Kirit Parikh

1. Introduction
Even when there is a large measure of consensus among policy makers, policy reforms often are not carried out. This is often ascribed to lack of "political will". But what is this "political will"? Is this just a difference between the psychological make up of one politician and other? Or is it an outcome of objective reality such that no matter which politician is in power, the same reluctance to reform would be displayed? If one believed in the former there is not much scope for analysis. If in the latter, then analysis can throw some light and perhaps guide in the design of reform packages, which have a better chance of acceptance. Thus, the literature of neo-classical political economy has sought to explain political behaviour as an outcome of rational behaviour by politicians and economic agents pursuing their own objectives singly or in coalitions with others.

The new political economy is, to paraphrase Srinivasan (1991), the application of the tools of neoclassical economics to the analysis of political decisions. In contrast to the classical version, which emphasized outcomes regarding the distribution of income and wealth , the new version is concerned with the processes by which different groups in an economy seek to influence policymaking in order to maximize their own objective functions. The early work in this area, emerging from the public choice analysis of Buchanan (1987) and refined into a specific terminology by Olson (1965) applied almost exclusively to the liberal democracies among the developed countries. The approach gradually worked its way into the analysis of policy decisions in LDCs, most of which were not liberal democracies, in work by, for example, Bhagwati and Srinivasan (1980), Jones and Sakong (1980) and Bardhan (1984).

Subsequently, there have been several efforts to document and analyze the nature of the relationship between political economy and policy reforms in LDCs, notably, Nelson (1990), Mosley et. al.(1991), Cornia et al. (1992), Mosley (1992) and Agrawal et al, (1995).

The basic framework is that of economic agents who given their preferences, constitute different interest groups, pressure groups and political parties. How effectively they are able to organize themselves for effective action depends on the strength of their interests in a particular set of policies and how much it costs to organize (Olson 1965). "The benefits, of course, have to be traded off against the costs of organization; it is therefore likely that small homogenous, cohesive groups, finding it easier to organize, will be able to tilt policy decisions in their favour, as opposed to large, diffuse groups, even through the latter are given relatively more importance in the government’s stated agenda" (Agrawal et al, 1995).

The effectiveness of these groups affect the policy outcomes. Politicians on the other hand weigh the political costs and benefits in the short term and for the next election and find or do not find the "political will" for policy reforms. Bates and Devarajan (1999) show this schematically as in Figure 1.

With this framework, one can understand why policies get distorted, why over time distortions get entrenched and become pervasive, and why countries get into situations, which call for drastic reforms. It does not explain why reforms take place at all. To do this, the simple schematic framework needs to be extended. It needs to be closed. Policy outcomes in turn create interest groups that over time may become stronger than the original pressure groups. This dynamic nature can explain how the same set of policies but sequenced differently can lead to different outcomes. Figure 2 shows this framework.

Thus if the initial policy creates vested interest in distortions we can get into a vicious circle of distortions piling on top of distortions. On the other hand, if the initial policies create vested interest in efficiency and competitiveness, we get a virtuous circle in which the same policies can give different results. Schematically, Figure 3 shows this.

Also, one should recognize the possibility of a virtuous circle turning into a vicious one under the influence of autonomous changes such as population growth, or shocks due to political events or economic events such as oil price shocks.

One should also recognize that rule making and policy-making are two stages of the policy process (Buchanan 1987, Dixit A. 1999). The vested interest groups may not permit a change in policy but might agree to changes in rules, which may later on facilitate a policy change.

How does the initial policy decision get taken? One has to recognize here that the neo-classical political economy framework is not complete and cannot explain all policy decisions. While it can help in understanding evolution of economic policies over much of the time, other exogenous influences play important roles. Thus, for example, the initial policy may be an outcome of historical experience (e.g., colonial experience of South Asia) or accident of a charismatic leader's leanings e.g., (Nehru's exposure to Fabian socialism).

The important role played by political set up in which the relative power of different groups change has to be recognized. Steady population growth can change relative political power of different regions. For example, demographic changes can alter the age structure and make the elderly a potent political force. Thus, coups that replace a democratic government by a military dictatorship, revolutions that establish a democratic government and elections that lead to change in governments, can alter economic policy.

One should also recognize that in a large country with diversity, there may be many small interest groups. Also an individual may have many interests they want the political process to fulfil and thus, one may be part of more than one interest groups. How these groups form coalition for political action can affect the policy outcome. Elections can change these coalitions. Moreover, not all the objectives of individual are economic. In fact, as Varshney (1999) has pointed out, ethnic objectives may so dominate concern of many political parties that they might not oppose economic policy changes even when they hurt the economic interests of their supporters.

My purpose in this paper is to examine the political economy behind the economic policies in India and to draw lessons from them. I will also look at some specific reform measures that India undertook and examine the political economy rationale of such policies. I tell stories and provide political economy explanations for some of the important policies that have been followed. My explanations seem plausible to me. Such descriptions and hypotheses are the first steps in developing a quantitative framework of analysis. At present my hypotheses are just that. To test them quantitatively requires a large, multi-faceted data set which will permit an event analysis that is commonly done by economists looking at stock market behaviour. However, their data sets are massive. For testing one of a kind political economy events each characterized by its own complexity of interest groups, institutional set up in socio-political context, the data set needed is mind-boggling. Simple-minded cross-country regressions often done in the literature, cannot help in establishing the nuances of the stories we tell.

The paper is organized as follows: In Section 2, I briefly describe the political history and economic performance of India. Section 3 describes its consequences and poses the main question of political economy that emerges. Section 4 looks in detail at the Indian experiences,. Section 5 concludes.

2. India’s Economic Performance
Also, during the British rule, India, Pakistan and Bangladesh made remarkable headway in terms of industrialization. In particular, India’s first industrialization experience was in the 1860s when India demonstrated record levels of growth. By the early 1900s India had large textile and jute manufacturing industries and, its total exports accounted for 11 per cent of national income. This is in contrast to South Korea, which began its industrialization process almost half a century after India, and did not particularly produce goods based on the principle of comparative advantage, but more-so to meet the requirements of their Japanese rulers at the time.

During the 1950s and 1960s some South Asian countries such as India and Sri Lanka, were predicted to be the most rapidly growing economies of the future. These nations were comparable to and in some cases, exceeded their East Asian counterparts in terms of per capita GDP and the advent of industrialization. The South Asian nations also had a significant advantage over East Asia in inheriting the modern legal, administrative and political structures left over from British Colonial rule. However, fifty years hence these South Asian economies have not been able to live up to popular expectation and are now burdened with low rates of growth, political instability, poverty and indebtedness, amongst other stifling attributes.

Table 1 elucidates the rapid growth (in terms of per capita GDP) of the model East Asian economy, South Korea, as well as the four main South Asian nations, which have lagged behind considerably, in comparison. It is particularly interesting to note that during the 1950’s Sri Lanka’s average income was double that of Korea. However, by 1995 South Korea had reached the status of a ‘high-income’ economy and subsequently became a member the OECD in 1996.

