Monday, October 3, 2011

India's malinvestments

The below paragraphs are the concluding part of my friend G P Manish's argumentative article on India's three Plan periods.
  • "Most economists have concluded that the institution of planning in India increased the rate of growth of GDP and therefore led to a marked improvement in economic performance. However, the analysis here shows that despite the impressive growth rates of GDP and GDP per capita during this period, the planners’ efforts caused stagnation in the output of the two goods consumed by the masses—cotton cloth and food grain. The growth in availability per capita of both of these goods was far less than the growth rate of GDP per capita in this period. It follows, therefore, that the masses’ living standard did not improve significantly. Nor did it improve in the following period. The per capita availability of cotton cloth fell from 14.23 sq. meters per annum in 1970–71 to 14.05 sq. meters in 1980–81...."
  • The vast amount of resources invested in the heavy and basic industries were malinvested. A great deal of capital was invested in producing capital goods and industrial intermediate goods at home that could have been procured from abroad at much lower cost. The bulk of these goods proved to be uncompetitive on the world market. Furthermore, as predicted by the argument of the impossibility of economic calculation under central planning, the forced industrialization was characterized by economic irrationalities—phenomena that never would have occurred in a marketbased system with an operational profit-and-loss mechanism. Thus, many of the capital goods produced were either in excess of domestic requirements or could not be utilized because of the lack of adequate supplies of complementary production factors, and their designs marked them as inefficient and obsolete even by developingcountry standards. Most important, all of this investment in the economy’s “commanding heights” failed in its primary purpose of increasing the future output of consumer goods and agricultural commodities."

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