulate long-term savings and add depth to the capital evident over time. markets. However, these benefits will only become position. insurance did not

Privatization The public sector accounts for about 35 percent of industrial value added in has been a prominent of economic India, but although privatization component reforms in many countries, India has been ambivalent on the subject until very recently. Initially, the government adopted a limited approach of selling a minority stake in public sector enterprises while retaining control with the management a policy described as "disinvestment" to distinguish it from privatiza? government, tion. The principal motivation was to mobilize for the budget, revenue though there was some expectation that private shareholders would increase the commercial orientation of public sector enterprises. This policy had very limited success. Disinvestment age realization below budget expectations, and the aver? receipts were consistently in the first five years was less than 0.25 percent of GDP compared

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with an average of 1.7 percent in 17 countries reported in a recent study (Davis et shares in public sector al., 2000). There was clearly limited appetite for purchasing in which government in control of management. remained companies In 1998, the government to reduce its shareholding announced its willingness to 26 percent and to transfer management control to private stakeholders purchas? stake in all central public sector enterprises, ing a substantial except in a limited in 1999, when occurred areas.9 The first such privatization group of strategic of the equity of Modern Foods India Ltd. (a public sector bread-making control to Hinwas sold with full management 2000 employees) company multinational Unilever. This dustan Lever, an Indian subsidiary of the Anglo-Dutch was followed BALCO, an by several similar sales with transfer of management: with aluminum Jute company; Hindustan Machinery Manufacturing the monopoly service supplier for international telecommunications; recently IPCL, a major petrochemicals unit; and Maruti Udyog, India's largest automobile which was a joint venture with Suzuki Corporation, which has now producer, control. acquired full managerial some controversy, The privatization of Modern Foods and BALCO generated of privatization, of the not so much on the principle but on the transparency and the fairness of the price realized. Subsequent sales have been bidding process less problematic, and although the policy continues to be criticized by the it appears to have been accepted by the public, especially for public sector unions, that are making losses or not doing well. However, there is little public enterprises for selling public sector enterprises that are making large profits, such as support much in the petroleum these and domestic telecommunications sectors, although the companies can generate large revenues. These where privatization are unlikely to be privatized in the near future, but even so, there are companies in the pipeline for privatization that are likely to be sold, and this several companies those are precisely will reduce resistance to privatizing profit-making companies.10 An important of recent innovation, which may increase public acceptance is the decision of privatization to finance to earmark the proceeds privatization, of public on social sector development and for retirement additional expenditure is clearly not a permanent source of revenue, but it can help fill to the fiscal critical gaps in the next five to ten years while longer-term solutions problem are attempted. Many states have also started privatizing state-level public and are unlikely to sector enterprises. These are mostly loss-making enterprises debt. Privatization but yield significant receipts, burden of financing losses. privatization will at least eliminate the recurring Zinc; Computer Maintenance Corporation; Lagan several hotels; VSNL, which was until Company; 74 percent

9 The definition of "strategic"for this purpose covers enterprises related to defense, atomic energy and the railways. This would exclude only a handful of the 232 public sector enterprises of the central government. 10The Ministry of Disinvestment in its website ((http://www.divest.nic.in)) has made a valiant effort at explaining the case for privatizing even profit-making companies on the grounds that government ownership makes it impossible to achieve commercial efficiency.

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Table 4 Public Expenditure on Social Sector and Rural

Development (percentage of GDP)

Source: Dev and Mooij (2002).

Social

Sector social

Development indicators

in Health

and

Education

at the start of the reforms in 1991 lagged behind the Asia 20 years earlier, when those countries started to (Dreze and Sen, 1995). For example, India's adult literacy rate in 1991 grow rapidly was 52 percent, compared with 57 percent in Indonesia and 79 percent in Thailand in 1971. The gap in social development needed to be closed, not only to improve India's levels achieved in southeast of the poor and increase their income earning capacity, but also to the preconditions for rapid economic growth. While the logic of economic reforms required a withdrawal of the state from areas in which the private sector create could sector do the job just as well, if not better, it also required an expansion of public support for social sector development. Much of the debate in this area has focused to on what has happened the welfare

on social sector development in the postreform expenditure period. Dev and Mooij toward social services and rural (2002) find that central government expenditure in 1990-1991 7.6 percent of total expenditure to As shown in Table 4, as a percentage of GDP, these show a dip in the first two years of the reforms, when fiscal stabilizaexpenditures tion compulsions were dominant, but there is a modest increase thereafter. How? development 10.2 percent increased in 2000-2001. trends in the states, which account for 80 percent of total expenditure in this area, show a definite decline as a percentage of GDP in the expenditures social sector postreform period. Taking central and state expenditures together, has remained of GDP. more or less constant as a percentage expenditure ever, Closing the social sector gaps between India and other countries in southeast Asia will require additional which in turn depends expenditure, upon improvements in the fiscal position of both the central and state governments. However, it from

