chapter  2
The policy environment in India
Pages 11

Since the First Five-year Plan (beginning in 1951) till the major reform initiative in 1991, India followed a policy of planned industrialisation. ‘Self-reliance’ as an explicit policy objective was introduced in the Third Plan. Policies governing international trade, exchange rate, industry and finance were designed to complement each other so as to achieve this objective. Given the generally pessimistic assessment of export prospects the planners regarded import substitution as the prime means of achieving self-reliance. This is amply borne out by the nature of the policies followed in this period. Major reforms to the overall policy environment were initiated in 1991, though some of them had roots already in a series of partial reform measures taken up during the mid-1980s. In this chapter, we provide a brief overview of the important policies that have a bearing on international competitiveness, from the early 1970s to the late 1990s. These are macroeconomic policy, trade policy, exchange rate policy, industrial policy, financial sector policy, labour policy and exit policy. Detailed accounts of these policies and their impact on the Indian economy can be found in several earlier studies, notable amongst which are Bhagwati and Desai (1970), Bhagwati and Srinivasan (1975), World Bank (1989), Ahluwalia (1991), Pursell (1992), Joshi and Little (1994) and Agrawal et al. (1995). The overall implications of these policies for India’s international competitiveness are assessed in the concluding section of this chapter.