Regulatory Policy and Industrial Growth The World Bank View
IT IS BY NOW a commonplace observation that the 1980s have seen a qualitative shift in the direction of economic policy in India. Going by official statements, this shift aims at restructuring development in a manner that could reverse the deceleration in the rate of growth of the economy over the last decade and a half.
Four elements of this effort need to be distinguished. First, a set of measures that enlarges the economic space open to the private sector and increases its flexibility of operation at the expense of the State. This includes a dilution of the role of the State ensured through a reduction in its command through taxation over surpluses generated in the economy ;
the dismantling of measures of control over prices, production, capacity creation and foreign collaboration ; and the opening up of areas previously reserved for the public sector for private investment. Second, certain direct and indirect tax concessions that are expected to stimulate consumer demand as well as raise the profitability of private production, with the hope that this would result in an expansion of investment and growth in the private sector. Third, changes in import policy that water down quantitative restrictions and reduce tariffs, aimed at exposing domestic producers to the cutting edge of international competition while providing them access to cheaper capital equipment and intermediates. Fourth, the withdrawal of controls on the closure of firms, so that the process of restructuring industry is not hindered by the inability of private capital to abandon outdated and obsolete plants and technologies.
This strategy which for long has been recommended by agencies like the World Bank and the IMF, has through a series of initiatives, since India's resort to an SDR 5 billion loan from the IMF and in particular since the Budget for 1985-86, been implemented with some vigour. Interestingly, with the government's growing willingness to accept policies of the kind recommended by the international agencies, the latter have become more aggressive in arguing for a policy of economic liberalization. One such effort in recent times is a confidential two-volume document
*Centre For Economic Studies and Planning, Jawaharial Nehru University, New Delhi,