India - Structural change and development perspectives (Vol. 1 of 3)

Report No. 5593-N India: Structural Change and Development Perspectives (In Two Volumes) Volume 1: Executive Summary and Main Report April 24,1985 South Asia Programs India Division FOR OFFICIAL USE ONLY Document of the World Bank This report has a restricted distribution and may be used by recipients only in the perrormance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND OTHER EQUIVALENTS Currency Prior to June 6, 1966: US$1.00 = Rs 4.7619 Rs 1.00 = US$0.21 From June 6, 1966 to mid-December 1971: US$1.00 = Rs 7.50 Rs 1.00 = US$0.13333 Mid-December 1971 to end-June 1972: US$1.00 = Rs 7.27927 Rs 1.00 = US$0.1374 After end-June 1972: floating rate Rate end-March 1985: US$1.00 = Rs 12.31A57 Rs 1.00 = 0.0810 Rupee values have been converted into dollars by using the prevailing exchange rates indicated above up to 1970/71. For subsequent years the following average rates in rupees per US dollar have been used: 1971/72 : 7.444 1975176 : 8.653 1979/80 8.076 1972/73 : 7.706 1976i/77 : 8.939 1980/81 : 7.893 1973/74 : 7.791 1977/78 : 8.563 1981/82 : 8.929 1974/75 : 7.976 1978/79 : 8.206 1982/83 9.628 1983/84 : 10.312 Source: IMF, International Financial Statistics (IFS), line "rf." In this report an estimate of 11.9 Rupees per US Dollar was used for 1984/85. Weights UnLess otherwise specified all weight measures are metric. Years The Indian fiscal year runs from April 1 through March 31.  FOR OFICIAL USE ONLY TITLE : INDIA: STRUCTURAL CHANGE AND DEVELOPMENT PERSPECTIVES VOLUME I: EXECUTIVE SUMMARY AND MAIN REPORT COUNTRY : INDIA REGION : SOUTH ASIA SECTOR : COUNTRY ECONOMIC REPORT TYPE CLASSIF MM/YY LANGUAGE 5593-IN CEM Restricted 04185 English ABSTRACT : This report reviews growth and structural change in India during the period 1973-1983, and then considers the implications of a 5 percent growth rate for the future. It consists of two volumes: Volume I, the Executive Summary and the Main Report, and Volume II, the Statistical Appendix. The report discusses the current economic situation (Chapter 1), ten years of growth and structural change (Chapter 2), a macro- economic framework for five percent growth (Chapter 3), a policy framework for accelerated growth (Chapter 4), and balance of payments financing and aid requirements (Chapter 5). The analysis of Chapter 2 is backed up by seven supporting Working Papers. This docuent has a resricted ditibuton and may be used by recpients only in the perfomnc of their ofida dues Its tconents may not otherwise be dicosed without World Bank authorization.  Acknowledgement This report was prepared in New Delhi by members of the World Bank Resident Mission in India and of the India Division at World Bank Headquarters, under the leadership of Willem C.F. Bussink (Principal Economist). Contributors to the report included Leslie Abbie, Zafer Ecevit, Roger W. Grawe, Christopher L. Hall, John R. Hansen, Kiem H. Phan, Peter K. Pollak, V.J. Ravishankar and Sunanda Sengupta. P. Rajagopalan provided statistical support. E. Bevan Waide (Resident Mission Chief) and John A. Holsen (Regional Chief Economist) also made significant contributions to the report.  INDIA: STRUCTURAL CHANGE AND DEVELOPMENT PERSPECTIVES VOLUME I: EXECUTIVE SUMMARY AND MAIN REPORT Table of Contents Page No. Basic Data .......... * . . *1............................ EXECUTIVE SUMMARY: ..... ...........*..* ..e....*...... ... * i A. Introduction and Current Developments .......... o ............... i B. Ten Years of Growth and Structural Change in India, 1973-1983 .. iv C. Main Sectoral Developments, 1973-1983 .......................... viii D. A Macro-Economic Framework for Five Percent Growth ............. xii E. A Policy Framework for Accelerated Growth .... o...o ............. xiv F. Balance of Payments Financing and Aid Requirements .. ........... xix CHAPTER 1: THE CURRENT ECONOMIC SITUATION .......................... 1 A. Introduction and Macro-economic Developments ... ............... 1 B. Agriculture o.................... o ........................................ 2 C. Industry ..............*.......... o ............... 5 D. Industrial and Trade Policy Developments During 1984/85 ........ 12 E. Prices, Monetary and Fiscal Developments . ............ .. 17 F. Balance of Payments. ......... ........... .... 22 CHAPTER 2: TEN YEARS OF GROWTH AND STRUCTURAL CHANCE IN INDIA, 1973-1983 o .............................................. 26 A. Introduction ................................ ... ....... . 26 B. Shocks, Adjustments, and Balance of Payments .................... 27 C. Savings, Investments and Public Finance ................ .......... 38 D. Growth and Efficiency of Investment ..... ........................ 47 E. Agriculture, Food and Poverty ... ......................... 53 F. Developments in Energy ............v.. . ...59 C. Manufacturing Industry ........ . .................................. 64 H. Summary Assessment .... ....................................... 71 CHAPTER 3: A MACROECONOMIC FRAMEWORK FOR FIVE PERCENT GROWTH ....... 73 CHAPTER 4: A POLICY FRAMEWORK FOR ACCELERATED GROWTH .... ........... 85 A. Introduction ........................... ........................... 85 B. Resource Mobilization .. .. _ ............ .................... . 88 C. Agriculture and Poverty Redressal ......... o ................. 91 D. Energy ..... o........... .... o ............................. 96 E. Industrial and Trade Policy ....o ............................... 101 F. Sumaary ......... o ................................... ........ 107  CHAPTER 5: BALANCE OF PAYMENTS FINANCING AND AID REQUIREMENTS ...... 109 A. Introduction ........ .................. ...... ............................... 109 B. Trends in Aid and Terms of Aid .................................. 109 C. Balance of Payments Financing - A Scenario ...................... 112 D. The Need for Concessional Aid ................................... 116 SUPPORTING PAPERS (Available on Request) ANNEX I: GROWTH AND STRUCTURAL ADJUSTMENT ANNEX II: RESOURCE MOBILIZATION AND PUBLIC EXPENDITURES ANNEX III: FOREIGN TRADE - TRENDS AND POLICIES ANNEX IV: AGRICULTURE, FOOD, AND POVERTY ANNEX V: DEVELOPMENTS IN ENERGY ANNEX VI: MANUFACTURING INDUSTRY, EXTERNAL ADJUSTMENT AND STRUCTURAL CHANGE - 1973-83 ANNEX VII: REVIEW OF INDUSTRIAL LICENSING POLICY (1951-85)  -iii- List of Text Tables and Graphs CHAPTER 1 1.1 Growth Rates in GDP at Factor Cost ......... *. ........... 2 1.2 Agricultural Production ....... ............. * .. .... ........ 3 1.3 Agricultural Input Indicators ....................... . ........ 