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is also important to improve the efficiency of resource use in this area. Saxena the many problems with existing delivery systems of most has documented (2001) social sector services, especially in rural areas. Some of these problems are directly caused by lack of resources, as when the bulk of the budget is absorbed in paying salaries, schools. leaving little available for medicines There are also governance problems, rural schools and poor quality of teaching. Part of the solution vising local levels education and and effective lies in greater health in clinics or essential such as nonattendance teaching aids in by teachers in

in superparticipation by the beneficiaries to which in turn requires decentralization systems, at these levels. Nongovernment peoples' participation

organizations experimenting in this area. While

can play a critical role in this process. Different state governments are with alternative modalities, but a great deal more needs to be done

in this area are enormous, the challenges it is worth noting that social sector indicators have continued to improve during the reforms. The literacy rate increased from 52 percent in 1991 to 65 percent in 2001, a faster increase in the 1990s than in the previous decade, and the increase has been particularly high in some of the low literacy states such as Bihar, Madhya Pradesh, Uttar Pradesh and Rajasthan.

Conclusions The impact of ten years of gradualist economic reforms in India on the policy a mixed picture. The industrial and trade policy reforms environment presents have gone far, though they need to be supplemented by labor market reforms, which are a critical missing link. The logic of liberalization also needs to be extended to agriculture, restrictions remain in place. Reforms where numerous in infrastructure at encouraging have worked in some private investment in this area was underof the problems areas, but not in others. The complexity in the power sector. This has now been recognized, and estimated, especially are being reshaped accordingly. has been made in several areas of Progress policies aimed financial sector ownership area shows a worse Critics often reforms, though some of the critical issues relating to government of the banks remain to be addressed. However, the outcome in the fiscal situation blame

at the end of ten years than at the start. the delays in implementation and failure to act in certain areas to the choice of gradualism as a strategy. However, gradualism implies a clear of the goal and a deliberate the time taken to reach definition choice of extending in all areas. The goals it, to ease the pain of transition. This is not what happened were often indicated only as a broad direction, with the precise end point and the of transition left unstated to minimize pace opposition?and possibly also to allow and room to retreat, if necessary. This reduced divisive controversy politically at each enabled a consensus of sorts to evolve, but it also meant that the consensus point a compromise, with many interested represented groups joining only because that reforms would not go "too far." The result was a process of they believed

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change that was not so much gradualist as fitful and opportunistic. Progress was made as and when politically feasible, but since the end point was not always clearly were unclear about how much change would have to indicated, many participants be accepted, and this may have led to less adjustment than was otherwise feasible.11 The alternative would have been to have a more thorough debate with the on the part of all concerned of the objective of bringing about a clearer realization full extent of change needed, more purposeful thereby permitting implementation. However, it is difficult to say whether this approach would indeed have yielded gridlock in India's highly pluralist a halting process of change in which political Instead, democracy. parties that opposed particular reforms when in opposition actually pushed them forward when in office. The process can be aptly described as creating a strong results, India witnessed consensus Have for weak reforms. the reforms laid the basis for India to grow at 8 percent per year? The about is substan? better or whether it would have created

change brought that many of the reform initiatives have been put in place only recently, and their beneficial effects are yet to be felt. is therefore The policy environment much more supportive, today potentially especially if the critical missing links are put in place. However, failure on the fiscal front could undo much of what has been achieved. Both the central and state are under severe fiscal stress, which seriously undermines their ca? governments to invest in certain types of infrastructure and in social development where pacity If these trends are not the public sector is the only credible source of investment. reversed, let alone it may be difficult even to maintain 6 percent annual growth in the future, accelerate to 8 percent. However, if credible corrective steps are taken on the fiscal front, then the cumulative policy changes that have already taken place in agenda growth should over the

main reason

for optimism is that the cumulative tial. The slow pace of implementation has meant

with continued many areas combined progress on the unfinished make it possible for India to accelerate to well beyond 6 percent next few years.

