Urban and Infrastructure Development


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Urban and Infrastructure Development

  1. 1. Urban and Infrastructure Development Unit-I BTCI06007
  2. 2. Unit-I Introduction to Economic Reforms and Infrastructure Development: • Performance of the States: a review, growth performance, implications for inter-state inequality, implications for poverty. • The determinants of growth in the states: effect of economic reforms on regional inequality, investment ratios at the state level, plan expenditure, human resource and quality of infrastructure. • Strategy for slow growing states: Development of economic and social infrastructure, the problem of state finances, the policy environment and governance, the role of the Central Government,
  3. 3. Economic Reforms
  4. 4. Economic Reforms • Economic Policy of government influences growth of industry and agriculture, through it monetary and fiscal measures; it redefines the roles of public and private sectors. • Since 1985 the basic thrust of the economic policy has been to assign a greater role to private sector, and a number of changes in policy were introduced with regard to industrial licensing, export-import policy, fiscal policy and foreign investment in India.
  5. 5. Economic Reforms
  6. 6. Economic Reforms • In the words of the then Prime Minister Mr. Rajiv Gandhi in 1985, • “ Public Sector has spread in too many areas where it should not be… We will be developing our public sector to undertake jobs that the private sector cannot do. So that it can expand and economy can grow more freely.”
  7. 7. Economic Reforms
  8. 8. Economic Reforms • The Industrial Policy Statement 1991 was a major deviation from the dominant role as signed to the public sector hitherto. Statement 1991 was an attempt towards liberalization of the economy, was designed to unshackle the economy from the cobwebs of unnecessary bureaucratic controls. It has objectives including:
  9. 9. Economic Reforms • “ Government will Endeavour to abolish the monopoly of any sector or any individual enterprise in any fields of manufacture, except on strategic or military considerations and open all manufacturing activities to competition”. • “ The government will ensure that the public sector plays its rightful role in the evolving socio-economic scenario of the country. Government will ensure that the public sector is run on business lines….”
  10. 10. Economic Reforms
  11. 11. Economic Reforms • In the light of the industrial Policy Statement, industrial licensing was abolished for all projects except for a short list of industries related to security and strategic importance, social reasons, hazardous chemicals, and overriding environmental reasons • Other measures of liberalization include amendment of MRTP Act, permission for foreign technology agreements in high priority industries, liberal provisions for hiring foreign technician and enhancing the limit of foreign direct investment.
  12. 12. Economic Reforms
  13. 13. Economic Reforms • In the light of the Industrial Policy Statement, Industrial licensing was abolished for all projects except for a short list of industries related to security and strategic importance, social reasons, hazardous chemicals and overriding environmental reasons. • Similarly, all manufacturing activities except those of strategic and military considerations, have been open to competition.
  14. 14. Economic Reforms
  15. 15. Economic Reforms • The Memorandum of Understanding (MOU) System is to be given greater thrust to greater autonomy to hold them accountable. Equity holding of the government in the public sector units have been offered to banks, financial institutions and public sectors mutual funds to raise resources and to introduce competitiveness in the working of public sector units.
  16. 16. Economic Reforms
  17. 17. Economic Reforms • Measures regarding liberalization of government policy towards, highway, bridges, telecom services, telecommunication manufacturing equipments, have been announced by the Central as well as many state government with the objective of unleashing market forces to introduce competition, to invite private sector participation and to reduce burden on government finances.
  18. 18. Economic Reforms
  19. 19. Economic Reforms • Similarly as a measure towards liberalization in the financial sector a number of private banks have been given licenses, serious fiscal and monitory policy announcements have been made.
  20. 20. Economic Reforms • Financial sector including capital market has witnessed a number of reforms like, • freeing of interest rates on debentures • abolishing of the office of the controller of Capital Issue (CCI) and • freeing pricing of capital issues, permissions for setting up of the private mutual funds and also • permit foreign mutual funds to operate in India. • Empowering Securities and Exchange board of India (SEBI) with more power for ensuring the orderly development of the capital market; opening up of the insurance sector to private players despite heavy resistance from employees. opening up of telecom sector and power sector & allowing 100 % foreign direct Investment.
