The Changing Political Economy Of India Essay Example for Free

The Changing Political Economy Of India Essay From 1947 – 1990 India had a much closed system of economy. Most of the core industries were controlled by the central government and there were no real competitors. A policy of import substitution in the decades after independence encouraged the development of a broad industrial base, but a lack of competition contributed to poor product quality and inefficiencies in production. During this period India had high restrictions on the FDI (Foreign Direct Investment). For those players who wanted to invest, there were too many bureaucratic levels in the Indian political system which has resulted in delays in getting the necessary approvals. For those companies that were able to establish the product lines in India, the true value of the commodities could not be realized as the prices of the commodities were controlled. Though there was improvement in the infrastructure, it was never adequate to serve the ever growing large population. Because the restrictions on the FDI and inadequate funds, development in sectors like transportation and power was slow. Multinational companies operating in India must overcome erratic electricity supplies, poor roads and gridlocked seaports and airports while contending with government policies that discourage hiring and hold back domestic demand for goods in many sectors. The predominance of inefficient state-owned enterprises, particularly in the banking sector, remains a brake on further growth. Since 1990, there were radical changes to the Indian economic system. The economic reforms that started driving the early 1990s have started transforming the Indian economy into an open system of economy. There has been a gradual liberalization of the Public Sector Units. Most of the restrictions on FDI were removed. There were many SEZ (Special Economic Zones) set up across the country to encourage investment in private sector. Government has relaxed limits on foreign investment across most industries. It has also given an opportunity for the big home grown companies to move beyond India. Relaxation of Foreign-exchange controls resulted in multinational companies to be able to invest more freely in India. . India is the second fastest growing economy of the world at present. The strong emergence of private sector in the Indian economy has heightened the pace of development of the pharmaceutical industry in India. The pharmaceutical industry has achieved global recognition as a producer of low cost high quality bulk drugs and formulations. The recent regulatory and much awaited patent laws changes have lead the Indian pharmaceutical industry towards exploring newer avenues of drug development, thus, promising higher capital investment in the pharmaceutical industry in the near future. The Indian pharmaceutical research is backed by strong government support and availability of surplus skilled technical workers. Some of the Indian companies have gone global with presence in 60 countries, including USA, Europe and China. India is one of the top ten producers of bulk drugs in the world and 60% of India’s bulk drugs production is exported. The Indian economy’s growth rate has averaged above 7% over the past three years, yet future expectations for growth are even higher (India Economic Summit, 2006). People generally think that India is over populated. In the current economic scenario, the key strength of India is its population. Now India has the largest educated population in the world. India was among the first developing nations to recognize the importance of software, India already enjoys a fairly strong position in providing IT services. The country offers abundant engineering and technical talent: every year, it produces 400,000 graduate engineers, second only to Chinas 490,000. Companies might also be attracted to India by the increasing availability of reliable suppliers, the chance to escape unrelenting price pressures at home, and the size of the domestic market. LG, for example, plans to make handsets in India to take advantage of its rapidly growing demand for mobile telephones. Although India was late and slow in modernization of industry in general in the past, it is now a front-runner in the emerging â€Å"Knowledge based New Economy†. From an agro based economy it has emerged as a service oriented one. The unprecedented high level of foreign exchange reserves, the upward trend in FDI inflows and the general growth of the economy have given more confidence and encouragement to the policy-makers in the acceleration of economic reforms and liberalization. Both at the central and state levels and across political parties, in general, there is consensus on further economic liberalization. Now India has a well coordinated government action, a centralized economy that can pour resources into projects and direct the development of entire industries, something that was much harder in Indias sprawling, bureaucratic democracy from 1940-1990. India has focused more on software and services, which can be delivered via networks without bureaucratic interference, unlike physical goods. The sum of India’s total exports and imports amounts to around 25%-30% of its GDP. The Indian government is investing more in infrastructure, health and education, and in improving agricultural productivity. It would have a cumulative effect on the economy. India has the one of the highest number of middle class families in the world. The economic liberalization and a large domestic market will prove to be a very attractive target for the multinationals. Reference: India Economic Summit 2006 India: Meeting New Expectations New Delhi, 26-28 November