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INTRODUCTION Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private ownership and control till July 1969 when it was nationalised along with 13 other banks. Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years. In business volume, the Bank occupies a premier position among the nationalised banks. The Bank has 3101 branches in India spread over all states/ union terr itories including 141 specialised branches. These branches are controlled through 48 Zonal Offices. There are 29 branches/ offices (including three representative offices) abroad. The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. The Bank has been the first among the nationalised banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. Total number of shareholders as on 30/09/2009 is 2,15,790.
The Bank's association with the capital market goes back to 1921 when it ent ered into an agreement with the Bombay Stock Exchange to manage the BSE Clearing House. It is an association that has bloomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 29 branches at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong -Kong and
Singapore. The international business accounts for around 17.82% of Bank's total business.
Mission & Vision: Our Mission "to provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders". Our Vision "to become the bank of choice for corporate, medium businesses and upmarket retail customers and to provide cost effective developmental banking for small business, mass market and rural markets" Quality policies: We, at bank of India, are committed to become th e bank of choice by providing y y y y y Superior Pro-active Innovative State of the art Banking service with an attitude of care and concern for the customers and patrons.
Branches across world: 1. USA NEW YORK, SAN FRANSCISCO 2. West Indies CAYMAN ISLANDS 3. UK LONDON,BIRMINGHAM,EAST,HAM,LEICESTER,MANCHESTER, WEMBLEY, GLASGOW 4. France PARIS 5. Belgium ANTWERP 6. Japan TOKYO, OSAKA 7. Hong Kong HONG KONG, KOWLOON 8. BEIJING REPRESENTATIVE OFFICE 9. Kenya NAIROBI
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y REPUBLIC OF SOUTH AFRICA JOHANESBURG (REPRESENTATIVE OFFICE)
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Other online services: Hassle free Banking, Payments, Remittances and Share Trading 1. Star Connect Internet Banking Services (Enjoy the convenience of Banking from comforts of your Home and Office with a mouse click. ) O Star Connect Retail (for Core Banking Branches) O Star Connect Corporate (for Core Banking Branches) 2. BOI STAR e-Pay (Single point for all your utility payments. Make utility payments over a mouse click .) O No more late payments. O No more queues. O No more hassles of depositing cheques. 3. Star e-Remit Service (An effective way to transfer money from any bank account in the United States to anyone in India!) 4. Star Share trade (A fast, easy, transparent and hassle-free way to trade in shares. Invest in shares traded on the Stock Exchanges without visiting ) calling your share-broker; track settlement cycles, write cheques/delivery instructions for your purchases/sales. 5. e-Payment of Central Excise & Service Tax (Tax Payment made easy. Pay your Central Excise and Service Tax) Online from the comforts of your office or home, avoiding queues and last minute rushes. 6. DGFT Online e Payment (A safe, secure and convenient mode of license fee payment to Directorate General of Foreign Trade, Ministry of Commerce, Government of India, through the Internet without visiting the Bank. ) 7. Online Booking of Indian Airlines Ticket (Travel Ticket booking made easy. Select your flight, provide necessary details and pay through Bank of India Internet Banking.)
8. Online Booking of Indian Railway Ticket (Railway Ticket booking made easy. Select your train, provide necessary details and pay through Bank of India Internet Banking.) 9. e-Payment of Direct Taxes (Pay your Direct Tax online from the comforts of your office or home, avoiding queues and l) 10. Now can transfer funds ONLINE across banks, through our Star Connect Internet Banking Services, using RTGS/ NEFT facility.