  21. 21. Economic Reforms
  22. 22. Economic Reforms Pubic Enterprises : Size and Growth • Public Sector in India has witnessed a phenomenal growth during the last four decades since independence; public enterprises at the centre have increased from 5 units of investment of Rs 30 crore in 1950 to 237 units with the investment of Rs 2, 73,700 Crore During 1997-98. • However, the involvement of public sector in all sectors have come under criticism in the recent years due to their low productivity, high cost and dismal return on capital employed. • Public enterprises showed a profitability of 14.53 percent. And net profitability of 4.11 percent. Profitability has to be analyzed considering that public enterprises are also expected to fulfill certain social objectives,
  23. 23. Pubic Enterprises : Size and Growth
  24. 24. Economic Reforms Profitability of Public Enterprise • Sector-wise analysis of profitability indicates that gross profitability has declined for various sectors except those for power as well as petroleum companies; agro base and textile enterprises reported loss. • Further the net profitability reduced over the years for engineering, fertilizers, chemicals and pharmaceuticals, textiles and agro based industries and while power and petroleum sectors maintained their positive profitability. • The poor performance of public enterprises can be due to poor project management, overmaning, inadequate attention to R & D and Human resources development, and the policies of the government.
  25. 25. Profitability of Public Enterprise
  26. 26. Economic Reforms Privatization and Deregulation: Issues • The role of public enterprise has undergone close scrutiny in the developing countries, particularly in the 1980s. Many government seem to have concluded that public enterprise were not the ideal hybrids they had been made out to be, only rarely did they combine the strengths of the public and private sector, as originally expected and occasionally they combine the worst of both. • According to the world bank Report on Reform of public Sector Management (1991), the state in a developing country has tried to do too much through the public sector or has assigned to public agencies tasks for which they were ill suited, or has retained activities in public sector when conditions justifying public management have changed.
  27. 27. Privatization and Deregulation: Issues
  28. 28. Economic Reforms Commercialization • To be cost effective and to improve performance, public enterprise have to run on businesses like principle and adopt the principles of „Commercialisation‟ in their operations. This would require laying down commercial goals and targets, introducing competitiveness and providing autonomy for operations and making accountable. • To quote from the world bank report (1991) “ experience demonstrates that public enterprises‟ performance can be improved without changing ownership- by assessing the firms clear commercial goals, imposing a hard budget constraints, giving manager the means and power to attain these goals, exposing the enterprise to competition, rewarding the managers who achieve objectives and sanctioning those who do not allowing persistent poor performance to go out of business” • The process of “commercialization‟ subjects public enterprise to roughly the same conditions and signals as to a profit maximizing firm operating in a competitive market.
  29. 29. Economic Reforms
  30. 30. Economic Reforms Loss Making Enterprise • Restructuring of Loss making enterprise including sick private units taken over by the state is of national significance and is relatively a difficult exercise. Such units are a drain of national resources and require budgetary support every year. • There is a urgent need to have plan for the revival of the viable units either as ESOP(Employee stock ownership plan) or their merger with a unit having market potential; and for the closure of unviable ones. • The Industrial Policy Statement provides for the referral of such units to an institution like BIFR for the formulation of revival/ Rehabilitation schemes. • There is a need for decision, through not politically palatable, on restructuring of loss making units by involving the concerned employee either by sale or by closure, though the former is preferred.
  31. 31. Economic Reforms
  32. 32. Performance of the States • Performance of the States: a review, growth performance, implications for inter-state inequality, implications for poverty.
  33. 33. Performance of the States • Macroeconomic data for the 14 major Indian states reveal the extent of inter-state differences in the pace of economic growth in the past decade. • Rising regional inequality, as measured by an increase in the Gini-coefficient from 1986-87 to 1997-98, has important implications for poverty reduction. • Because of state specific characteristics, the divergent patterns of economic growth witnessed in the 1990s do not necessarily imply that the economic reforms at the national level were biased. But to mitigate such regional differences in the future requires deepening reforms and addressing the specific deficiencies that have decelerated growth in some states.
