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"… it is the context and circumstances prevalent in any nation that should determine its policies and strategies of growth" (Mahtaney 2010: 159). Illustrate the truth or falsehood of this statement with reference to either India or China. Essay Example

National Policies and Strategies

The prevailing conditions within any nation always determine its policies and strategies of growth. Conditions like poverty, health inequalities, social exclusion and discrimination towards meeting the millennium development goals are some of the key prevalent situation that calls upon the government of any nation to formulate development polices and strategies that address the inequalities. Democratic governance in most cases provide an opportunity for identifying inhumane situations within a country and thus helping the government of the day to come up with working means to counter these situations thus providing their citizens with favourable and humane environments to live in. However, it is also true that the government can formulate national growth policies basing on other factors rather than just the prevailing conditions in the country. For example, the government can set a target that within a certain period of time it should have transformed from a developing nation to a medium income country and hence formulate policies and strategies to achieve this target. India’s 12th five-year plans (5YPs) growth per year target is 9%. The country’s growth progress demands for a higher total factor productivity (TFP) growth together with progressive governance. This paper is an argumentative essay that confirms that it is the context and circumstances prevalent in any nation that should determine its policies and strategies of growth. The subject in this paper is India and its growth policies.

India has seen rapid economic growth, development and its economy opening up in the recent decades. This is strongly evidenced by the substantial integration in human living standards, poverty alleviation coupled with health and education indicators. According to the Fung Global Institute Report, the production factor and physical setting for economy during the early 1980s, India had a weaker basic public health and education system (Basu, 2010). The economic institutions were set up basing broadly on compatibility with the market economy and there minimal market distortions. Similarly, the report reveals that 40% of the rural people were almost landless; gender inequality was prevalent particularly in terms of literacy and participation. The country had a heterogeneous society with regard to religion, language and caste. Her education and health indicators during that time were weak; only fewer people worked relative to the entire population with the women inclusion and participation in the labour market being extremely low. Land distribution was unequal and the extensively heterogeneous society inhibited inclusive growth.

According to the Human Development Report of 2006, only 4 out of 10 enrolled children in India completed Class X, and approximately 6 out of 100 children in the country do not survive beyond the age of 1 (Basu, 2010). The country’s rank on the Human Development Index is 126 out of 177 countries and its expenditure on health and education is minimal as compared to third world countries like Sierra Leone and Niger. Sharing growth benefits equally together with improving access to public services are major challenges that are prevalent in India. Access to education, health, and other public services are distributed unequally where access in poor areas and for poor people are substantially worse compared to the access in better off and for better off people. Large groups of people in the society particularly those living in the countryside, women, and children have poor access to better growth services (Basu, 2010). Accordingly, inequality in access to public services in any nation always propagates the income inequality. These factors have become a constraint on growth in the future because a substantial part of the population do not receive the needed basic education and health services that are essential for the population to be productive in the society.

The growth agenda for India since mid 1980s has been a reforming one (Basu, 2010). For instance, in the early 1990s the country’s key reforms included trade liberalization and domestic market liberalization and integration; however, the Indian economy remains less open to external competition. Similarly, after the macroeconomic crisis of the early 1990s, the country’s macroeconomic management has tremendously improved resulting in the decline of the fiscal deficit. The Indian growth policies did not explicitly target industrialization, investment and infrastructure until recently (Basu, 2010). For this matter, India’s growth pattern model has been of industry and export oriented.

The key objectives of the Indian economic policy have faced a myriad of challenges including infrastructure, education, and the quality of governance. Considerably important, the India’s policy makers strongly believe that it is of great significance to raise the role of industry in order to sustain increased growth rate (McKinsey Global Institute, 2010). Nonetheless, it is not clear as to what extent the country will manage to accomplish this. Another bottleneck that the country has encountered is the recent global financial crisis, which led to the decline in the economic growth due to decreased exports to the developed countries not withstanding better domestic demand prospects in the developing countries and emerging markets (Bardhan, 2008).

The current India’s growth policy is one that aims for faster and more inclusive growth; the rise in the country’s GDP has increased the growth expectations of the policy makers, opinion makers and the public. For instance, increasing India’s GDP is the main objective in the 12th 5YP, which was prepared recently. For instance, the plan targets 9 to 9.5% GDP growth for the next five years and significantly noting that improving the country’s infrastructure is important in meeting this objective (Planning Commission, India, 2011). However, regardless of this target, there has been a substantial slowdown in growth since 2011. The 12th 5YP strategy comprises also of other goals; the country’s government aims at overall faster development in urbanization; strengthening governance and developing infrastructure in order to ensure faster urbanization; and lastly, making growth inclusive (McKinsey Global Institute, 2010).

India’s TFP growth is projected to remain at 1.7 % the same rate that was achieved in 1993-94 to 2010-11 (Planning Commission, India, 2011). It has been employment rate within any country always grows in line with demographic projections. For this matter, the increase in the number of individuals of working age (aged 16-65) in India has been on the decline since early 1980s and with regard to the current demographic outlook, this trend might escalate further if proper growth strategies are not formulated. Similarly, in order for India to achieve her objective of 9.5% potential GDP growth then, it essential for higher investment in order to raise the ratio of fixed investment to GDP (Planning Commission, India, 2011).