Table 1: Per capita GDP of South Asian economies and Korea as a percentage of US GDP (PPP:USD) 1950 - 1995
Source: Hossain et al., 1999

India’s performance in GDP, Growth Rates and Poverty is shown in Table 2 and Figure 4

@ at 1980-81 prices till 1990-91. Figures for 1998-99 are for new series at 1993-94 prices.
Table 2: India’s Economic Growth

3. Political Governance and its Outcome
The Indian economy has made much progress since independence. In fact, the performance has been better than most developing countries. Per capita income has grown despite population growth. Industrialization has progressed and fairly broad-based industrial bases have been established. In capital accumulation, in human capital formulation, in education, in health, in research and in the development of other infrastructures, we have made dramatic progress compared to the first half of the 20th century. However, when compared with East Asian economies, the performance of India looks pale. The frustration of Indian economists arises from this comparison. India could and should have done as well. Why do not we accelerate into a miracle economy? What keeps us behind? Where did we fail? Was it a failure of governance in its broadest sense?

Many have wondered why India did not grow more rapidly than it did. It had natural resources, political stability, the steel frame of administrative civil services and a large body of science and technology (S&T) personnel. In short, it had all the ingredients needed for rapid economic growth. The irony may be that it is precisely because of these that India could not grow faster. The abundance of natural resources permitted the government to avoid taking hard decisions. The one party dominated polity made successive Congress governments complacent. The steel frame of the bureaucracy turned into a rigid cast iron straight jacket. The large body of S&T people constituted a strong lobby for self-reliance, wasteful R&D much of it directed to reinventing the wheel, and many non-competitive industries.

After gaining independence from the British, as an indirect backlash against the Colonial rule India followed a set of common policies, which were essentially nationalistic, and ‘inward looking’. From the vantagepoint of late 40s, the strategy made eminent sense. In fact, it was the consensus among not only Indian but also almost all development economists around the world that this strategy made sense. These policies involved the key elements of import substitution industrialization, state intervention in both labour and financial markets, dependence on State owned enterprises and a bias towards regulation and central planning. They remained entrenched far longer in India than in the East Asian miracle economies.

In keeping with the India’s post-independence ideologies, India’s trade policy during the period has been consistently characterized by a number of stringent controls. Due to the sizeable rents that could be generated from the maneuvering of these controls, there was popular support for their retention for a long period. While India’s early liberalization attempts began in the early 1970s the process at that time was a token effort by a minority of bureaucrats. The next real attempt at liberalizing Indian trade occurred in 1986/87, in a determined effort to wipe clean the ideological slate and to adopt a more modern approach. The liberalization momentum was greatest during the early years, and thereafter the effort slackened as the administration faced the issues of large fiscal deficits, the emergence of ethnic struggles in Punjab, and allegations of corruption against the Prime Minister himself. Overall this liberalization attempt was hampered by other political factors and vested interests, and India’s industrial sector was not exposed to foreign competition and liberalization was confined mainly to inputs which resulted in higher levels of effective protection on end products (Joshi 1994).

India’s slow growth economy was the result of the strategy of development that it followed, which was, for most part, an import substitution-industrialization (ISI) strategy. In the early years after independence, there were many opportunities for economically efficient import-substitution. Moreover, from the vantagepoint of the late 40s, export pessimism may have seemed justified. World trade during the 30s and 40s had not grown much. The war ravaged economies of America and Europe was not expected to recover and grow in the way they did. Import substitution seemed a sensible policy and provided many opportunities. For the newly independent country that imported all kinds of manufactured goods, however, import substitution soon got coupled with self-reliance. To further self-reliance, technology imports were restricted to only one time, followed by assimilation of the imported technology. Thus, reduction in import content rather than the domestic resource cost of production became the guiding parameter in the drive towards self-reliance. Even when world trade in the 50s and 60s grew at an unprecedented rate, export pessimism was not given up by India's policy-makers and import substitution continued.

In addition, the strategy for industrialization was based on a heavy industries first strategy. (It is not generally known but worth noting that the initial emphasis on heavy industry in the second five-year plan was argued on the ground that India has comparative advantage in them). This led to a number of problems - which were obvious to some then and which are now obvious to all. Heavy industries involved lumpy investment with high capital output ratios and long gestation lags. They also required large imports of capital goods. Inadequate infrastructure, lack of experience, and the necessity of learning by doing further stretched the period of gestation. The costs increased and cascaded into all industries using these inputs. To protect the high cost domestic industry against foreign imports, trade was restricted and protection through tariffs and quotas was provided. To stimulate investment in spite of the high costs of domestically produced capital goods, capital was subsidized through cheap credit and factor prices got distorted. This resulted in the choice of more capital intensive techniques than would have been appropriate, given the abundance of labour in the country.

The plethora of controls, procedures, permits and bureaucratic restrictions created such a maze that the net effects of these policies were not at all obvious. While the nominal tariffs remained extremely high averaging 117% in 1989/90, a World Bank (1989) study in a review of 16 sub-sectors, found that effective protection rates ranged from -16% to 162%. In another study, a detailed review of 60 projects showed that half the firms studied received negative protection. It was here not a case of the right hand not knowing what the left hand does but of the right hand not knowing what the right hand does!

In addition, India’s strategy had one important characteristics. It protected organized labour, which has become a labour aristocracy. The real cost of organized labour has been way above the costs of unorganized labour. A labour policy, which protects employment, operates in many ways. Labour laws make it extremely difficult to retrench any worker. Even economically unviable units are not permitted to close down. In fact such units are often taken over by the government. Along with this job security a number of other benefits are provided to workers. Among these is one month's pay as annual bonus, which is considered as deferred pay and is not linked to productivity or even profitability of the enterprise.

As a consequence entrepreneurs have all the incentives to restrict regular employment. One can expect that recourse will be taken to subcontracting and ancilliarization.

The location of public sector enterprises to promote regionally balanced industrialization has also not been very successful. Politically determined locations involve some economic costs. While these may be considered acceptable from the view point of regional equity, location of large public sector enterprises do not seem to have stimulated development of other industries in the area. Thus Bihar continues to remain industrially underdeveloped despite having many public sector heavy industry units and despite its large mineral resource base. Perhaps a labour force spoiled by public sector indulgence does not attract other entrepreneurs.

The Issues to Probe

This brief overview of policies and outcomes raises a number of questions, why did the governments pursue the policies they did? Why didn't they change them even when need became obvious? To what extent policies pursued, options shunned and reluctance to reforms can be explained by the political economy framework given in Section 1? Here we list the major issues.

• Why did the country select the particular development strategy of planning, import substituting industrialization and public sector dominance?
• When did the problems of government failure became apparent? Why did the policies persist? What forces oppose or support reforms of these policies?
• Why were trade distorting policies pursued? Why did they persist ? Who supports trade liberalization? Who blocks it?
• Why were land reforms not successfully carried out? What is the political economy of the performance here?
• Why was the agricultural policy of low output prices and low input prices followed? When was the need for reforms realized? What is the political economy of it? Who blocks it? Who supports it?
• Why was social sector not given adequate attention?
• Why were anti-poverty programmes permitted to be highjacked by the not so poor? Why do they persist in spite of their ineffectiveness?
• What forces oppose fiscal policy reforms? What are the non-merit subsidies? How can these be reformed, given the political economy?
• How have public sector enterprises performed? What blocks reforms including privatization?