  34. 34. Gini-Coefficient
  35. 35. Performance of the States • The impact of India’s economic reforms on economic performance has been the subject of much academic study and public debate in India, but the focus has been largely on the performance of the economy as a whole or of individual sectors. • First, balanced regional development has always been one of the declared objectives of national policy in India and it is relevant to ask whether economic reforms have promoted this objective.
  36. 36. Balanced Regional Development
  37. 37. Performance of the States • Second, India’s federal democracy is increasingly characterized by regionalisation of politics, with politics at the state level being driven by state rather than national issues, and this makes the economic performance of individual states an issue of potential electoral importance.
  38. 38. Performance of the States • This is particularly so because liberalisation has eliminated many of the controls earlier exercised by the central government and thereby increased the role of state governments in many areas that are critical for economic development. Finally, since state level performance shows considerable variation across states, with many states recording strong growth in the post-reforms period, it is important to identify the reasons for their success in order to replicate it in other states
  39. 39. Economic Liberalisation
  40. 40. Performance of the States • The growth performance of the 14 major states in the pre and post-reform period can be studied on the basis of the available data on the Gross State Domestic Product (GSDP) for each state Time series data on the GSDP in each state are prepared by the Statistics Department of state governments, but these estimates do not add up to the GDP presented in the national accounts.
  41. 41. Performance of the States • Most Indian states are much larger than most developing countries, and the national accounts data of developing countries have similar problems, but this has not deterred development economists from comparing performance across developing countries and drawing lessons from inter-country variations.
  42. 42. Growth Performance
  43. 43. Growth Performance • The growth rate of the combined GSDP of all the 14 states taken together increased from 5.2% in the pre-reform period to 5.9% in the post-reform period. • There is variation in growth performance across states in both periods, with some states growing faster than others, but the degree of dispersion in growth rates increased very significantly in the 1990s. • The range of variation in the first period was from a low of 3.6% per year for Kerala to a high of 6.6% in Rajasthan, which gives a ratio of 1.8 between the highest and the lowest. In the second period, the range increased from a low of 2.9% per year for Bihar to a high of 8.2% for Gujarat, increasing the ratio to 2.8.
  44. 44. Growth Performance • The increased variation in growth performance in the 1990s reflects very different behaviour at different ends of the spectrum of per capita GSDP. Growth accelerated sharply for two states at the upper end of the spectrum, i.e. Gujarat and Maharashtra, but it actually decelerated in Bihar, Uttar Pradesh and Orissa, all three of which were not only at the lower end of the per capita GSDP spectrum but also had relatively low rates of growth to begin with.
  45. 45. Growth Performance • Only four states achieved relatively strong growth with growth rates of GSDP in the 1990s above 6.0 per cent in the second period. It is interesting to note that these states are fairly well distributed regionally i.e. Gujarat (8.2%) and Maharashtra (8.0%) in the West, West Bengal (7.0%) in the East and Tamil Nadu (6.0%) in the South.
  46. 46. Growth Performance
  47. 47. Growth Performance • In addition, Madhya Pradesh and Rajasthan in the North and Karnataka in the South all grew at 5.9%, which is almost at the 6% level. • An interesting feature of the performance in the 1990s is that the popular characterisation of the so called “BIMARU states” (Bihar, Madhya Pradesh, Rajasthan and UP) as a homogeneous group of poor performers, a grouping originally proposed in the context of observed commonalities in demographic behaviour, does not hold as far as economic performance in the post-reforms period is concerned. Bihar and UP performed very poorly, growing much more slowly than the average, but the other two members of this group, Rajasthan and Madhya Pradesh have performed reasonably well.
  48. 48. “BIMARU states”
  49. 49. Growth Performance • Simplistic perceptions about the role of geography in determining performance, such as for example the view that it is only the coastal States or the southern States that have done well in the period of liberalization, are also not universally valid. Orissa is a coastal State, but its growth performance is very poor while Madhya Pradesh and Rajasthan are both heartland States and have performed reasonably well. Only two of the Southern States, Tamil Nadu and Karnataka, made it to the top six in terms of growth of GSDP in the 1990s.
