Vikalpa: The Journal for Decision Makers

This paper by Jagdish Bhagwati presents a critical appraisal of India's economic strategy over the last five decades. According to Bhagwati, while India's democratic success has been outstanding, her economics has been a big disappointment leaving the economy in a state of economic backwardness. By 80s⁄ India's economic failure became a classic case study to lean what not to do. Recent reforms, which signal the final discrediting of the failed ideas⁄ have started dismantling the past policies that crippled India's performance. However⁄ Bhagwati feels that the prospects for a complete transition still remain problematic partly on account of the politics of coalitions at the centre and partly because the dissent from the supporters of India's earlier policies may create confusion and delays.

This paper by Bagchi seeks to review the magnitude and quality of fiscal consolidation that has taken place in India in the process of economic reforms and identify the tasks ahead. The broad conclusion is that while there has been some notable success in reducing the deficits of the centre, the fiscal situation marked by large revenue deficits remains fragile. Fiscal correction has also had an adverse impact on government's capital spending. For the growth momentum to pick up⁄ budgetary support for investment in infrastructure must be stepped up and government expenditure restructured to provide larger allocation for health and education. If these are to be achieved while adhering to norms of fiscal prudence⁄ the revenue-ratio would need to be raised by nearly 4 per cent of GDP. That would call for massive efforts towards augmenting tax and non-tax revenues at both levels of government. Some fundamental institutional reforms will also be needed such as in the system of federal transfers⁄ the judicial system⁄ and the administrative organization and methods.

As the world economy gets increasingly integrated, the management of exchange rate assumes a critical role in the country's macroeconomic policy. Tarapore argues that monetary authorities are duty bound to maintain a desired exchange rate through appropriate market intervention. The main problem in exchange rate management in India has been the appreciation of real effective exchange rate. According to Tarapore, in the absence of transparency in exchange rate management, the transmission of signals from the central bank to the forex market are muted and counter-productive. A more transparent exchange rate policy is more likely to generate greater confidence among the market participants and thereby minimize the need for frequent market intervention.

Until the early 90s⁄ corporate finance managers in India were given very little freedom in the choice of key financial policies as the government regulated the pricing of debt and equity instruments and directed the flow of credit. Financial sector reform over the last six years has exposed managers to complex financial choices amidst increased volatility of interest rates and exchange rates, and made them accountable to an increasingly competitive financial marketplace. Nevertheless, the slow pace of financial liberalization so far has given Indian corporates the luxury of learning slowly and adapting gradually. Gradualism has also meant that there is a large unfinished agenda of financial sector reforms. According to Jayanth Varma⁄ Indian companies should now prepare themselves for further changes that lie ahead. The East Asian crisis is a warning for the Indian corporate sector to pursue more prudent and sustainable financial policies.

Liberalization of foreign investment policy is a central component of India's economic reforms. While the need for foreign capital is hardly disputed⁄ there has been a continuing debate on the scope, coverage⁄ and impact of a liberalized foreign investment policy. In this paper⁄ Tarun Das argues that the debate on foreign investment policy lacks perspective and there seems to be very little appreciation of the emerging compulsions of the new international economic order. India's foreign investment policy has certainly become broadbased in recent years⁄ but it is still far from complete and further liberalization of foreign investment policy appears ⁄ inevitable in view of the pressures as well as obligations associated with the future global scenario.

Several expert committees have examined India's indirect tax structure in the past and made valuable recommendations. More recently, the Tax Reform Committee (Chelliah Committee) laid down the agenda for gradual reduction in tariffs and rationalization of customs and excise duty structures. On this basis, significant progress has been made since 1992. Tariffs have been brought down from a peak rate of over 300 to 40 per cent with a view to bring down costs and make the Indian industry more competitive. Excise duty rates have been significantly reduced, procedures simplified, and exemptions pruned. Yet, according to Rustagi⁄ the excise system is far away from modernity. While he agrees that whatever has been done so far is no mean achivement, more needs to be done.

India's exports have so far failed to take off to a longterm self-sustaining high growth path. In this paper⁄ Charan Wadhva provides a critical appraisal of the export performance and policies of India during the period 1950-97 with focus on two sub-periods of 1950-90 and 1991 onwards. He concludes that the actual record of growth of India's exports throughout the period 1950-97 can be explained by the strengths and weaknesses of India's export policies identified in this paper both at the governmental (macro) and industry (micro) levels. He also provides an illustrative list of major strategic policies and measures to enable India to fulfil national aspirations for re-emerging as a global player of greater consequence in line with India's potential in this regard.

In recent years⁄ there has been considerable discussion in India on Structural Adjustment Programme and its impact on the economy. However⁄ the moot question is whether restructuring efforts have benefited the ‘people sector’ that includes the workers who are informal⁄ unorganized, and selfemployed.

Based on years of experience with SEWA, Ela Bhatt argues that most economic policies including the recent economic reforms have largely benefited the large corporate bodies and have completely ignored the poor and the women. According to her⁄ it is possible to benefit from the reforms if the focus of economic reforms is shifted to the micro level.

In the context of rapid changes taking place in the economic and business environment in the country⁄ organizations need to transform themselves radically in order to seize new opportunities. Arguing that organizational culture is a crucial organizational variable that can facilitate or impede the change process⁄ this paper by Deepti Bhatnagar and Leena Bhandari presents results of an empirical study.

The use of competing values framework showed hierarchy to be dominant and market culture to be weak in our organizations⁄ although there appeared to be interesting differences between the private sector⁄ the public sector⁄ and a government department. Implications of these findings are presented.

This section features abstracts of articles covering empirical studies, experiences, ideas, and theories published in Indian and international journals and is sponsored by the Indian Council of Social Science Research, New Delhi.

Making a departure from the regular practice, in this issue, we bring you extended abstracts of selected articles on economic reforms in India. These articles reflect the responses of academicians and bureaucrats on different aspects of India's economic reforms, including the Indian economy, industry, agriculture, financial sector, employment and labour relations.