India’s Economic Growth and Global Integration: Experience since Reforms and Future Challenges

Although a large share of gross domestic product (GDP) and an even larger share of employment were generated by the private sector, the state played a dominant role in three ways: first, by emphasizing import substitution across the board and industrialization as core strategies; second, by appropriating a large share of the savings of the economy for its own use, largely for public investment until the ’80s and also for public consumption thereafter; and third, by attempting to steer the private sector to conform to the priorities and targets set in the plans through various instruments of controls, many of which were in the form of quantitative restrictions rather than taxes and subsidies. Moreover, most of the instruments of control were exercised on a discretionary, case-by-case basis, rather than through a set of rules, and, in effect, insulated producers from domestic and international competition.