  50. 50. Growth Performance • The remarkable performance of Gujarat and Maharashtra, both of which grew at over 8 per cent per annum in the 1990s, a rate normally associated with “miracle growth” economies, deserves careful study. These states clearly benefited the most in the post-reforms period, but it is important to note that their superior performance was not the result of any conscious policy which limited the benefits of liberalisation to these states,
  51. 51. “miracle growth”
  52. 52. Growth Performance • Their superior performance must be attributed primarily to the ability of these two states to provide an environment most conducive to benefiting from the new policies. • Their experience, together with the experience of the other strong performers should provide the basis for identifying the critical ingredients of success in accelerating growth, which should be emulated by others.
  53. 53. Growth Performance • The performance of Kerala in the 1990s also deserves special mention. Kerala has long been commended for its achievements in human development, especially education and health, but it has also been criticised for under performance in economic growth. However, • Kerala‟s economic performance, which was relatively lackluster in the 1980s, appears to have improved markedly in the post-reforms period. From a GSDP growth rate of 3.6% in the 1980s, much below the average for the 14 states, it accelerated to 5.6% in the 1990s.
  54. 54. Performance of Kerala
  55. 55. Growth Performance
  56. 56. Implications for Inter-State Inequality • The deceleration of growth in the poorer states witnessed in the 1990s has important implications for regional balance. Regional differences in per capita income levels have long been a matter of concern in India and for good reason. • The per capita GSDP of Punjab, the richest state, is five times that of Bihar at the other end of the spectrum.
  57. 57. Punjab, the richest state, is five times that of Bihar
  58. 58. Implications for Inter-State Inequality • Balanced regional development has always been stated as an objective in India’s plans and although this objective has never been quantified in terms of rates of convergence of per capita GSDP, or a reduction in regional inequality to some specified target in terms of one of the inequality measures, the objective surely implies that regional differences in per capita incomes should narrow with development, and in any case not widen.
  59. 59. Implications for Inter-State Inequality
  60. 60. Implications for Inter-State Inequality • Concern was not with convergence in the sense of underlying long term trends, but the actual behaviour of per capita GSDP in the postreform period, compared with pre-reform behaviour. • From this perspective, the impact of the growth process on regional inequality in the 1990s is best seen by constructing a Gini-coefficient for the total population of the 14 states assuming that all individuals within a state have a gross income equal to the per capita GSDP.
  61. 61. Implications for Inter-State Inequality
  62. 62. Implications for Inter-State Inequality • This provides a measure of inequality in the total population of the 14 states which ignores the inequality arising out of the unequal distribution within each state, and focusses only the inequality which arises because of inter-state differences in per capita GSDP. • It is not true that all the richest states got richer relative to the poorer states.
  63. 63. Implications for Inter-State Inequality • Punjab and Haryana were the two richest states in 1990-91 but their growth rates of per capita GSDP were not only lower in the 1990s than in the 1980s, but in both cases actually fell below the national average. Except for Bihar, Uttar Pradesh and Orissa, which grew even more slowly, all other states narrowed the distance between themselves and Punjab and Haryana. The deceleration in growth in Punjab and Haryana in the 1990s deserves closer study to understand the reasons for the loss of growth momentum in these states that were among the good performers in the 1980s.
  64. 64. Implications for Inter-State Inequality • Maharashtra and Gujarat, which are in the high income group and were ranked just below Punjab and Haryana at the start of the 1990s, accelerated very significantly and achieved the fastest rates of growth in per capita GSDP. These states clearly pulled ahead of all other states.
  65. 65. Implications for Inter-State Inequality • Three of the poorest states, Bihar, Uttar Pradesh and Orissa, which together account for about a third of the population of the 14 states, fared very poorly in 1990s.
  66. 66. Implications for Inter-State Inequality • In the case of Bihar and Uttar Pradesh, per capita GSDP growth was a little less than 1.3 per cent per year, which was less than a third of the national average. It is possible that growth rates of income may be higher because of remittances from migrant labour. It is also important to note that not all the poorer states performed badly growth rates of per capita GSDP, but the growth rates were very low.