I now analyze these issues using the neo-classical political economy framework of Section

4. Political Economy of India’s Development Strategy and Reforms
4.1 What made India select a mixed economy based heavy industry first import substitution strategy of industrialization; and why did India continue on that path for so long?

India’s choice of its development strategy in early 50’s was logical. The political economy posed no problem either. The bulk of the population didn’t quite understand the consequences. They trusted their leaders who had selflessly sacrificed so much in the freedom struggle. A poverty-free world in 15 years was promised and people believed it.

The only opposition that could have come was from Gandhi who had an innate distrust of large governments. He was, however, assassinated in 1948 and other supporters of Gandhi’s economic ideas had little mass appeal compared to Nehru. However, the government did support khadi and village industries. This satisfied, or at least, occupied some of them. Moreover, Gandhi’s distrust of big government and socialist distrust of big business combined to give small scale industries an important place in India’s development strategy. Once begun, the dynamics of the situation led to its entrenchment and continuation. See figure 5. The policy created its own vested interests and in fact, the three dominant groups, the industrialists, the bureaucrats and the politician all benefited from it. The pervasive controls provided tremendous scope for affecting what economists call rent seeking activities (influencing government policies or bureaucratic decisions in one's favour to make gains). Industrialists, traders, bureaucrats and politicians found it much more profitable to seek these rents rather than increase the efficiency of domestic production or improve the functioning of the domestic economy. Domestic industry, which was already protected from foreign competition through import restrictions against any domestically available product, and from domestic competition through industrial licensing, had thus no incentive to be efficient. The only group that suffered were the consumers who got poor quality products at high prices.

However, till the `80s, when the East Asian miracle brought about by Asians like themselves became visible, most of them didn’t know about the possibilities. Thus, the policies continued till 1991.

The educated classes were co-opted and developed a vested interest in the system. The open recruitment for the administrative services provided a scope for the brightest, many of them idealists, to improve their social status. (The IAS has become a high caste). The socialistic slogans and the public sector which ostensibly protected them against the predatory capitalists and a state that promised to eliminate poverty in fifteen years was able to win the loyalty of many educated Indians. The emphasis on self-reliance, creation of large domestic R&D establishments and preference for domestic technology (no import license if someone produces it domestically - no matter at what cost) excited the engineers and scientists and created over time a large and powerful lobby for self-reliance.

4.2 How did public sector gain its dominant role?

The initial emphasis on public sector was logical. The public sector was developed for a variety of reasons - to reduce concentration of economic power, to control the commanding heights of the economy and to provide a means to balance industrial development across regions. In the initial phase of development, it was seen as the only way to start large projects requiring heavy investments which private entrepreneurs in India were unwilling or were considered incapable of making. It was to generate increasing surpluses and profits, all of which would be available to the state for reinvestment so that investment rates, can go on increasing without raising tax rates on private incomes. It was also to be a model employer.

Roughly 50% of the capital formation in the Indian economy since 1965-66 has been in the public sector. It has reached the "commanding heights" in the sense that more than 2/3rds of the employment in the organized sector is in the public sector (see table 5.2.1) and it generates around 55% of the value added in the organized sector. Unfortunately, public sector has failed miserably in generating surpluses and its gross savings have been less than 40% of the investment in public sector over 1950 to 1985. Thus, instead of accelerating investment it drew substantially from private savings. All commercial public sector enterprises together showed an after tax net profit of 2.2% on capital employed in 1990-91. While this increased to 6.2% in 1997-98, if we exclude petroleum related public sector units (as their profitability is largely a matter of government’s pricing policy) then the net profit even in 1997-98 was only 3.4%. Given the generally high capital/output ratio of these enterprises, this indicates a very poor return on investment. The gravity of this failure of public sector enterprises to generate adequate surplus can be appreciated when we note that in 1983-84 the non-financial commercial public sector had a total net savings of Rs. 295 crores while its net capital formation that year was Rs. 12,766 crores. For 1996-97 these figures are Rs.9930 crores and Rs.21550 crores.

One objective that the public sector has fulfilled is that of being a "model" employer. This is true at least from the viewpoint of those employed by it but not from the viewpoint of economic efficiency. The public sector has become a high wage island in the economy. In 1980-81 public sector employees accounted for 6.8% of labour force who got as much as 39.8% of the wages and salaries in the entire economy. The situation must have become even more skewed now after the revision in government pay scales in late 80's. The poor performance of the public sector has had serious consequences for the poor as it has significantly lowered the growth rate of the economy and has pushed wages higher in the organized sector as a whole. This has led to choice of relatively more capital intensive techniques and further constrained the growth of employment.

The public sector managers were not given a clear mandate as to what they were supposed to do. The objectives of self-reliance, and being a model employer seemed to dominate their concerns. The objective of generating surpluses was of little concern to most of them. Producing, at whatever cost, was the objective. Since the managers operated without a hard budget constraint, they took the easy way out and workers were given emoluments, which were not related to either productivity or profitability. The public sector employees became a large powerful group of vested interest. Its power comes from its numbers (more than 70 percent of the employees in the organized sector) and its control of critical infrastructure (ports, airlines, railways, passenger buses, electricity supply, banks and municipal services).

Trade union movement brought similar employment benefits to workers in the organised sector. They were able to extract job security. In January 2000, it is not possible even for privately owned organised sector industries to retrench a worker without a written permission from the state industries minister, a permission that is almost never given. The public sector also grew in two other ways, when government nationalized insurance, banking and coal industries and when government took over sick private industries that could not close down as they cannot retrench workers.

There were no groups who opposed this growth of public sector. In the process of its growth, it has created a large vested interest group of employees as well as of bureaucrats and politicians who enjoy the power and privileges of running large enterprises. See figure 6. These groups are formidable opponents to privatization.

4.3 What explains the emphasis on village and small industries? Why do small-scale sector reservations continue?

Development of village and small industries (VSIs) was an important element of India’s development strategy. They contribute significantly to income, employment and exports. Thus, in 1996-97, not counting traditional village industries, there were 2.86 million units of small-scale industries (SSIs). They produced Rs.4126 billion worth of output of which Rs.392 billion of output was exported, (nearly 45% of industrial export) and employed 16 million persons compared with the total employment in the private organized and industrial sector of 7 million and in public sector of 20 million.

The VSIs were promoted to encourage small entrepreneurs to create broad-based employment opportunities in dispersed manner across states and in rural areas (which could slow down rural-urban migration), to promote regionally balanced industrialization and thereby to promote equity.

There was widespread political support for such a strategy. It seemed to restore the set-back suffered by craftsmen and rural artisans during the British colonial rule and who were being driven out of their traditional occupations because of new tastes and products (Bhawani, 1980 and Gadgil, 1973 cited by Tendulkar and Bhawani, 1997). It also satisfied the large number of Gandhians who were not persuaded by the heavy industry first central planning based development pushed by Nehru and his supporters. It constituted a middle path between the Gandhian and Nehruvian approaches.