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Date : 07/09/2010
Sr.No. Currency 1 AUD 2 3 4 5 6 7 8 9 10 11 12 13 CAD CHF DKK EUR GBP HKD JPY NOK NZD SEK SGD USD TTS 43.07 45.36 46.54 8.09 60.11 72.19 6.05 55.81 7.65 33.99 6.47 34.91 46.80 TTB 42.23 44.47 45.63 7.93 59.17 71.19 5.93 54.91 7.50 33.32 6.35 34.22 46.40 TCS 43.30 45.60 46.80 8.10 60.40 72.55 6.10 56.10 7.70 34.20 6.50 35.05 47.05 TCB 41.85 44.10 45.25 7.80 58.65 70.65 5.90 54.40 7.40 33.00 6.25 33.90 46.00
Note : These are indicative rates & subject to change according to market movement
ROLE OF ECONOMIC DEVELOPMENT INTRODUCTION Economic development can be defined as the increase in the amount of people in a nation's population with sustained growth from a simple, low -income economy to a modern, high-income economy. Economic development is typically measured in terms of jobs and income, but it also includes improvements in human development, education, health, choice, and environmental sustainability. Economic development, achieved largely through productivity growth, is very important to both developed and developing nations. However, even though we know that higher productivity leads to improved economic outcomes (for example, higher income, more choices to the consumers, better quality products, etc.), there has been no consensus among researchers about either the desired path of development or the role of state in economic development. Concerning the path of development, Lall (2001) says that the appropriate strategy for any country depends not only on its objective economic situation but also on its government policies and national views regarding the appropriate r ole of the state. Regarding the appropriate role of the state, it seems that for every argument in favour of a smaller government role one can find a counter argument in favour of a more active government role. UNDERSTANDING ECONOMIC DEVELOPMENT
The term "economic development" is widely used by the ordinary public and the popular media. The concept, however, is not quite as well understood as its frequent use may suggest. First one must realize that the term "economic development" in one form or another kee ps surfacing in the popular media. Instances of economic miracles (reflecting favorable effects of economic development) regularly make headlines. Japan was in ruins after World War II. Within 30 years, Japan emerged as an economic superpower and one of tw o main economic rivals of the United States (Germany being the other). Similarly, South Korea's economic situation was widely regarded as hopeless after the devastation of the Korean War, but it too has turned into another Asian
economic miracle ²South Korea now challenges Japan for a share of the export markets in the United States and other countries. The economies of Taiwan and Hong Kong are in such great shape that even mainland China (the country they were once part of) views them with great respect. Ma laysia and Singapore are also cited as examples of economic success stories. Malaysia had only half of the per capita income of Chile as recently as 1963; only 25 years later Malaysia had caught up to Chile. While these success stories have grabbed public attention, one must also notice that many Asian, African, and Latin American economies continue to languish in utter poverty. Moreover, the financial crises of the late 1990s in many Asian countries, formerly considered miracle economies, have added a note of caution in judging economic development successes too fast. After all, Brazil's early development promise failed to materialize. While referring to underdeveloped countries many different terms are used. The terms used are intended to describe the sta ge of development of these countries in comparison to those that are more developed. As a result, the terms used are almost always in pairs. The most dramatic way of referring to the two sets of countries is to make a distinction between backward and advan ced economies, or between traditional and modern economies. As the term "backward" carries a negative connotation, it is rarely used these days. It is much more popular to put all countries of the world on a continuum based on the degree of economic development. Using this criterion, several pairs of terms are employed in distinguishing countries with different degrees of economic development ² developed and underdeveloped countries, more developed and less developed countries (the latter are often simply ref erred to as LDCs), developing and developed economies. As the terms "less developed countries" and "developing countries" embody a sense of optimism, their use has become commonplace. Developed countries are also referred to as industrialized countries. Co untries that have recently developed are referred to as the newly industrialized economies. The distinction among economies is also made based simply on income levels, where income is expressed in per capita terms. Based on the income criterion, countries have been classified into poor and rich economies. The World Bank
has further refined this division by categorizing poorer countries into low income (less than $675 in per capita income in 1992) and middle income (per capita income between $675 and $8,000 in 1992) economies. Countries with per capita income greater than $8,000, mostly members of the Organization for Economic Co-operation and Development (OECD), are dubbed as high income or industrialized countries. The Organization for Economic Co-operation and Development (OECD) is an international economic organization of 33 countries. It defines itself as a forum of countries committed to democracy and the market economy, providing a setting to compare policy experiences, seeking answers to common problems, identifying good practices, and co coordinating domestic and international policies of its members. The OECD originated in 1948 as the Organization for European Economic Cooperation (OEEC), led by Robert Marjolin of France, to help administer the Marshall Plan for the reconstruction of Europe after World War II. Later, its membership was extended to non-European states. In 1961, it was reformed into the Organization for Economic Co-operation and Development by the Convention on the Organization for Economic Co -operation and Development. Most OECD members are high-income economies with a high Human Development Index (HDI) and are regarded as developed countries. A third category consists of five developing countries (Oman, Libya, Saudi Arabia, Kuwait, and the United Arab Emirates) that have relatively high per capita income (in the $6,000 to $22,000 range in 1992), but have economies that are more traditional than industrialized. These economies are referred to by the World Bank as the "capital-surplus oil exporters." Three other economies ² Israel, Singapore, and Hong Kong²are also considered developing countries despite per capita incomes of more than $13,000 in 1992. Finally, developed or industrialized economies themselves are subdivided into market economies (capitalist economies of the West) and non -market economies (communist or centrally planned economies of Eastern Europe). The latter distinction is now largely irrelevant as Russia and countries in Eastern Europe are all following the capitalist route to economic development. These economies are referred to in the popular media as belonging to a new category called "transitional economies."
