Ch. 26: The Political Economy of Macroeconomic Policy in India
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Description
This chapter appears in the book, The Oxford Handbook of Indian Politics. Edited by Sumit Ganguly and Eswaran Sriharan.
Chapter abstract: India’s macroeconomic policy has largely been driven by the need to create a stable environment for economic development and poverty reduction. In the immediate period after Independence, the concern for economic development led to policies that gave the government a central role in investment and production. By the 1970s, trade policy grew more protectionist trade policies and policies governing domestic and foreign investors more restrictive. A gradual reversal began after 1980 and in 1991, the Indian government undertook comprehensive liberalization of trade, investment and exchange rate policies, opening up most sectors to both domestic and foreign private investment. These new policies set the GDP growth rate on a higher path after 1980, reducing poverty on the one hand and increasing inequality on the other. This chapter shows that the executive enjoyed substantial autonomy in policymaking during the first 3 decades after Independence and embraced fiscal conservatism. However, the rise of diverse sectoral interests has led to a decline in autonomy. Policy-making during the more recent decades is marked by societal and sectoral demands, resulting in sharp increases in fiscal deficits. Higher levels of economic growth have allowed politicians the option of avoiding difficult reform decisions required to tame those deficits. At the same time, achieving higher growth rates in the future—a pre-requisite for continued economic development—will require sectoral reforms thus far thwarted by domestic politics. Overall, preferences of domestic businesses and large farm owners continue to shape most policies.
ISBN
9780198894261
Publication Date
2024
Publisher
Oxford University Press
City
Oxford
Keywords
India, Fiscal policy, Trade policy, Investment policy, Poverty, Interest groups, Executive autonomy
Disciplines
Growth and Development | Macroeconomics | Political Economy
Recommended Citation
Gupta, Surupa, "Ch. 26: The Political Economy of Macroeconomic Policy in India" (2024). Political Science & International Affairs Books. 12.
https://scholar.umw.edu/ps_ia_books/12