VSIs were promoted in a number of ways. Excise exemptions and concessions were given. Industrial license was not required of them. They were protected against competition by large-scale producers by reserving certain products for them. They were provided concessional credit. Credit concession could be justified as small entrepreneurs typically find it difficult to get credit and pay higher interest rates. (Banks justify the higher interest on the ground of higher transaction cost and perceived risk).

These concessions certainly led to growth of VSIs but also created some problems. The excise concessions encouraged many to fake smallness. For example, one can own 120 power-looms registered under 20 different firms, each firm owning no more than 6 looms. The concessions also created a vested interest in remaining small and firms did not grow even when there were economies of scale to be exploited. See figure 7. Time has come to change all these. Thus, the Abid Hussain Committee (1997) has recommended complete abolition of product reservation and other protective policies and suggested concentration only on promotional policies. These include concessional credit, technology support, training support, marketing assistance and infrastructure development.

The protection provided to VSIs was also justified on the ground of infant industry protection. The problem with infant industry protection is that the infants lose all incentives to grow. India has many senile infants among its industries. Such protection must be time-bound. Political pressures, however, manage to keep on getting the time limit extended.

Reforms have become difficult simply because the VSIs have grown in numbers and command some political clout. Yet reforms have whittled away quite a bit of VSI advantage. Now, industrial licensing is not required even of large producers. The excise rates have been lowered and are being simplified. Imports as already mentioned, are freely permitted of many of the products of VSIs. Thus, VSIs already face increasing competition. At the same time, some of them have benefited from the reforms that have favoured exporters by devaluation of the Rupee. Bulk of India’s manufacturing exports come from small firms. These firms would welcome the opportunity to grow and have modern technology. The political climate for VSI reforms is now much better and one hopes that they will be carried out in not too distant a future.

4.4 What led to progressive increase of subsidies and deterioration of quality of infrastructure services and why did India continue on the path for so long?

Goyal (1999) has questioned the dominant explanation for the decay in Indian government finances provided by Bardhan’s (1984) thesis of powerful vested interests, each getting concessions such as employment, subsidies, free loans, and cheap public goods. If this were the whole story, she argues, government consumption would be rising as a ratio of the GDP.

However, Goyal examines the budget data from 1970 onwards and finds a small decline since 1987-88 in compensation of employees of public sector, in compensation of employees of non-departmental undertakings, in expenditure on general expenditure and in consumption expenditure of administrative departments, all as percentages of GDP.

Goyal advances an alternative hypothesis. The various subsidies on user prices for economic services such as electricity, water, fertilizer, kerosene and diesel and food subsidies were well motivated. Subsidies on electricity to farmers were to promote water for irrigation or fertilizers agricultural development and diffusion of new technology of green revolution. Fuel subsidies were introduced to protect the poor against oil shocks of the 70s and food subsidies were initiated during poor agricultural years. In a regime of administered prices of these products and services, subsidies, once introduced, kept growing. Now they have reached levels, which stress government finance severely, but by the same token, have generated its own vested interest groups, which resist reforms. See Figure 8.

These subsidies have seriously affected the ability of public sector to expand capacity to provide quality service for a growing population. Thus, power shortages are endemic and road, railways and public irrigation systems are poorly maintained and cannot be expanded rapidly. Quality of health services and education leave a lot to be desired.

Goyal summarizes this well. "In Greek plays tragedy was never purely the outcome of fate; human motivations entered richly and often fatally. There was no villainy, however, only frailty. In an analogous way, the means used to achieve valid objectives amplify the exogenous shocks of the 1970s. It was doubly unfortunate because there were no villains; players often had the best of intentions."

4.5 What caused the crisis of 1991?

India faced a crisis in the middle of 1991. When a new government took over in June 1991, India faced a serious balance of payments crisis. The foreign exchange reserves had rapidly dwindled to a level barely adequate to meet bare essential imports for only a few weeks. The non-resident-Indians (NRIs) were withdrawing their dollar deposits from Indian banks at alarming rates. The confidence of international financial community in India's ability to meet its obligation was shaky. India's credit-worthiness ratings had fallen in about a year from AAA to BB+ (put on Credit Watch). These problems required immediate action if India was to avoid defaulting on its international obligation or a collapse of its economy for want of critical imports.

India had faced foreign exchange crises in the past: in 1965-66, in 1975-76 and in 1979-80. The crisis in 1991 was in a sense less serious. Exports in the 80's had picked up and grown at an average annual rate of 6.5%, up from the growth rate of 3.0% over 1965-80. In fact merchandise exports grew at more than 15% per annum over 1987-1990. The loss of confidence of international financial community was due more to the political instability in India, where three governments had changed in less than two years, than due to economic fundamentals. Nonetheless, given this loss of confidence, the government had to act and act fast. Since commercial borrowing on reasonable terms was not possible, there was no choice but to seek the help of IMF and the World Bank.

Though the BOP crisis was precipitated by the loss of confidence of international financial institutions, the seeds of the crisis were sown by the fiscal profligacy of successive governments in the 80's. The government deficit on revenue account went on increasing and was financed by borrowing from both domestic and external sources. This is seen in Table 6 below.

Even then, the inflation rate during the 80s was around 9 percent per annum. It was only in 1989-90 and 90-91 that the inflation accelerated. The Gulf war put a severe strain on the Indian economy. The increase in petroleum price, fall in the remittances of Indian workers in Kuwait and Iraq and the added expenditure of airlifting Indian citizens from middle east (a feat that has got Air India in the Guinness Book of Records) all stressed the Indian economy. Wholesale prices increased during 1989-90 at 8% and at 13.5% during 1990-91. The price increase in 1990-91 was aggravated by government policy. In October 1990 the WPI was consistent with an annual inflation rate of 9% provided prices slowed down as they normally do over October to March. However, under the powerful influence of the then Deputy Prime Ministry, Chaudhury Devi Lal, food prices were pushed up by putting into government stocks 5 Mt of cereals when the government should have off-loaded 2 Mt on the market. The result was an inflation of 13.6% in CPI, a further loss of faith in the ability of the Indian political system to manage the economy and creation of inflationary expectations.

Thus, even the fiscal crisis appeared to be worse than the policies followed over the 80s by themselves would have led to.

Yet, while the crisis seemed to be an outcome of political difficulties and cried out for action, there are indeed more fundamental problems that had resulted from the development strategy followed since independence by India which also called for re-orientation in our strategy and reforms in our policy

Table 6 : India - Budget Deficits and Interest Payments

The crisis provided an opportunity for a major reorientation of Indian economic policy. To the credit of the Government of Prime Minister Narasimha Rao and his Finance Minister Manmohan Singh, the opportunity was seized and major reforms were initiated.

4.6 The First Flush of Reform Measures and why were they permitted?

The reforms initiated in June 1991 and followed up since then, can be classified under some broad headings, domestic de-regulation, trade liberalization, fiscal stabilization, financial sector reforms and privatization.