ECONOMIC DEVELOPMENT AND ECONOMIC GROWTH
As one can see, labels used to distinguish between economically developed and developing countries vary quite a bit. The terms used to describe the economic development process itself, however, are much more rigorously defined. For example, while the terms "economic growth" and "economic development" are often used interchangeably, there is an important distinction between these two terms. The term "economic growth" refers to an increase (or growth) in real national income or product expressed usually as per capita income. National income or product itself is commonly expressed in terms of a measure of the aggregate output of the economy c alled gross national product (GNP). Per capita income then is simply gross national product divided by the population of the country. When the GNP of a nation rises, whatever the means of achieving the outcome, economists refer to it as a rise in economic growth. The term "economic development," on the other hand, implies much more. This can best be illustrated with the help of an example. If we look at the developments in South Korea and Libya since 1960, we discover fundamentally different situations. Both these countries experienced a huge rise in the real per capita income, but the reasons for the increases are vastly different. Libya's increased per capita income resulted from the discovery of crude oil reserves; Libya harvested these oil resources with the help of foreign corporations that were largely staffed by foreign technicians. Libya thus produced a single product of great importance that was exported mainly to the United States and Western Europe. While Libyans (both the government and people) re ceived large incomes from selling oil, they did not play a major role in producing that income²income that increased based on a windfall gain. Economists do not usually consider Libya's increased per capita income as an instance of economic development. " Economic development" embodies a greater number of characteristics than a rise in per capita income alone ²it implies certain fundamental changes in the structure of the national economy. South Korea provides an example of a country that has experienced eco nomic development. The South Korean economy has also undergone a large increase in its per capita income. In addition, it has witnessed some important structural
changes. Two of the most important changes taking place in South Korea are: (1) A rising share of industry in the total national output (the real gross national product) and the accompanying falling share of the agricultural sector in GNP; (2) An increasing percentage of the total population of South Korea living in cities rather than in the countr yside. Aside from these two fundamental changes, a nation undergoing economic development goes through a number of additional changes. The demographic composition of the population (age groups that comprise the total population) changes as economic develop ment progresses. Consumption patterns of individuals also change ²people no longer have to spend the majority of their income on food and other necessities. Instead, they spend a small fraction of their income on necessities and the remaining large fraction on consumer durables and items that pertain to leisure activities. A key characteristic of economic development is that the people substantially participate in the development process and in changing the fundamental structure of the economy. While some f oreign involvement is generally inevitable, for economic growth to be described as economic development, the people of the country must participate not only in the enjoyment of benefits from the rise in per capita income, but also in the production process itself. Moreover, economic growth must confer benefits on a broad group of individuals²if it benefits only a small minority, it is not deemed as economic development. It should be noted that while much more is implied by economic development than economic growth, there can be no economic development without economic growth (that is, a rise in the real per capita income).
