Tuesday, 21 January 2014

India and its growth model.

PANDIT NEHRU on 14 august 1947 reminded the country,that the task ahead included'' the ending of poverty and equality of opportunity''.these were the basic foundations on which India embark upon its path of development,India a socialistic pattern of society adopted USSR five year plan for economic growth and initially took full control in decision making later converted to mixed economy.
India claims to achieve substantial victory in reducing poverty,yet 96.9% of population is living below $5 dollar a day with world third largest poor country.And if we talk about equality of opportunity it means ''No one should be prevented by arbitrary obstacle from using his capacities to peruse his own objective''.this definition is contradictory in Indian context because Stalin model transfers power from public to bureaucrats and policy makers,they decide fate of their citizen,Equality of opportunity best defines under free market economy. 
India adopted socialistic pattern of society with high expectations,intellectuals in India took for granted that central economic planning is the wave of the future that will set their country on the road to rapid economic progress,India adopted Stalin's model of growth after independence while Japanese and Asian tigers believed  in voluntary cooperation.
The contrast between India and japan during first thirty year after it achieved independence in 1947 and japan not today but during thirty year after Meiji restoration in 1867,both were the countries with ancient civilization each had its structured problem,both countries experienced major political change.
In India Nehru came in power and adopted centrally planned economy,while reason for adopting centrally planned economy was against the background of colonial rule.despite the similar circumstance in japan in 1867 and India in 1947 the outcome was different,japan dismantled its feudal structure and extended social and economic opportunity to all its citizen a lot of ordinary man improved rapidly on the other hand India with centrally planned system with almost full control on decision making on all sector failed to provide economic freedom and couldn't come out of poverty ,when world was experiencing'' golden rate of growth'',India was suffering from Hindu rate of growth ,BOP crisis and because of failure of its policies India experienced substantial backwardness and several crisis.
Japanese govt played major role in development,it sent many Japanese abroad for technical training,imported foreign experts,but at no time did try control voluntary cooperation and direction of investment,the state maintained larger role in defense sector.On the other hand India took full control on agriculture and industry,pvt enterprise were restricted through licencing.
Since first five year plan govt emphasized the role of agriculture and heavy industry,and underestimated the role of capital formation.By creating human capital and physical capital simultaneously India could have achieved success in expanding heavy industry sector and generating investment but first major emphasis on education or skill formation was given in sixth five year plan
Major investment was done by govt but could not get fruitful result,People had no option but to engage themselves in primary sector with low earning,because of overall low earning savings were low,because of low saving rate and unorganized banking system, supply of loanable fund were low and hence investment and aggregate demand were low.economy was working below its capacity of production.
The inability of public servant to perform their given task was major drawback.Theory of democratic displacement suggests''a bureaucratic system,increase in expenditure will be matched by fall in production''.His theory applied in full force to the effect of increase in bureaucratization and centralization,corruption started prevailing from food distribution system to inefficient allocation of public resources,From education system to hiring of unskilled workers
.Due to large control  of public sector in Indian economy,Bureaucracy  and politics became the center of attraction for Indian powerful and elite people,as politics became most profitable industry,eventually corruption crept into the system and unskilled worked began operating Indian public sector leading to decline in economic growth and output. 

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