The very first set of measures in June 1991 deregulated all but eight Indian industries by virtually eliminating licensing requirement and permitting Indian industries to decide what, how much, where and how to produce anything. These choices had to be earlier approved by government. Also private sector was permitted to enter into areas hitherto reserved for public sector. However, reservation of manufacture of certain products for the small-scale sector continues till this day.

Trade liberalization was pursued by drastically slashing import tariffs, accompanied by devaluation of the Indian Rupee, which was made convertible on trade account shortly thereafter. The need to obtain import licenses was more or less scrapped by putting increasing number of importables under open general license (OGL) - (The bureaucratic mindset cannot get rid of the term "license "!) still consumer durables’ imports are not free and agricultural trade is state dominated.

For fiscal stabilization, the regime of administered prices is being dismantled slowly. Subsidies for various products such as fertilizer, food etc. are being restrained but not with much success. Much more progress is made in income tax reforms. Rates have been lowered and collection improved yet many who should, do not pay taxes. The excise tax structure was simplified and rationalized but leakage abounds. The worst step was upward revision of salaries of government employees, which went beyond the recommendations of the Pay Commission.

Privatization of public sector enterprises (PSEs) has not got beyond selling part of the equity of PSE to public and significantly curtailing fresh government investment in PSEs.

Much progress has been made in financial sector. Interest rates are freed, private banks are permitted, stock markets have been made much more transparent with open electronic trading and establishment of a regulatory authority, securities and exchange board of India (SEBI). Yet a debt market is yet to be developed. Futures and options trading are not yet permitted. However, in late 1999 the new government got the legislative amendment passed, which will permit such trading. The public sector banks constituting the bulk of the banking sector have large non-performing assets (NPAs), are overstaffed and generally not in good health.

What remains to be done face much stronger opposition from interest groups. Before turning to them, we look at the political economy of what has been done so far. Why were the reforms allowed to be initiated in the first place?

The New Political Economy approach to India came into general use with the arguments of Bardhan (1984). These sought to explain India’s relative stagnation in terms of ‘heterogeneity’ of the ‘dominant coalition’, consisting of industrialists, large farmers and the professional class, primarily bureaucrats and other white-collar workers. The conflicting interests of these three groups, in Bardhan’s view, led to regulatory and public expenditure patterns that were mainly political compromises and failed to deliver rapid and sustained growth. Given this, the question is (Kohli, 1991) why did the reforms happen? Why were not the interest groups able to stall it as they had done earlier in 1980s?

The first set of reforms was a response to a crisis. There was no other option. If default was to be avoided, external help was inescapable. IMF help would not have come without the reforms. Of course, there were economists in India who argued that India needed IMF conditionalities more than IMF money. The government of Prime Minister Narasimha Rao, which took the initial step, was a weak government, a minority government. Even though some inside observers have claimed that Prime Minister was personally a believer in reforms, he must have been concerned about the political price he might have to pay.

Politicians are supposed to have short time horizons, up to the next election. A crisis, however, if unattended, might not only bring the next election much closer, but also ensure certain defeat in it. When death is imminent the mind becomes clear and focussed. Thus a crisis can push even a weak government to reforms.

The minority government was able to push reforms for another reason. Varshney (1999) argues that political parties have multiple objectives, economic and ethnic. In 1991, the various secular parties were more concerned about keeping out the Bharatiya Janata Party (BJP) with its emphasis on "Hindutva" than about guarding the economic interests of their various supporters. The BJP had won 120 seats in the Parliament in the election of July, 1991, following the movement led by BJP in 1990 to demolish the Babri Mosque, touching off ghastly communal riots and polarizing the electorate. The demolition of Babri Mosque in December 1992 had created a climate in which, were elections to be held BJP could come to power. Thus, even when all the non-Congress, non-BJP opposition parties voiced strong opposition to reforms in the Parliament, they voted with the government for the first three budgets which carried out bulk of the reforms so that the government does not fall and fresh elections don’t have to be held. See figure 9.

(a) Deregulation

Earlier, industries needed approval from the Ministry of Industries to set up any manufacturing capacity, to change product mix, to expand capacity, to decide what technology to use and where to locate the plant. The proposals were vetted by the officers of Directorate General of Technical Development (DGTD). The reforms eliminated all these in one go for all except eight industries of strategic or environmental importance.

Before the reforms, large houses were defined as those having total assets of the company either by itself, or together with assets of related group of companies equaled or exceeded a certain limit (Rs.1 billion in 1991), required a special permission to expand their industrial activities. The special permit was required to prevent concentration of economic power. It was an additional barrier that needed to be overcome. The reforms also abolished this restriction on large houses.

The gainers from deregulation were entrepreneurs who could not expand their activities in a competitive set up. The resulting efficiency of industries would also benefit the consumers, the people. The main losers were the bureaucrats, the officers of DGTD and politicians who dispensed quotas and licenses. They were however a small group.

What may seem surprising is that industries welcomed it. Industries had thrived in the old regime with protection from both domestic and foreign competition. They had a cushy life and the rents they obtained from scarce licenses gave years of painless profits. Yet, further expansion had become difficult. See figure 10.

Over the years, bureaucrats and politicians’ greed had increased and had become widespread. They were demanding increasing share of "rents" and repeatedly. The gains to industrialists had become ephemeral - the cost of rent seeking absorbed much of the rents.

Also the number of potential entrepreneurs had increased over the years, with education and growth. With entry restrictions they felt thwarted. Even among the established industrial houses - new generation had come up - with aspirations to show that they can be even better than the old generation. They felt frustrated when they couldn’t diversify. Also, the rent-seeking supplication was anathema to them. This second generation entrepreneurs were very enthusiastic about reforms.

Domestic deregulation, however, is not complete. Production for more than 800 products is still reserved for small scale sector (SSS). Small-scale sector is defined as one in which the value of investment in plant and equipment does not exceed a prescribed limit. When first introduced in 1967, 47 items were reserved. By 1997 the list was expanded to 800 items (quite a few of these were elaboration of sub-items of the original 47).

The reforms in 1991 did not touch the SSS reservation. The United Front (UF) government in 1997 raised the investment limit from Rs.6 million to Rs.30 million and dereserved 15 items. The BJP government has dereserved farm implements.

SSS reservation of low-tech items with large export potential such as garments, toys, shoes and leather products have cost India enormously in terms of lost exports.

India and China exported comparable amounts of toys, shoes, garments etc. in 1975. Had India shared the global market with China, India should have been exporting today $55 billion worth of toys, shoes, garments etc. instead of $15 billion. It needs to remove small sector reservations and introduce labour flexibility.

If Indian economy were exporting $40 billion more today, its shape would have been very different. The government did permit larger units in 1997 to get into these sectors provided they exported more than 50 percent of their output. The SSS employs many, is spread all over the country and would be apprehensive about dereservation. However, SSS is most likely to gain substantially from reforms. So if, politicians feel differently, they need to be better informed.

The SSS reservation has become inconsistent. Many reserved products can be freely imported. Thus, the SSS in India has to compete with foreign large-scale manufacturers but not domestic ones. SSS reservation should go. The political economy question is why successive governments have been reluctant to proceed with these reforms?