THE ROLE OF SCIENCE AND INNOVATION IN ECONOMIC DEVELOPMENT
Perhaps the most important prerequisite of economic development is the aspiring nation's access to the discoveries of modern science and innovators to adapt these discoveries to the needs of marketplace. It would be impossible to imagine the mighty industrial economies of the 20th century in the absence of the technological knowledge arising out of many fields such as physics, chemistry, and biology. A large majority of products used today did not exist
before the advent of modern science. While modern science is considered absolutely crucial for the economic development of a nat ion, no country today is fully cut off from the main fruits of science. Even the poorest developing economies have access to the scientific knowledge, while fruits of scientific discoveries are often embodied in many domestically produced goods (some of them exported to more advanced countries). While developing countries do not have to rediscover the basic laws of thermodynamics, they do have to convert the scientific discoveries into products and processes; such successful conversions are called innovations. The latter task is often more difficult than discoveries of pure science. Thus, as an alternative to internal innovations, developing countries may be able to copy others' innovations or collaborate to learn from those that have succeeded in converting scientific discoveries into desirable products or processes. In fact, technology transfer has become an important aspect of the quest for development. As the latest technology also tends to be more efficient and productive, developing countries attempt to borrow these in some fashion. Many of the latest innovations come with patent rights, and thus the innovators of these products or processes must consent. As a consequence of this constraint, developing countries have resorted to the use of the joint venture, in which a firm from a developing country collaborates with a firm from an advanced country in a production process involving advanced (and sometimes not so advanced) technology. While scientific knowledge is important for economic development, many economists assume that most developing countries have access to basic scientific discoveries. Further, while most economists believe that a nation's failure to achieve economic development is mainly the result of economic forces within the country, both economic and non-economic barriers exist to economic development.
ECONOMIC BARRIERS TO DEVELOPMENT
Different models of economic growth and development reveal that capital formation is an important vehicle of economic development. Capital formation essentially refers to an accumulation of capital resources that are used in the process of production (such as machines, plants, equipment, buildings, etc.). Of course, capital assets will also embody technology. Sometimes, capital
formation itself can be considered to have two components: non -human and human capital. A machine or a factory shed is an example o f non-human capital. Human capital formation takes the form of education and training of individuals. Both human and non-human capital formations are important as they both increase productivity and lead to economic growth. Moreover, a non human capital asset embodying an advanced technology also requires a better trained human operator of the machine. The view that capital formation was central to economic growth, called capital fundamentalism, was reflected in the development strategies and plans of many countries over decades. Thus, the solution to the problem of economic development was viewed primarily as securing enough investment funds to generate a certain targeted rate of economic growth. Capital formation is essentially based on two factors: gener ating the desired level of savings and converting them into investment in capital equipment (and/or human capital formation). When savings from domestic sources were deemed inadequate to generate the targeted rate of economic growth, foreign aid donors were approached. Foreign aid and developmental assistance from advanced industrialized countries in the 1950s and 1960s were justified by the need to fill the savings gap. During those days, capital shortage in developing countries was considered the single most important barrier to economic growth and development. A heavy emphasis was put particularly on designing economic development plans that embodied this point of view. Pakistan's third five-year plan in the early 1960s, for example, showed a heavy initia l requirement of capital and a consequent need for an inflow of foreign capital (in the form of foreign aid). It was believed that a large initial injection of foreign aid would spur additional domestic savings, ultimately reducing the foreign aid requirement in the long run. It is now widely recognized that abundance of savings and capital formation are not adequate to guarantee an accelerated pace of economic development, in particular when capital is deployed in low -productivity projects. There are many examples of capital being employed in an improper manner. Examples include the large-scale showcase steel mills and thousands of small inefficient hydroelectric plants. Moreover, investment projects financed by foreign
savings, even if highly productive, may have little effect on economic growth if the recipient country's policies are not well suited to capture a fair share of returns from these projects. Indeed, such was the experience of several natural resource-rich countries before the mid-1960s. These countries had little to show at the end from major foreign investment projects. The crucial role of savings and investments in generating economic growth has been well established in developed industrial economies. Based on one estimate, more than 50 percent of the growth in aggregate income of nine developed countries during 1960-1975 was due to an expansion in the physical capital inputs alone. Many now believe that the very low investment rate during the 1970s and early 1980s in the United States was t he primary reason for the low U.S. per capita income growth since 1970, relative to the per capita income growth in Japan and Western Europe. While capital formation is no longer viewed as the ultimate instrument of economic development in poorer countrie s, it is nevertheless recognized that even a mildly robust pace of economic growth cannot be maintained over a long time until these countries invest a sizable fraction of their gross national product. At the very minimum the investment rate (the fraction of gross national product invested) should be 15 percent and in some cases it may be required to go as high as 25 percent. The 15-25 percentage interval provides a range of likely requirements²the actual investment rate would depend upon the environment in which capital formation takes place and the desired rate of economic growth. Of course, the desired growth rate is generally based on the development experience of other countries. Average rate of per capita income growth in middle-income countries from 1965 to 1983 was about 3.5 percent. If developing countries desire to match the per capita income growth experienced by the middle-income countries in the post-1965 period, their per capita income will have to grow at the rate of at least 6 percent per year , given that the average rate of population growth in less developed countries is about 2.5 percent.