5 1.4 Index of Industrial Production (April-November 1984) .......... 7 1.5 Investment and Profitability Indicators ...................... 8 1.6 Contribution to Manufacturing Output and Power Supply Position of Major States ...... *...... a cc cc cc...... c......... 11 1.7 Wholesale Price Trends - 1984 ................................ 19 1.8 Percentage Contribution to the Increase in Revised Over Budgetted Expenditures, 1984/85 .................. .......... 20 1.9 Balance of Payments - Recent Developments . ................... 24 Figure 1.1 Nominal and Real Effective Exchange Rates, 1970-1984 .... 18 CHAPTER 2 2.1 Main Elements of the Balance of Payments on Current Account .. 32 2.2 Balance of Payments Financing, 1973/74 - 1983/84 ..... ........ 37 2.3 Savings and Investments (Z of GNP) - Two-Year Averages ....... 39 2.4 Public Finance Summary (Z of GDP) - Two-Year Averages ........ 42 2.5 Average Annual Public Investment ............................. 46 2.6 Public Sector Borrowing Summary .............................. 47 2.7 Growth Rates for GDP and Main Sectors .............c............ 48 2.8 Growth of Industrial Production by Use and Input Base ........ 65 2.9 Structure of Tariffs ....................... ......... c..... 70 Figure 2.1 Shocks Analysis, 1973/74 - 1983/84 .................... 29 Figure 2.2 Gross Domestic Product, 1969/70-1983/84 ................. 49 Figure 2.3 Incremental Capital/Output Ratios ....................... 52 CHAPTER 3 3.1 Projected Sectoral Growth Rates .............................. 74 3.2 Projected Growth Rates in Incomes, Consumption and Savings ... 75 3.3 Alternative Growth Scenarios ................................. 79 3.4 National Accounts Summary (at current prices) ................ 82 3.5 National Accounts Summary (at constant 1983/83 prices) ....... 83 3.6 Balance of Payments . cc c.......................................... 84  -iv- CHAPTER 5 5.1 Comnitments ..................................................... 110 5.2 Trends in Terms of Aid ...................... ................. 111 5.3 Summary of Foreign Exchange Requirements and Sources 59.0/81 - 1989/90 ..b.....t*ar ................................ 113 5.4 Debt and Debt Servicing Summary ........................................... llS  T A 8L C 3A INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GtOUPS (VWEKNTD AVERAGES) I MOST cmosr RECENT ESTINATr) lb RECENT LW lilCOM MIDDLE INCOME 1960Lb 1970/b ESTIMATEL ASIA 4 PACIFIC ASIA & PACIFIC AMA (TOUSS SQ. I) TOTAL 3267.6 3287.6 3287.h. ACRICULTURAL 1763.5 1780.5 1812.3 cm FE CAPIrA (US$) 60.0 100.0 260.0 278.b 2091.2 Ro? CONSUPTIO PE CAPITA (KILOGRAMS OF OlL FQUIVALENT) 79.0 133.o 156.0 272.0 567.1 OPUlATION A3D VtTAL STATISTIcs POPULATIUN,MID-YEAR (THOUSANDS) 434649.0 547569.0 716985.0 UR8AN POPULATION (2 OF TOTAL) 38.0 29.8 24.1 21.7 34.7 POPULATION PROJECTIONS POPULATION IN YWAR 2110U (MILL) 994.4 STATIONARY PUPULATION CMILL) 3707.2 POPULATION HOMENTUIT .7 POPULATION DENS ITY PER Sq. KM. 132.1 1b6.1 211.4 166.6 261.9 PER SQ. LI. AGRI. LAND 246.6 307.5 387.1 345.5 1735.1 POPULATlON AGE STkUCTURE (t) 0-14 YRS 40.9 42.7 39.3 3i.R 39.0 15-64 YRS 54.5 54.2 57.6 59.8 57.b 65 AND ABOVE 4. h 3.3 1.3 4.1 3.1 POPULAT ION CROWTH RATE 12) TOTAL 1.8 2.1 2.2 1.9 2.3 URUP. 2.5 3.1 3.9 4.3 4.3 CRUDE BIRTH RATE (PER THOUS) 47.7 41.4 34.2 27.7 10.1 CRUDE DEATH RATE (PER TNOUS) 21.8 17.s 32.7 30.1 9.5 GROSS REPRODUCTION RATE 2.9 2.8 2.2 3.8 2.0 FAMILY PLANNING ACCEPTORS. ANNUAL. (TIRIUSI 64.0 1782.0 h6826.0 USERS (: OF MARRIED IEN) .. 