(b) Trade Liberalization

Trade liberalization by simultaneously devaluing the rupee and lowering tariff rates, did not lower significantly the protection rates on import competing industries. On the other hand, it gave exporters a better deal. Thus, the exporters welcomed it and the importers did not oppose it. See figure 11.

The abolition of various subsidy schemes and duty drawbacks and its replacement by a devalued rupee was also welcome to exporters as they were freed from dealing with greedy bureaucrats. The bureaucrats would have been expected to oppose these reforms but since their own minister, Mr. Chidambaram led these reforms and reduced the power of patronage of his own ministry, they could not oppose. In any case, all these happened so suddenly that they had little chance to organize any opposition.

(c) Fiscal reforms

What has taken place are the politically easy reforms of lowering tax rates and rationalizing them. Naturally, there has not been much opposition.

Subsidy reductions, such as from fertilizers, however have been partially retracted and progress is little and slow. In fact, a major regress took place when the government of I.K. Gujral went beyond the recommendations of the Pay Commission (required to be set up periodically to review salaries of government employees) and raised their emoluments generously. Moreover, it did not even accept the conditions of trimming the bureaucracy attached to these recommendations by the Pay Commission. This is an indication of the political power of government employees’ union. During the period 1996 to 1999, four different coalition governments ruled and one of them succumbed to its pressures; In February 2000, the second BJP government promises to implement some of these conditions.

(d) Privatization

Privatization is promoted in a number of ways. Firstly, sectors that were reserved for public sector were opened up for private sector. The hope was that over the years, the role of public sector would be reduced. Second, part of the equity of public sector owned by the state was offered to the public. Third, the unit is sold outright.

The first method was used for power sector generation, which was opened up to both domestic and foreign firms. It generated virtually no political resistance. In fact, the politicians welcomed it, as it opened up possibilities of "negotiated contracts" with firms. Unfortunately, very little progress has been made here, even though by 1993 some 240 memoranda of understanding were signed by various states with private parties willing to set up generating plants. The real reason for this relates to the political economy of electricity pricing. The state electricity boards (SEBs) are financially sick and make losses. The private generators are required to sell electricity only to the SEBs and since their only customer is bankrupt, they are reluctant to go into the business. Thus, the most critical power sector reform is of making the state electricity boards (SEBs) financially viable. What is needed is to remove subsidies from agricultural consumers and reduce the large scale theft and pilferage encouraged and abetted by the staff of SEBs. (In Delhi City itself, less than 50 percent of the power sent out is billed). These run into obvious political resistance from farmers and unions. Most state governments don’t want to bite the bullet of raising electricity price for farmers. They are not willing to play the game but are willing to change the rules of game (Buchanan 1987, Dixit, 1999) and have therefore, set up State Electricity Regulatory Commissions (SERCs) with statutory authority to set prices. It is hoped that they will set the prices right and farmers will accept it!

Private entry is also liberalized for banking but their spread is still regulated. The second method has been followed and government has offered 10% or 20% of equity of some public sector firms. This has had little organised opposition. Yet, it is generally criticized. Since the firms remain public, the stock fetches a low price. It is now strongly argued that government should sell at least 51% of the equity and thus, follow only the third option. Till February 2000, only one from Modern Food has been so sold. The progress of outright sale has been minimal. Even when the cabinet has decided to sell a unit, the concerned ministry sits on it. Neither the Minister, nor the bureaucrats want to loosen their control over the unit. Moreover, the political clout of unions is strong here.

(d) Financial Sector

The reforms so far have been somewhat easy. (They always look easy after the fact). The harder part of restoring the financial health of public sector banks and rationalizing their operations in the context of overstaffing and strong bank employees’ union remains.

(e) Regulatory Capture in Capital Market

How the process of reforms can be slowed down by regulatory capture can be seen in the case of capital markets in India. Capital markets require an appropriate regulatory framework. Indian capital markets have seen a dramatic improvement over the years. Anonymous electronic trading was started in 1994. A clearing corporation was set up in 1995, which eliminated counterpart risk. A depository system was started in 1996. What needs to be done is rolling settlement and a liquid debt market.

A regulatory body, Securities and Exchange Board of India (SEBI) was set up in 1992. Shah and Thomas (2000) have studied the political economy of SEBI.

"In its early years, SEBI was remarkably distant from stock brokers and formulated policies based on an independent vision about where India's capital markets should be headed. A reforms program, which focuses on markets and not intermediaries, is inevitably unkind to intermediaries. The early success of reforms in the stock market led to a halving of the price of a BSE card, a Rs.2 crore reduction of the net worth of each BSE broker.

From a political economy perspective, these early years of SEBI were not in equilibrium, since the reform program was under attack from a constituency (market intermediaries) that had clear self--interest to engage in political actions. In this case, we can accurately compute the impact of the reforms: a drop in the BSE card price of Rs.2 crore, multiplied over 600 members, is a loss of wealth of Rs.1200 crore.

This is a sharp incentive for intermediaries to mobilize politically.

The reforms program did not derive a counterbalancing political support from the constituency for market reforms: the diffused mass of market users in India who obtained a credible stock market for the first time in India's history. Policy makers in the finance ministry, who might have been a voice, which supported the goals of the economy as opposed to the goals of intermediaries, did not clearly support the reforms program.

Hence, from this political economy perspective, it is not surprising to see that in recent years, SEBI has been substantially co-opted into the interests of the brokerage community. SEBI's policies on prudential regulation, rolling settlement, derivatives, etc. have reflected the goals of special interest groups.

Reforms in the equity market are widely extolled as an outstanding achievement of radical reforms. However, it is useful to note that after the components of the radical reforms were in place (electronic trading in 1994, clearing corporation in late 1995, depository in 1996), SEBI's policies have been largely conservative.

A simple litmus test that is very revealing is the fraction of members of SEBI committees who are market intermediaries in general, or stock brokers in particular. A committee that is dominated by stockbrokers is likely to work in the interests of stockbrokers, and not the economy. Most SEBI committees have over 75% of the members who are market intermediaries.

4.7 The Reforms over the ‘90s and the Tasks Ahead

The reforms progressed rapidly in the first two years and accomplished a lot. Then it slowed down. After the first two/three years, further reforms faced the resistance of the groups that had coalesced around the earlier process, as well as the potential resisters of the reform process, in essence, some domestic industrialists and organized labour in the private and public sectors. There was also criticism of the reform among some Left academicians. They were concerned about the adverse effects of some elements of the reform package (such as cuts in public expenditure on the social sector and agriculture) on the poor in India. A reflection of these views can be seen in the Alternative Economic Survey 1992-93 (1993) and the Alternative Economic Survey 1993-94 (1994). Both industrialists and organized labour were against changes in industrial and trade policies that aimed at significantly increasing the competitiveness of domestic markets and went much deeper and were more widespread than the changes attempted during the 1980s. In addition, public sector employees, both blue-collar and white-collar, faced the threat of redundancy as budgetary support to public sector enterprises was slated to be reduced as part of the overall stabilization package.