EXPORT-LED ECONOMIC GROWTH
Many low- and middle-income countries have attempted to use foreign trade, rather than foreign aid, as a vehicle of economic growth. Favoring different
types of exports and imports, however, lead to different outcomes for economic growth. One such strategy is to utilize exports of primary goods (agricultural products and raw materials) to spur economic growth, often called primary export-led growth. Even now, exports of food and raw materials remain principal means by which many developing countries generat e resources to import capital equipment and other necessary inputs that are essential for development goals. However, dependence on primary exports as a vehicle of economic development is viewed as an option fraught with difficulty. Many third-world leaders and some economists since the late 1950s have argued that primary exports (except petroleum) cannot be used as an effective vehicle of economic growth. This belief is based on several factors. First, markets for primary products grow very slowly and, as a result, exports of primary products grow slowly. There is an intrinsic reason for the slow growth in markets for primary products²the elasticity of demand for foods is probably less than one-half. This implies that if there is a ten percent increase in income of an advanced nation, its food requirements grow by less than five percent. Thus, imports of foods (and other primary products) would lag behind income growth in industrialized countries. Second, prices received for primary exports are relatively unfavorable. This implies that prices received for these goods will fall on world markets, relative to prices paid for manufactured products imported from industrialized nations by developing countries. Finally, export earnings from primary exports are not stable. The fluctuations in export earnings may be due to unstable demand for the product, supply of the product, or both. For the preceding reasons, dependence on primary exports is not preferred by developing countries. More and more developing countrie s are attempting to export manufactured products to developed nations. In most cases, these manufactured products do not embody the highest level of technology. Efforts of China and India provide examples of this change in emphasis. It should be noted that manufactured big-ticket items (embodying high technology) are still exported by advanced countries. Thus, while China may export toys and Taiwan may export assembled televisions and radios, the United States still exports airplanes. Nevertheless, exporting manufactured products has spurred economic
development in many developing countries, especially in smaller economies such as Singapore, Taiwan, and South Korea. More and more nations are using an export-led approach to economic development.
NON-ECONOMIC BARRIERS TO ECONOMIC DEVELOPMENT
In eyes of most economists, there is no single economic barrier to development that can explain why so few countries were able to initiate economic growth prior to the 20th century. While savings rates in many of these c ountries were too low to finance investments necessary to achieve economic development, the important question then remains as to why the savings rates were low. Poverty alone cannot account for low savings rates ²some poor countries in the late Ithh century, such as Japan, were able to generate large amounts of savings needed for growth. Japan's success in mobilizing large amounts of savings was partly due to a strong governmental structure that helped extract a surplus through taxation. Thus, economic expl anations alone cannot account for why particular economic barriers exist and non -economic barriers need to be considered.
POLITICAL AND GOVERNMENTAL BARRIERS
Governments and political institutions play an important role in the economic development process even in capitalist countries. While early experiences with economic development, such as England's experience during the 18th century, did not involve a large role for government, the role played by the government has steadily increased in importance. At the current time, if a government is unable or unwilling to play an active role in the economic development process, then the government itself is considered an obstacle to economic development. A government can foster economic development in many ways. F irst and foremost, governments must create and maintain a stable political environment and a climate of peace in which modern enterprises, private or public, can flourish. China's inability to initiate modern economic growth before 1949 is largely explained by prolonged instability connected with civil war and foreign invasions. After the creation of a stable political environment when Communists took power in 1949, economic growth began. Civil strife, tribal
warfare, and political instability in several Af rican countries have prevented them from embarking on a path of serious economic development. A stable government in itself, however, is not enough. In most cases, colonial governments were able to provide political stability ²often for a prolonged period. This was the case for India under British rule and Korea under Japanese rule. Nevertheless, very few European or Japanese colonies experienced significant economic development. The benefits of the stable environment under colonial rule mainly accrued to a small group of traders and investors from the colonizing nation. Moreover, ruling Colonial nations made no serious attempt at economic development through investment in training or through promotion of industries. Many colonial nations initiated economic development strategies after gaining independence. India provides such an example. After gaining independence from the British in 1947, the Indian government started planning to develop the country in an organized way. While India is still relatively poor, it is one of a small group of countries, seven or so, that possess space technology. It should also be noted that political independence does not necessarily imply that a sovereign government would pursue an active policy to promote economic development. The decisions to pursue economic development involve trade-offs²some people may become better off following economic development while others may become worse off. If political power is in the hands of those who will become worse off, the country's leader s may impede efforts towards economic development. In some instances, nations have pursued social goals rather than economic development. In Cuba during the 1960s, much effort was expended to redistribute income to benefit the poor and to improve education, rather than to promote economic development. Nevertheless, sooner or later, stable governments in developing countries are bound to pursue economic development.