  67. 67. Implications for Inter-State Inequality • Performance of four middle income states (West Bengal, Tamil Nadu, Kerala and Karnataka) was above the average, with West Bengal showing very strong growth. These states not only improved their position relative to the average, they also grew faster in terms of per capita GSDP than they did in the 1980s
  68. 68. Implications for Poverty • The difference in growth performance across states, with relatively low rates of growth for Uttar Pradesh, Bihar and Orissa have important implications for poverty reduction in India. India‟s past experience at the national level shows that as long as GDP growth was modest, i.e. between 3.5 to 4% up to the late 1970s, there was no significant reduction in poverty; the percentage of the population below the poverty line fluctuated, falling in good agricultural years and rising in bad, but with no trend decline. It was only after GDP growth accelerated in the 1980s that a trend reduction in poverty began to be noticed.
  69. 69. Implications for Poverty • Drawing on this experience, India’s poverty reduction strategy consisted of a twopronged approach relying upon an acceleration in growth to bring about a general improvement in living standards, supplemented by poverty alleviation programmes directed at identified poverty groups that may not benefit sufficiently from the growth process.
  70. 70. Implications for Poverty • The trends in poverty in individual states in the pre and post-reforms period can be seen from the official estimates of poverty at the state level and the all-India level presented in Table 4.
  71. 71. Implications for Poverty • These estimates are made by the Planning Commission based on the so-called “large sample” surveys covering about 120,000 households, conducted periodically by the National Sample Survey Organisation (NSSO). Table 4 shows that the percentage of the population below the poverty line show that the percentage in the 14 major states has declined steadily from 43.8% in 1983 to 26.4% in 1999-2000.
  72. 72. Implications for Poverty
  73. 73. Implications for Poverty • The ten-year period 1983 to 1993-94 saw a relatively modest reduction of about 7.5 percentage points in the percentage of the population below the poverty line followed by a much larger decline of almost 10 percentage points in the subsequent six-year period 1993-94 to 1999-2000. • It is tempting to conclude that the faster growth in the post-reforms period led to a faster pace of reduction in poverty but this conclusion needs to be qualified noting that the 1999-2000 survey may not fully comparable with the earlier survey because of certain modifications in the method of collecting information on consumption
  74. 74. Implications for Poverty • Table 4 shows a significant decline in poverty in the post-reforms period in all states except Orissa. Poverty in Punjab and Haryana, which was low to begin with, has become marginal at 6% and 9% respectively. • In Kerala too, it is down to 12%. Significant gains have also been made in Tamil Nadu, Karnataka, Andhra Pradesh and Rajasthan. Table 4 also shows a significant decline in poverty in Uttar Pradesh and Bihar despite relatively poor growth of GSDP in both states. This could reflect the impact of migrants‟ remittances
  75. 75. Implications for Poverty • It is also possible that the extent of the decline between 1993-94 and 1999- 2000 is exaggerated because of the non-comparability problem. • However, it is important to note that even after allowing for the decline the level of poverty in these states is still high and indeed India’s poverty problem is becoming increasingly concentrated in this area. • In 1980, the three states of Bihar, Uttar Pradesh and Orissa accounted for 37.5% of the total population below the poverty line in India, but by 1999-2000 this had increased to 46%.
  76. 76. Implications for Poverty • Continuation of the growth pattern observed in the 1990s, with a region accounting for one third of the population and the largest concentration of poverty deriving very little benefit, while the rest of the country enjoys robust growth, present obvious problems. • It will exacerbate regional inequality with further concentration of poverty in a particular region, which is surely a recipe for political instability.
  77. 77. Implications for Poverty
  78. 78. Implications for Poverty
  79. 79. Implications for Poverty • The development strategy for the future must therefore ensure that the slow growing states accelerate to a respectable growth of GSDP of say 6 per cent per year. • This would ensure per capita GSDP growth of around 4%, which is certainly needed if there is to be a significant reduction in poverty in these states over the next ten years.
  80. 80. Implications for Poverty
  81. 81. References • CENTER FOR RESEARCH ON ECONOMIC EVELOPMENT AND POLICY REFORM • State Level Performance Under Economic Reforms In India • By Montek S. Ahluwalia • Urbanization Urban Development & Metropolitan Cities in India • Dr V. Nath Concept Publications
  82. 82. Empowering India!