The industrialist’s group resisting liberalization, or at least some aspects of the package, which had been highly vocal and visible during 1993, did not appear to be speaking for industrialists as a whole. There were, clearly, several large industrial interests that, even as they had, benefited from the favour bestowed by the previous regime, were technologically and organizationally well positioned to take advantage of the new regime, be it by expanding core capacities, diversifying or entering into joint ventures with foreign firms. These interests stand to gain from new opportunities even as they stand to lose from the competitive weaknesses of some of their old businesses. The overall position of the industrialists is that they have no problems with internal liberalization, i.e., removal of pricing and distribution controls and entry barriers to domestic investors. However, they are concerned that a rush of foreign entry, either through imports or investment, may not give them time to upgrade their competitive resources.

Organized labour has so far been generally successful in blocking the implementation of a meaningful exit policy, which was earlier viewed by the government as being an integral part of the reform package. Public sector unions have also effectively impeded the progress of privatization measures in the manufacturing as well as the services sectors.

Even then, the reforms have continued in small steps and quite a lot has been done over the 90s. What is most remarkable is that the two United Front governments and the two BJP led coalition governments that followed the Congress government of Narasimha Rao have all contributed to these reforms. No party today talks of rolling back the reforms. The political mindset has changed. Over the years, tax rates are rationalized. Import tariffs have been brought down, consumer goods imports have been relaxed. The process of tariffication of quotas has begun. Much progress has been made in financial market liberalization.

In February 2000, there is however, more hope of progress in the areas of subsidy reduction and privatization. The general public has by and large realized that loss-making or inefficient public sector is not in its interest and that it is not ready to put up with poor service from public sector. The political power of the unions has waned. This was evident in the power engineers strike in US where the engineers’ union had to back down and importantly, it did not find much public support.

Still, the Indian economy has many handicaps. The infrastructure is poor. There is no exit policy. Subsidies and loss-making PSEs continue to strain government budget. While inflation has been brought down to less than 3% per annum in 1999-2000, fiscal deficit is the most important problem facing the government. Procedural hurdles delay decisions. Corruption opportunities are still many and are exploited. How could the needed reforms be carried out in the face of opposition by organized vested interest is a challenge India has to face.

5. Concluding Remarks
The Indian experience with reforms led us to a number of insights.

The framework outlined in Section 1 did help explain India’s policies and performance. We have seen how policies create their own vested interests and how they in turn resist reforms. We have also seen that good policies initiated by well-meaning people to deal with an external shock, get entrenched and become difficult to dislodge. The vicious circle of policy creating vested interest distorting future policies etc. is far too frequent. As Goyal (1999) has observed as in "Greek-plays, tragedy was never purely the outcome of fate; human motivations entered richly and often fatally. There was no villainy, however, only frailty." In many cases, India’s choice of development strategy when made was sound and justifiable. Yet the dynamics of the situations led to outcomes contrary to original objectives. One lesson that one learns is that one should design policies that liquidate themselves when the need for them no longer exists. The challenge for reformers is that they need to engineer policies which have a chance of acceptance and which create virtuous circles and which do not entrench themselves.

We have also seen an example of the importance of non-economic motivations in why the minority government of Narasimha Rao was able to push reforms successfully. The lesson here is that political economic analysis should go beyond purely economic motivations.

We have also seen that a gradualist approach allows resister groups the time to organize, mobilize resources and capture regulator or reform agencies. Thus, the slower the government proceeds (the Indian government has been liberalizing since the early 1980s and the Sri Lankan government since late 1970s) the more it finds its choices constrained by the resistance of various groups. Given fiscal constraints, the possibility of ‘buying out’ some or all of these groups is limited. From a political economy perspective, the success of a gradualist programme is therefore dependent on preventing the emergence of effective resister groups.

A second implication is the nexus between the legacy of the previous regime and the nature of the interests resisting its change. Four decades of import substituting industrialization have led to enormous sunk costs in products and processes inconsistent with comparative advantages. These sunk costs underlie the intensity of the resistance of the industrial and labour interests to reform. The longer the economy has strayed from the path of comparative advantage, the more resistance there seems to be to a reform package designed to bring it back in line" (Agrawal et al., 1995).

From the Sri Lankan experience it is clear that all policy reform is determined by the five-year (or six-year) electoral cycle. If the reform would provide net benefit before the five-year cycle a government would implement it. If, however, the cost of the adjustment process related to reform were not offset before the five-year cycle such reform would be postponed. Thus the political trade-off of the reform process is the key to further liberalization of the economy. This phenomenon was particularly visible during the post-liberalization period of 1977-1999.

Without taking this factor into account no amount of pressure for reforms, by International Financial Institutions, can push a regime to implement readily. Abrupt changes in broad strategy or in detailed components of a given strategy require considerable support and understanding by the population. This is not primarily because of the power of those who profit from possible rents, but rather because the community’s history, institutions, and organizations create a milieu in which change that affects deeply rooted views and practices cannot be seen as either appropriate or necessary. It then takes some event of some magnitude to convince the population and the government that new directions are necessary and possible. This is by no means an easy exercise as short-term costs can be very heavy. As the Indian Finance Minister, Manmohan Singh once said: "Finance Ministers must look after the short term if they want to survive in the medium term" (IPS, 1993:4).

Despite all the problems mentioned above, Sri Lanka achieved an average growth rate of 5 per cent during 1977-1999, which was quite remarkable given the chaotic situations the country encountered during this period. Commitment to a liberal trade and investment regime was one obvious contributory factor to this achievement. In other words, the answer to this performance could be found in the dynamics of capitalism. For example, writing on Asia’s Reemergence, Radlet and Sachs (1997:46) observed: "corruption is rife, judicial systems are weak, and local governments often lack authority and adequate finance. But global capitalism stirs powerful forces for economic growth even in face of serious limitations in law, economic structure, and politics."

References:

Abid Hussain Committee (1997), "Report of the Expert Committee on Small Enterprises", Chairman, Abid Hussain, Ministry of Industry, Government of India, New Delhi.

Agrawal Pradeep, Gokarn Subir, Mishra Veena, Parikh Kirit and Kunal Sen (1995), Economic Restructuring in East Asia and India, McMillan Press, UK and India.

Alternative Economic Survey 1992-93 (1993) (New Delhi: Public Interest Research Group).

Alternative Economic Survey 1993-94 (1994) (New Delhi: Public Interest Research Group).

ARC (1988), "Report on Financial Management", Report No.8 of the Administrative Reform Commission, Sessional Paper no. XI of 1988

Bardhan Pranab (1984) The Political Economy of Development in India (Oxford: Oxford University Press

Bardhan, P. (1998), The Political Economy of Development in India, Oxford India Paperbacks, New Delhi

Bates and Devarajan (1999), "Framework paper on the Political Economy of African Growth" presented at the World Bank’s Global Development Network meeting, Cairo, October 28-31, 1999.

Bhagwati Jagdish N.(1978) Foreign Trade Regimes and Economic Development: Anatomy and Consequences of Exchange Control Regimes (Lexington, Mass.: Ballinger)

Bhagwati, Jagdish N. and T.N. Srinivasan (1975) Foreign Trade Regimes and Economic Development: India (New York: NBER)

Bhagwati, Jagdish N. and T.N. Srinivasan (1980) ‘Revenue Seeking: A Generalization of the Theory of Tariffs’, Journal of Political Economy, vol. 88, pp.1069-87.