Economic development rides on the shoulders of entrepreneurs who venture t o do things that benefit them and the society. Whether or not a society has a sufficient number of entrepreneurs to foster modern economic growth may
depend on the society's values and structure. Many of the developed nations of today encouraged entreprene urs who pursued dreams in search of reaping potential profits from innovations. What has prevented the development of entrepreneurship in underdeveloped economies? Some believe that certain individuals in a traditional society are blocked from becoming ent repreneurs, which normally implies more social prestige, power, and wealth. These blocked minorities attempt to rise through entrepreneurship. However, it is difficult to establish a clear causal relationship between the blocked minorities and entrepreneurship. Perhaps more important than this relationship are the factors other than minority status that induce people to become entrepreneurs. David McClelland, a Harvard University psychologist, believes that the need for achievement is a factor ²certain societies produce a high number of individuals with strong desire to improve themselves financially or to be recognized by the society for their achievements. The experience of Malaya provides a historical example that illustrates McClelland's premise. Malaya w as a country rich in resources, but natives of Malaya ²primarily fishermen and farmers comfortable with their lives²did not become entrepreneurs until the middle of the 20th century. Meanwhile, migrant Chinese mining workers who survived diseases such as malaria became entrepreneurs in Malaya. One interpretation of this episode is that the Chinese possessed a strong desire to rise and the Malays did not.
GOVERNMENT POLICIES AIMED AT ECONOMIC DEVELOPMENT
Modern governments are playing an active role in pro moting economic development, primarily within two categories. The first category includes communist and socialist governments that use a centralized planning process to promote growth. In a centrally planned economy, the government literally makes the consumption and savings decisions, channeling the surplus funds into investment to promote economic growth. The Soviet Union used such a centrally planned system after the Communists took power in 1917. While Russia no longer follows the central planning model , a few countries, such as China and Vietnam, still do.
The second category consists of governments that primarily believe in market economies, but play an active role in promoting economic development. These governments promote economic growth in many wa ys. One way of promoting growth is to make active use of monetary and fiscal policy to spur savings and investments. Fiscal policies are also used to provide tax incentives that are conducive to risk-taking and innovations. Some capitalist governments have an industrial policy in place ²directly or indirectly the government supports a pattern of industrial development. Finally, a government may follow an active policy of promoting foreign trade.
AN OVERVIEW OF THE INDIAN ECONOMY
The economy of India is the eleventh largest economy in the world by nominal GDP and the fourth largest by purchasing power parity (PPP). Following strong economic reforms from the socialist inspired economy of a post-independence Indian nation, the country began to develop a fast -paced economic growth, as free market principles were initiated in 1990 for international competition and foreign investment. India is an emerging economic power with a very large pool of human and natural resources, and a growing large pool of skilled professionals. Economists predict that by 2020, India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterized by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth. Since 1991, continuing economic liberalization has moved the country towards a market -based economy. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. In recen t years, Indian cities have continued to liberalize business regulations. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as the return of a large projected fiscal deficit of 6.8% of GDP which would be among the highest in the world.
India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP) while the industrial and agricultural sector contribute 28% and 17% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34% and industrial sector around 14%. The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and pharmaceuticals. India's per capita income (nominal) is $1,030, ranked 139th in the world, while its per capita (PPP) of US$2,940 is ranked 128th. Previously a closed economy, India's trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985.
