Economic Development Policy

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Economic Development Policy in India in the Late Seventies – Early Eighties
Abstract: In the late seventies – early eighties the Indian government faced the problem of the discrepancy between the contribution of the primary sector to the GDP (20%) and its share in the workforce (60% of the population). In combination with the low level of employment in the service industry (and low productivity in the agricultural sector) the unemployment had increased extremely by 1975. The paper deals with the causes of this inconsistency and the structural reforms that the Indian government should have implemented to achieve economic prosperity. The Indian government re-allocated capital and especially labour resources from low-productivity economic sector
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The essay gives a critical analysis of the individual behavior of households and firms during the structural reforms and the reallocation of employment. The paper considers the reasons behind and the consequences of the economic development policy at the turn of the eighties.
From 1950 to 1980 India was a fairly classic case of a statist, import-substitution model of development, with a socialist flourish. At the beginning of the 1980s, economic growth accelerated because of the improvements in both the rate of investment and the productivity. The growth in the 1980s was at least partially the result of the changing composition of the GDP (See diagram 2).
Under the “pro-business” concept of successful growth or failure is not so much the matter of the degree but rather of the quality of the state intervention. The economic growth in India in 1970s-1980s heavily depended on the relationship between the state and the private sector.
The government intervention under the framework of the development policy in India in the late seventies-early
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Agriculture percentage of GDP had down by 8% during 1975-1985 years. This is caused by the declining public investments in agriculture (a trend which started in the early 80s). The decline in agriculture as a share of the GDP associated with relatively little reallocation of employment. The primary sector contributes 20% of the GDP but has a share of 60% of the employment, the fact that poverty in India is a predominantly rural phenomenon.
Diagram 1 shows that the growth rate of manufacturing accelerated after 1980 from 3.8 to 6.5 percent per annum. These results are achieved in light of the attention that has been devoted to the on-going liberalization of the trade and regulatory regimes for goods production.
After the reforms of early 1980-th economy was not flexible. Government had imposed several types of controls on economy (industrial licensing system, price control or financial control on goods, import license, foreign exchange control, restriction on investment by big business houses). These controls lead to fall of economy in the beginning of
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