1.7 28.0 , 52.7 FWD AND RWmlTloN INDEX OF FOOD PRuD. PER CAPITA ([9s9-71-100) 98.0 102.n 103.0 112.8 123.0 PER CAPITA SUPPLY OF CALORIES (2 OF REQUIREMENTS) 96.0 91.0 06.0 97.7 114.4 PROTEINS (GRAMS PER DAy) 54.0 50.0 46hU 56.8 57.n OF WHICH ANIMAL AND PULSE 17.11 Is.0 13.0 Ic 14.9 14.1 CHILD (AGES 1-4) DEATH RATE Z6.2 20.7 13.0 9.8 7.2 HEALTH LIFE EXPECT. AT BIRTH (YEARS) 42.5 47.5 54.6 60.0 60.4 INFANT MORT. RATE (PFR TmOuS) 365.0 139.D 94.0 83.8 66.3 ACCESS Tn SAFE WATER (EPOP) TOTAL - 17.0 33.0 /d 32.9 37.0 URBAN ,, 60.0 83.0 Id 70.9 54.8 RURAL . 6.0 2n.0 Id 22.1 26.4 ACCG''- TO EXCRETA DISrOSAL (I OF POPULATION) TfTAL .. 18.0 20.n /c 18.1 41.3 URBAN *- 85.0 87.0 Ie 72.8 47.4 RURAL . 1.0 2.0 Ie *.6 33.3 POPULATION PER PFYSICIAN 4850.0 4890.0 3690.0 If 3484.2 7749.4 POP. PER NURSING eERSON 10980.0n 7420.0 5460.0 7F 4793.3 2460.4 POP. PER HOSPITAL BED TOTAL 218n.0 3650.0 1290.n /f 1066.5 1044.2 URBAN . . 370.0 Id 298.0 651.2 RUIAL . i. 3041o.0 7i 5993.4 2594.6 ADMISSIONS PER HOSPITAL BED . .. .. .. 27.0 HOUSINC AVERAGE SU1F OF HOUSEHOLD TOTAL 5.2 5.6 5.2 /e URAN 5.2 5.6 4.6 7.. RURAL 5.2 5.6 5. 3 /.. AVERAGE NW. OF PERSONSfROOM TOTAL 2.6 2.8 URBAN 2.6 2.8 RURAL 2.6 2.8 ACCESS TO ELECT. (2 oF DWELLINGS) TOTAL .. .. URBAN .. .. RURAL .. ..  -2- TAILE 3A INDIA - SOCIAL XDtICATORS DATA SHIET INDIA RUFNCE CIOUPS (WBIGITED AVERAGES) 1g MOST (MOST RECCNT ESTIMATE) 1 RECENT LOW INCOME MIDDLE ICOoE 196OL 197b701 ESTIMATsLb ASIA 4 PACITIC ASIA 6 PACIFIC ADJUSTED ENROLLMENT RATIOS PRIMAY. TOTAL 61.0 73.0 79.0 97.4 102.0 MALE 80.0 90.0 93.0 110.5 105.9 PFMALE 40.0 56.0 64.0 83.7 98.2 SECONAARY: TOTAL 20.0 26.0 30.0 35.9 46.0 MALE 30.0 36.0 39.0 44.6 48.7 FEMALE 10.0 15.0 20.0 26.8 43.1 VOCATIONAL (X OF SECONDARY) 2.8 1.0 0.7 g 2.2 17.5 PUPIL-TEACHER RATIO PRIMARY 46.0 41.0 54.0 38.5 31.8 SECONDARY 16.0 21.0 18.7 23.5 ADULT LTERAcY RATE (C) 27.8 34.1 36.2 53.4 72.9 COMO1TIN PASSENCER CARS/THOUSAND POP 0.6 1.1 1.4 h 0.9 10.1 RADIO RECEIVERS/TQOUSAND POP 4.9 21.5 43.6 112.1 113.6 TV RCCEIVERS/STOUSANID POP 0.0 0.0 1.7 15.7 50.1 NEWSPAPE ("DAILY CENUNAL INTEREST') CIRCULATION PER THOUSAND POPULATION 10.6 16.2 19.4 h 16.2 53 9 CInEMA ANNUAL ATTENDANCE/CAPITA 3.2 6.2 3 7 . 3.6 3.4 LAS FORCE TOTAL LABOR FORCE (THOUS) 185951.0 219194.0 282169.0 FEMALE (PERCENT) 30.7 32.5 31.8 31.3 33.5 AGRICULTURE (PERCENT) 74.0 74.0 71.0 69.6 52.2 INDUSTRY (PERCENT) 11.0 11.0 13.2 15.6 17.9 PARTICIPATION RATE (PERCENT) TOTAL 42.8 40.0 39.4 42.6 38.7 AULE 57.0 52.4 52.0 54.7 50.9 FEMALE 27.3 26.9 25.9 29.8 26.6 ECONOMlC DEPENDENCY RATIO 1.1 1.1 1.1 1.0 1.1 DlCONX DISTRIBUTION PERCENT OF PRIVATEI INCCOE RECEIVED BY HICHEST 5S OF HOUSEHOLDS 26.7 26.3 /A 22 2 22.2 22.2 HICHEST 202 OF HUSEHOLDS 51.7 48 49.4 48.0 48.0 LOWEST 202 OF HOUSEHOLDS 4.1 6.7 7 7 0 6.4 6.4 LOEST 40S OF HOUSEHOLDS 13.6 17.2 4f 16.2 i 15.5 15.5 POVnRr TAlGZT O ESTIMAED ABSOLUTE POVERTY INCOM LEVEL (Uss PER CAPITA) URBAN 132. 0 133.9 188.6 RURAL . 114.0 b 111.6 152.0 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URAm 177.9 RURAL 164.6 ESTIMATED POP. 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