THE STATE AND ECONOMIC DEVELOPMENT The role of the state in economic development began to change dramatically with the advent of the Industrial Revolution. In the West, the resulting industrialization and economic development were based on the establishment of individual property rights that encouraged the growth of private capital. Competition and individual enterprise thrive in this environment because individuals pursue their self-interest of survival and wealth accumulation. The instinct to survive under competitive pressures yields innovation and productivity increases, which eventually lead to both increased profits for business and lower prices to consumers. However, the rise and spread of capitalism led a n umber of thinkers to examine the consequences of the market -based approach to development.
Socialists argued that capitalism (or private ownership of capital) can lead to greater inequalities of income and wealth, while developmental economists argued that private decisions may not always lead to socially desirable outcomes (particularly in the case of market imperfections). Indeed, many policymakers at the time saw market failures as quite common and therefore assumed that only appropriate government interventions could guide an economy to a path of sustained economic development (Krueger, 1993). The governments in these newly independent nations assumed a significant role in economic development. They sought to quickly and substantially raise the standard of living through directed and controlled economic development. Apart from everything else, these developing countries invested heavily in education to promote literacy and to ensure an adequate supply of technical manpower to meet their growing needs. Further, these previously colonized nations did not want to subject their poor and weak economies to international economic fluctuations and thus sought to industrialize through import substituting industrialization, where imports were expected to be increasingly replaced by domestic production. In this paper we examine economic development in India, a former British colony that became one of the most cl osed economies in the world, to contrast the roles of government intervention and individual enterprise in that country¶s economic growth. In particular, we demonstrate that, given recent economic reforms in India, along with the evidence for the role that individual enterprise can play in a country¶s economic growth, the Indian government should devise policie s that rely more on individual enterprise, with its emphasis upon individual initiative and self-interest, to spur economic development. Further, we describe the special role that can be played in the economic development of India by a greater emphasis upon entrepreneurship.
THE INDIAN STRATEGY OF ECONOMIC DEVELOPMENT India¶s economic development strategy immediately after Independence was based primarily on the Mahalanobis model, which gave preference to the investment goods industries sector, with secondary importance accorded to the services and household goods sector (Nayar, 2001). For example, the Mahalanobis model placed strong emphasis on mining and manufacturing
(for the production of capital goods) and infrastructural development (including electricity generation and transportation). The model downplayed the role of the factory goods sector because it was more capital intensive and therefore would not address the problem of high unemployment in India.
Any increase in planned investments in Ind ia required a higher level of savings than existed in the country. Because of the low average incomes in India, the needed higher levels of savings had to be generated mainly by restrictions on the growth of consumption expenditures. Therefore, the Indian government implemented a progressive tax system not only to generate the higher levels of savings2 but also to restrict increases in income and wealth inequalities. Among other things, this strategy involved canalization of resources into their most productive uses.4 Investments were carried out both by the government and the private sector, with the government investing in strategic sectors (such as national defence) and also those sectors in which private capital would not be forthcoming because of lags or the size of investment required (such as infrastructure). The private sector was required to contribute to India¶s economic growth in ways envisaged by the government planners. Not only did the government determine where businesses could invest in terms of location, but it also identified what businesses could produce, what they could sell, and what prices they could charge. Thus the strategy of economic development in India meant (1) Direct participation of the government in economic activities such as production and selling and (2) Regulation of private sector economic activities through a complex system of controls. In addition, the Indian economy was sheltered from foreign competition through use of both the ³infant industry argument´ and a binding foreign exchange constraint. Imports were limited to goods considered essential either to the development of the economy (such as raw materials and machines) or to the maintenance of minimal living standards (such as crude oil and food items). It was over time that India created a large number of government institutions to meet the objective of growth with equity. The size of the government grew substantially as it played an
increasingly larger role in the economy in such areas as investment, production, retailing, and regulation of the private sector. For example, in the late 1950s and 1960s, the government established p ublic sector enterprises in such areas as production and distribution of electricity, petroleum products, steel, coal, and engineering goods. In the late 1960s, it nationalized the banking and insurance sectors. To alleviate the shortages of food and other agricultural outputs, it provided modern agricultural inputs (for example farm machinery, irrigation, high yielding varieties of seeds, chemical fertilizers) to farmers at highly subsidized prices (World Economic Indicators, 2001). In 1970, to increase foreign exchange earnings, it designated exports as a priority sector for active government help and established, among other things, a duty drawback system, programmes of assistance for market development, and 100 per cent export-oriented entities to help producers export (Government of India, 1984). Finally, from the late 1970s through the mid -1980s, India liberalized imports such that those not subject to licensing as a proportion to total imports grew from five per cent in 1980-1981 to about 30 per cent in 1987-1988 (Pursell, 1992). However, this partial removal of quantitative restrictions was accompanied by a steep rise in tariff rates . This active and dominant participation by the government in economic further decided that exports should play a limited role in economic development, thereby minimizing the need to compete in the global market place. As a result, India became a relativel y closed economy, permitting only limited economic transactions with other countries. Due to government intervention, particularly the high levels of government subsidies, it was clear by 1990 that India was living beyond its means. The result was a severe payments crisis in which, for the first time, the government physically transported gold overseas to prevent defaulting on foreign commitments. To meet its immediate balance of payments crisis, India also entered into a structural loan adjustment agreement with the International Monetary Fund (IMF). 1. In spite of recent tax reforms in India, the present tax system still works against the individual self-interest to survive and accumulate wealth and, as a result, still leads to the hiding of income, wealth and expenditures.