? The views expressed in this article are those of the author and do not necessarily reflect the views of either the International Monetary Fund or the Government of India. Thanks are due to Suman Bery, Ashok Gulati, Deena Khatkhate, Arvind Panagariya, Parthasarathi Shome, TN. Srinivasan, Nicholas Stern and Timothy Taylor.

11For example, an explicit statement of the reduction in import duty rates envisaged over time would have encouraged domestic producers to accelerate their efforts at adjustment. Similarly, a clear indication that reservation for small-scale producers would be phased out in a defined period would have encouraged these producers to plan for the transition more effectively. The reason these changes could not be announced in advance reflects the fact that there was not enough consensus on these initiatives at the early stages, even if they were to be implemented only gradually.

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References Ahluwalia, Isher J. 1991. Productivity and Growthin Indian Manufacturing.New Delhi: Ox? ford University Press. Ahluwalia, Isher J. 1995. Industrial Growthin New Delhi: India: StagnationSince the Mid-Sixties. Oxford University Press. Ahluwalia, Montek S. 2000. "India's Economic Reforms: An Appraisal," in India in the Era of Economic Reforms.Jeffrey Sachs and Nirupam Bajpa, eds. New Delhi: Oxford University Press, pp. 26-80. Ahluwalia, Montek S. 2002. "State Level Per? formance Under Economic Reforms in India," in Economic and theIndian Economy. PolicyReforms Anne Krueger, ed. Chicago: Chicago University Press. Forthcoming. Ahluwalia, Montek S. Forthcoming. "India's Vulnerability to External Crises:An Assessment," in MacroEconomics Monetary and Policy:Issuesfor a ReformingEconomy.Montek S. Ahluwalia, Y.V. Reddy and S.S. Tarapore, eds. Oxford: Oxford University Press. Bhagwati, J. and T.N. Srinivasan. 2001. "Outward-Orientation and Development: Are the Reand Polit? visionists Right?" in Trade,Development ical Economy: Essaysin Honour of Anne O. Krueger. Deepak Lal and Richard Snape, eds. London: Palgrave, Chapter 1. Chaudhuri, Sudip. 2002. "Economic Reforms and Industrial Structure in India." Economicand Political Weekly. January 12, 37:2, pp. 155-68. Davis, Jeffrey et al. 2000. "Fiscal and Macroeconomic Impact of Privatization." IMF Occasional Paper 194. Dev, Mahendra S. and Jos Mooij. 2002. "Social Sector Expenditures in the 1990s: Analysis of and Central and State Budgets." Economic Political March 2, pp. 853-66. Weekly. Dreze, Jean, and Amartya Sen. 1995. Economic and Social Opportunities. New Delhi: Development Oxford University Press. Expert Group on Indian Railways. 2002. "The Indian RailwaysReport: 2001 Policy Imperatives for Reinvention and Growth." NCAER/IDFC. Gulati, Ashok and Seema Bathla. 2001. "Cap? ital Formation in Indian Agriculture: Revisiting the Debate." Economicand Political Weekly. May 19-25, 36:20, pp. 1697-708. Ministry of Finance. 2002. "Economic Survey 2001-02." Report. Nambiar, R.G., B.L. Mumgekar and G.A. Tadas. 1999. "Is Import Liberalization Hurting Domestic Industry and Employment?" Eco? nomic and Political Weekly. February 13, 34, pp. 417-24. Parikh, Kirit S. 2002. "Social Infrastructure: An Important Physical Infrastructure," in India DevelopmentReport. Oxford: Oxford University Press, Chapter 7. Planning Commission. 2001a. "Report of the Advisory Group on Tax Policy and Tax Administration for the Tenth Plan." Report. Planning Commission. 2001b."Report of the Task Force on Employment Opportunities." Re? port. Prime Ministers' Economic Advisory Council. 2001. "Economic Reforms: A Medium-Term Per? spective." Report, April. Rodrik, Daiii. 1999. The New GlobalEconomy and the Developing Countries: Making Openness Work. Washington, D.C.: Overseas Development Council. Saxena, N.C. 2001. "Improving Effectiveness of Government Programmes: An Agenda of Reform for the 10th Plan." Paper presented at a conference on "Fiscal Policies to Acceler? ate Growth," organized by the World Bank, New Delhi, May 8. Available at (http://www. fiscalconf.org). Stern, Nicholas. 2001. "Building a Climate for Investment, Growth and Poverty Reduction in India." Speech delivered at EXIM Bank, Mumbai, India, March 22.

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