Social Scientist. v 15, no. 174-75 (Nov-Dec 1987) p. 33.


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Economic Reform : Some Observations 33

shares many of the problems but in a considerably attenuated fashion. After all, a large part of Indian industry is in the private sector, a sizeable segment of industrial prices are determined in the market-place, and central control has not been as pervasive or detailed as in China.

Details about the progress of the reforms are scarce. The Chinese seem to be still in the phase of experimenting with different approaches to restricting industrial organisation and placing and control procedures. It is not difficult to foresee some of the potential problems. Different strands of the reforms being inter-related, they cannot be planned or implemented piecemeal. Rapid liberalisation, as the experience in the late 1970s showed, could lead to a surge of investments by the collective and local governments, in turn causing strains on the financial system and also wasteful duplication and excess capacity. At a deeper political level, the reforms imply a major realignment in the pro-reform pattern of relations between enterprises and departments, and between ditYerent levels of government. Moreover, the impact of the reforms on different enterprises and regions will be far from uniform : loss-making firms face the prospect of retrenchment or closure when subsidies are withdrawn. A major revision in the structure of relative prices in favour of raw materials and semifinished goods relative to those of finished goods would increase the profits of industries and regions producing the former at the expense of those specialising in the latter. Alternatively, it could lead to a general cost inflation. Attempts to promote free trade in manufactures between regions also face resistance from the backward regions.

I he Chinese discussions both at the political and the professional level give ample evidence of awareness of these problems. The literature of the early 1980s speak of the 'exploratory and innovative character of the reform*, the necessity to implement unified solutions suited to specific situations in a planned way, the importance of learning from experience, the need to absorb increased prices of raw materials by using them more economically, and advise 'extreme prudence' in carrying out price reforms. It is not clear whether they have made significant progress in evolving a unified approach and working out a viable strategy to manage the transition, and what the concrete elements of it are. These aspects deserve to be closelv watched, for though the order of change projected in China is far more drastic and far-reaching than in India, there are essential similarities especially concerning the mix of market and direct controls, the internal organisation of the public sector enterprises, the strategy to infuse technological dynamism and build the capacity for technological self-reliance. One important lesson from the Indian and Chinese experiences is that some of these problems transcend the ideological basis of systems.



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