Indeed, whereas in the United States and the Republic of Korea, the highest tax rate applies to an income level of $250,000 and $66,000, respectively, in India that same tax rate applies to an income of only $3,400. Simply reforming its tax system to bring it in line with comparable nations should yield several substantial benefits to the Indian economy.
2. The Indian civil service provides attractive career choices for young job seekers due mainly to the excellent job security, non-monetary compensation, and opportunities for influence available in those careers. For example, despite minimal salaries for individuals holding top-tier positions in such areas as administration, police, revenue and railways, these civil servants are entitled to high job security and heavily subsidized housing, transport, medical services, telephone privileges, and at times domestic help. We believe that the policies underlying compensation to government employees should be reformed such that they are based primarily on market principles. The advantages of doing so include eliminating departments known for corrupt practices, making explicit the true cost of a government employee¶s performance, and giving government employees a good sense of their market worth. 3. Finally, considerable reform is needed in the Indian real estate sector. A large proportion of the land is owned by the government, and any land made available for private use is governed by archaic ownership, zoning, tenancy, and rent laws. Further, this government control of land has reduced the amount of land available for trading purposes. The result is that Indian land prices are the highest among all Asian nations relative to average income (Lewis, 2001).
CONCLUSION The Indian economy provides a revealing contrast between how individuals react under a government -controlled environment and how they respond to a market-based environment. The evidence presented here suggests that recent market reforms encouraging individual enterprise have led to higher economic growth in that country. The reasoning here is not new, although it is refreshing to discover that this ³tried-and-true´ reasoning applies to developing as well as to developed nations. Specifically, reliance upon a free market, wit h its emphasis upon individual self-interest in survival and wealth accumulation, can yield a wide range of economic benefits. In India those benefits have included, among other things, increased economic growth, reduced inflation, a smaller fiscal defici t, and higher inflows of the foreign capital needed for investment.
We further conclude that India can generate additional economic growth by fostering entrepreneurial activities within its borders, particularly within its burgeoning middle class. Not only has entrepreneurship been found to yield significant economic benefits in a wide variety of nations, but India specifically has reached a point in its development where it can achieve similar results through entrepreneurial efforts. Among other things, India is poised to generate new business start-ups in the high technology area that can help it become a major competitor in the world economy. For example, it has a strong education base suited to entrepreneurial activities, increased inflows of foreign capital aimed at its growing information technology services sector, and a host of successful new business start-ups. To pursue further the entrepreneurial approach to economic growth, India must now provide opportunities for: (1) Education directed specifically at developing entrepreneurial skills, (2) Financing of entrepreneurial efforts, and (3) Networking among potential entrepreneurs and their experienced counterparts. Obviously, the government can play a substantial role in helping to provide these types of opportunities. It can also provide the appropriate tax and regulatory policies and help the citizens of India to understand the link
between entrepreneurial efforts and economic prosperity. However, its role overall must be minimized so that the influence of the free market and individual self-interest can be fully realized. Only time will tell if increased entrepreneurial activities in India will actually yield the economic benefits found in so many other nations of the world. Should India decide to pursue that avenue of economic development, then future research needs to examine the results of India¶s entrepreneurial programme. Perhaps more important, that research also needs to determine how India¶s success in entrepreneurial efforts might differ from those pursued in developed nations.
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