From the above; it is clear that there are growth disparities within the country; the call for the development of infrastructure evidently display that the current infrastructural situation in the country is wanting. Faster urbanization also exhibits several regions and parts of the country that are underdeveloped; people live in poverty, exclusion and survive at God’s mercy (Xu, et al., 2011). The commuter and information network in the country are poor and thus must be properly developed to make sure that the country meets its growth agenda. Similarly, the call for inclusive growth is clear evidence that various sections of the general population have been left out in the national agenda for a very long period and it is now time to make sure that they are made to be part of all national matters. For instance, the distribution of the civil service job opportunities must include people from all parts of the nation to make sure that the national income is distributed fairly across the nation (McKinsey Global Institute, 2010).

The above explained growth policy is highly ambitious, and thus it wholly depends and calls for a stronger supply side to make it attainable and sustainable. For instance, the primary determinant of GDP growth is mainly the country’s capacity to produce. This policy in this case shows that the initial supply status of India is prevalently low and hence there is need for the country to develop the supply sector. For example, there is need for literate personnel to help the country work to meet its development demands. Low production rate is an existing and prevalent situation across India (Xu et al., 2011).

In the same line of argument, this ambitious growth policy demands for higher total factor productivity (TFP) growth. In India, the measured contribution of human capital accumulation to growth is modest; in this respect, there are two main ways through which India can raise trend growth. First, further ramp up investment and capital deepening, this would result into the investment ramping up within the next 15 years, as a share of GDP due to favourable demographics. With regard to this, the development agenda and growth policy can be developed using such factors. However, basing on this route to raising the trend growth would demand investment to GDP rations which are difficult to attain and hence not desirable. For this matter, further GDP growth can only be realistically attainable through the second method, which is through higher TFP growth.

The explanation in the above paragraph; the higher TFP growth significantly points to the need for better governance (Bardhan, 2008). In essence, India’s governance is not fair and this condition has prevailed for a very long time. Through this discovery, the above ambitious growth policy was formulated with regard to the prevailing situations in the country (McKinsey Global Institute, 2010). The TFP growth that will strongly propagate India’s growth objective are infrastructure, physical capital, human capital (that can only be attained through quality education and health for all), quality governance, technological transfer via imports, financial development, competition and geography (Isaksson & Thiam, 2006). These factors are always regarded as the bottlenecks to higher growth; infrastructure, education, and health together with the quality of economic governance are the main stumbling bocks in India.

The Indian economy is characterized with small and average sized firms which have massively constrains the country’s TFP growth. Xu and other (2007) established that according t the World Bank survey with regard to manufacturing firms that was done in 2003: the average firm in India had 88 employees (Taimur & Das, 2012). The previous policies encouraged the establishment of small and medium industries and the government only owned 22% share in these firms. Additionally, the legislation within the country discouraged the emergence and establishment of larger firms. The rules favoured small firms. These factors gravely constrained the TFP growth. Concerning this explanation, the government and policy makers formulated an ambitious growth policy that wholly addresses this disparity (Taimur & Das, 2012).

Economic growth advocates across the world have established that the key drivers of TFP growth are Infrastructure, general investment, human capital, quality of governance, technology transfer via imports, financial development, competition, and geography. India has been lagging on all key determinants of FTP growth (Isaksson & Thiam, 2006). The discovery of this situation influenced the Indian government together with policy makers, opinion makers, and the public to come up with a growth policy that will ensure stead and gradual economic growth in India.

In conclusion, India’s 12th 5YP growth projections although might seem to be the governments own objectives to help the country to rapidly improve its economic growth; they are influenced by the prevailing conditions within the country (Xu et al., 2011). The total factors of production (TFP) growth are said to be the main influencers of faster growth within any country. Higher TFP growth is usually brought about by affluent infrastructure, informed and credible human capital, excellent economic governance, general investment, technology transfer via imports, financial development, competition, and geography. As already explained above, we have established that there are disparities and inequalities prevalent in India, the discovery of this wholly inclined the government and policy makers to develop a growth policy that will ensure robust growth across the country. Following this discussion, the situations and conditions prevalent in any nation should be the ones to be relied upon when formulating and developing a growth policy.

References

Bardhan, P. (2008). The State of Health Services in China and India: a Larger Context. Health Affairs, 27(4), 933-936.

McKinsey Global Institute. (2010). India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth. McKinsey Global Institute, McKinsey & Company.

Planning Commission, India (2011). Faster, Sustainable and More Inclusive Growth: an Approach to the 12th Five Year Plan. Working paper, Planning Commission, India, New Delhi.

Taimur, B. and Das, K. (2012). Balancing Priorities: a Collection of Essays on India. London: Deutsche Bank

Wei, L. Mengistae, T., and Xu, L. C. (2011). Diagnosing Development Bottlenecks: China and India. Working paper, World Bank Policy Research.

Basu, K. (2010) “Asian Century: a Comparative Analysis of Growth in China, India and other Asian Economies.” Working paper, eSocialSciences.

Isaksson, A., and Thiam H. Ng. (2006) “Determinants of Productivity: Cross-Country Analysis and Country Case Studies.» Staff working paper, Research and Statistics Branch, United Nations Industrial Development Organization, Vienna.