# Lecture 2

## Moderate Growth [1975-90]

* Green revolution in 1965
* *4th Five year plan* - emphasis on rapid economic growth
* Quick yield and light industries
* Shift to liberalization
* Steady private sector orientation
* Met with large pushback
* Priority on poverty elimination and area development plans followed
* Previous plans were argued against that poverty elimination requires more than growth

### Major shifts:
* Nationalization of banks
* Insurance nationalization
* Nationalization Coal industry
* Foreign exchange Regulatory Act

* Software sector as an export oriented sector
* 5th to 7th plans were setting up economic liberalization
* *Political shift* - Structural and functional changes in government

### Political Instability

* Excessive central dominance over Private industries and state governments led to industries not performing and political tensions.
* **Political Decay** - State governments were unable to satisfy demands of marginalized groups
* *"Garibi Hatao"* - Political awakening due to the government trying to eliminate the poor instead of poverty

## High Growth

* **Macroeconomic crisis**- Due to:
* High Inflation
* Rising cost of food
* account deficit
* Huge debt
* fall in forex
* Gulf Crises of 1990

* Other major causes
* Industrial inefficiences
* Lack of industrial competition
* License raj
* Sick public sector due to State interference

* Economic Liberalization:
* Following global trends--
* Following the collapse of USSR, neoliberalism reigned
* Clear visible shift from early model

* **Liberalization, Privatization, and Globalization** - Under the framework of democracy

### Elements of Reforms

1. Macroeconomic Stablization - Short term programme
* Free market
2. Structural reforms - Medium and Long term programme
1. Liberalization of trade and investment
2. Exports
3. Industrial deregulation
4. Public sector reform
3. Redefined role of the state

### A New Debate: State vs Market

* Are they substitues or complements
* Who was watching who?
* **Could there be a people-friendly market?**

#### Changing role of state

* State was:
* Producer
* Investor
* Regulator
* It became:
* Facilitator
* Agency for

### Impact

* Mixed impact
* Soft war
* Remittances
* Growth not inclusive
* Unequal growth distribution
* Would result in huge wealth inequality in 21st century