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Thursday, June 16, 2005

India Uncut

Amit Varma has written a fascinating op-ed on India's economic liberalization, and the lack thereof:

While part of India has benefited from being opened up to foreign products and influences, most of the country is still denied access to free markets and all the advantages they bring. India opened its markets in 1991 not because there was a political will to open the economy, but because of a balance-of-payments crisis that left it with few options. The liberalization was half-hearted and limited to a few sectors, and nowhere near as broad as it needed to be. One would have expected India’s growth to be driven by labor-intensive manufacturing but, almost by default, it instead came in the poorly licensed area of services exports. The manufacturing sector, ideally placed in terms of labor and raw material to compete with China, never took off. India’s restrictive labor laws, a remnant of the socialist infrastructure that India’s first prime minister, Jawaharlal Nehru, put in place in the 1950s and 1960s, were politically impossible to reform. It remains excruciatingly difficult for most Indians to start a business or set up shop in India’s cities.
I had understood, perhaps erroneously, that India's reforms in the early 90s were a lot deeper and more comprehensive than Varma indicates. In light of this, I wonder if my predictions that India will emerge as a major world power over the next century are correct or not. Shackled, stultifying and beaurocratic economies are going to become less and less able to compete in the world economy. Globalization, and other congruent trends are going to increasingly reward nimble companies (and individuals) and the economic systems that support them. Hopefully, India (and America for that matter) will listen to Amit Varma's message. (via Instapundit)


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