Bhavani T.A. and Tendulkar S.D. (1997), Report # 44, Centre for Development Economics Working Paper series.

Buchanan James (1987), "The Constitution of Economic Policy", American Economic Review, 77(3), June, PP 243-250

Choksi A.M. & D.Papageorgiou (eds) (1986), Economic Liberalisation in Developing Countries, Blackwell, Oxford and New York

Cline & Weintraub (1981), Economic Stabilization in Developing Countries, The Brooking Institution, Washington, D.C.

Cornia, G.A. et al. (1992) Africa’s Recovery in the 1990s (London: Macmillan).

Dixit, Avinash (1999), "Some Lessons from Transaction-Cost Politics for Less-Developed Countries" Mimeo, Department of Economics, Princeton University.

Dunham D. & S. Kelegama (1997), "Stabilization and Liberalization: a closer look at the Sri Lankan experience 1977-93", The Developing Economies, June

Dunham D. (1993),"Crop Diversification and Export Growth: dynamics of change in the Sri Lankan Peasant Sector", Development and Change, vol.24 no.4

Dunham D. and S. Kelegama (1994), Stabilisation and Liberalisation: A Closer Look at the Sri Lankan Experience 1977-93, Macroeconomic Series No.8, Colombo: Institute of Policy Studies

Dunham, D. and Saman Kelegama (1997), ‘Does Leadership Matter in the Economic Reform Process? Liberalization and Governance in Sri Lanka, 1989 - 93’ in World Development, Vol. 25, No. 2.

Dunham, D. and Saman Kelegama (1997), ‘Stabilization and Adjustment: A Second Look at the Sri Lankan Experience, 1977 - 93’ in The Developing Economies, XXXV-2, June 1997.

Fizbein A. (1992),"Labor Entrenchment and Redundancy Compensation in State Owned Enterprises: the case of Sri Lanka", Report No.IDP-121, World Bank, Washington D.C.

Godfrey M. (1990),"Labour Markets and Structural Adjustment: issues and experiences", IDS. Sussex, mimeo

GOSL (various issues), "Sri Lanka: Policy Framework Paper", Government of Sri Lanka, Colombo (referred to in the text as PFP).

Government of India (1986) Report of the Fourth Pay Commission (New Delhi: Government of India).

Goyal Ashima (1999), "The Political Economy of the Revenue Deficit" in Parikh Kirit (ed.); India Development Report: 1999-2000, Oxford University Press, New Delhi.

Herring, R.J. (1987), ‘Economic Liberalization Policies in Sri Lanka: International Pressures, Constraints and Support’, Economic & Political Weekly, Vol. 22, No. 8.

Hossain, M., Iyanatul Isla, and Reza Kibria (1999), South Asian Economic Development: Transformation, Opportunities and Challenges, Routledge, London.

Human Development in South Asia 1999(MUHHDC 1999), The Crisis of Governance, The Mahbub ul Haq Human Development Centre, Karachi

Indrarantna, A.D.V, de S (Ed) (1999), Globalisation and South Asia, Retrospect and Prospect, Sri Lanka Association for the Advancement of Science, Colombo.

Islam, N. (?), Growth, Poverty and Human Development in Pakistan, Occasional Papers, Human Development Report Office, UNDP, New York.

Jahan, N., Mohammad Alauddin and Clem Tisdell (?), Economic Liberalization in South Asia, ….

Jones, Leroy P. and H. Sakong (1980) Government, Business and Entrepreneurship in Economic Development: Th Korean Case (Cambridge: Harvard University Press).

Joshi, V., and I.M.D., Little (1994), India, Macroeconomics and Political Economy, 1964 - 1991, World Bank Comparative Macroeconomic Studies, World Bank, Washington D.C.

Kaufman 1997 and Klitgaard 1998,

Khatkhate, D. (1999), ‘Perils of Borrowed Growth’ in Economic and Political Weekly, May 15 1999

Kohli, Atul (1991) Democracy and Discontent: India’s Growing Crisis of Governability (Cambridge University Press)

Kumar, S. (?), Poverty and Human Development in India: Getting Priorities Right, Occasional Papers, Human Development Report Office, UNDP, New York.

Mosley P. (1991), "Structural Adjustment: a general overview 1980-90, in V. Balasubramaniyam & S. Lall (eds.), Current Studies in Development Economics, London, Macmillan.

Mosley P. et al.(1991) Aid and Power: The World Bank and policy-Based Lending (London: Routledge).

Mosley P.(ed.) (1992) Development Finance and Policy Reform, Mcmillan International Political Economy Series (London: Mcmillan)

Nelson J.(1990) Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World (Princeton: Princeton University Press).

Olson Mancur (1965) The Logic of Collective Action: Public Goods and the Theory of Groups (New York: Schocken Books).

Parikh Kirit S.(1999): Ed., India Development Report 1999-2000, Oxford University Press, New Delhi.

Radlet, S and J. Sachs (1997), ‘Asia’s Reemergence’, Foreign Affairs, Vol. 76, No. 6 (November/December).

Ranis Gustave and S.A. Mahmood (1992) The Political Economy of Development Policy Change (Boston: Basil Blackwell).

Sanderatne N. & D.Hulme (1994),"Public Expenditure Management", in J.Healey & W.Tordoff (eds), Public Expenditure Management Under Different Political Systems: comparative case studies in accountability, London, Overseas Development Institute

Shah Ajay and Thomas Susan (2000), "Policy Issues in India’s Capital Markets in 2000 AD", in Bhalla Surjit (ed), New Economic Policies for a New India, Indian Council of Social Science Research, Har-Anand publications, New Delhi.

Shand, R. and K.P. Kalirajan (1997), Economic Profiles in South Asia, India, Australian School of Pacific and Asian Studies and the Australian National University, Canberra

Srinivasan T.N.(1991) ‘Foreign Trade Regimes’ in Gerald M. Meier (ed.), Politics of Policy-making in Developing Countries (San Francisco: ICS Press) (ICEG Publication).

Uyangoda J. (1993),"Premadasa as President: a posthumous assessment", Pravada vol.2 no.4

Varshney Ashutosh (1999), ‘Mass Politics or Elite Politics? India’s Economic Reforms in Comparative Perspective’ in Sachs J.D., Varshney A. and Bajpai N. (ed.), India in the Era of Economic Reforms, Oxford University Press, New Delhi.

Westerbury J. (1989),"The Political Management of Economic Adjustment and reform" in J.M.Nelson (ed), Fragile Coalitions: the politics of economic adjustment, Oxford, 39-58

Wignaraja. P., and Akmal Hussain (1989), The Challenge in South Asia, Development, Democracy and Regional Cooperation, Sage Publications, New Delhi.

Zaidi S. Akbar (1999), Issues in Pakistan's Economy, Oxford University Press, Oxford.

Copyright ©
All Rights Reserved.