Mritiunjoy Mohanty
Assumptions
First, acute deficiency of material capital
Second, speed of capital accumulation
constrained by low capacity to save
Third, structural constraints on converting
savings into productive investment
Assumptions
Fourth, agriculture defined by diminishing
returns to scale, industry by increasing
returns to scale - absorption of surplus
labour from agriculture
Fifth, primacy to market would lead to
excessive consumption by the rich and
skewed investment priorities - not in
keeping long term requirements of the
economy
Assumptions
Sixth, whereas inequality was bad any rapid
transformation of the ownership structure
inimical to increase in output and savings.
Assumptions
A supply side view of the world
very little keynesian unemployment of
resources
therefore state should aid in increasing and
mobilisation of savings or productive
accumulation.
Assumptions
Growth process sustainable with rapid
public investment
public investment in three possible areas
infrastructure
agriculture
industry
Asumptions
1st FYP focussed on first two
export pessimism and 2nd FYP
closed economy and therefore role of
capital goods seector
textile first strategy
Crisis of 1991
Structural Adjustment
Industry deliscensing and deregulation
Trade bringing tariff barriers
Investment liberalisation of inward investment
Current a/c convertibility
Capital controls
Integration into the global economy
In the context of our discussion however there are two restrictions that are of
importance.
First, there are still significant restrictions on foreign participation in the domestic
government bond market, which is the largest part of Indias financial markets, lowering
somewhat the risk of a sovereign-debt crisis and the economy less exposed to the whims
of international bond markets.
Second, domestic banks are disallowed from participating in international financial
markets. But outside of the government bond market and the banking sector, Indias
financial markets are deeply influenced by international capital flows and this is
particularly true of the stock market (see Chandra (2008), Chakrabarti and Mohanty
(2009) and Ghosh and Chandrasekhar (2009)).
The rupee is still not fully convertible on the capital account, to use the jargon of
economics. A fully convertible currency is one where there are no restrictions on the
buying and selling of international financial assets and liabilities. There is one caveat to
domestic banks not being allowed to acquire international assets and liabilities - they are
allowed to lend, within limits, to majority-owned affiliates or wholly owned subsidiaries
of Indian firms abroad (see Nayyar (2008: 125)).