Investment models used in India since Independence

 

  • Since India started the planning process (1951), we see differing models being tried by the governments to mobilise resources—it has been a kind of ‘evolutionary’ process. We may understand them in the following ‘phases’:

 

    • Phase 1 (1951-69)
      • This was the phase of ‘state-led’ development in which we see the GoI utilising every internal and external means to mobilise required resources. The main areas of resource allocations were for infrastructure and social sector.
      • The famous Mahalanobis Plan gets implemented during this period.
      • In this period, we see the whole financial system, tax system and fiscal policy of the country getting regulated to drive in maximum funds for the government to meet its planning related financial
    • Phase 2 (1970-73)
      • With the enactment of the Industrial Policy of 1970, we see GoI deciding in favour of including ‘private capital’ in the process of planned development; but not in a big and open way
      • This was done basically, to make private sector come up in areas which were open for them, but due to certain technical and financial reasons they were not able to take part.
    • Phase 3 (1974-90)
      • With the enactment of the FERA in 1974 we see the government, for the first time, proposing to take the help of ‘foreign capital’ in the process of planned development
      • The period after 1985 saw dynamism in the area of resource mobilisation—two consecutive Planning Commissions suggested for opening up of the economy and inclusion of the Indian and foreign private capital in industrial areas, which were hitherto reserved for the government
    • Phase 4 (1991 onward)
      • The prolonged follow-up of weak fundamentals of economics immediately after Gulf War-I, along with a severe Balance of Payment crisis by late 1980s, made India go to the IMF for financial help
      • These conditions made India to ‘restructure’ its economy, commencing with reforms of 1991
      • Main elements of this investment model include:
  • More sectors were opened for private investment
  • GoI articulated the idea of the Public Private Partnership (PPP) model for a few sectors
  • To support the private sector to mobilise their share of fund in the infrastructure PPP, the government has set up the Infrastructure Development Fund, which also has provision for the Viability Gap Funding (VGF)
  • To take care of the spending and investment requirements of the general public, the government is committed to put in place a cheap interest rate regime, right kind of financial environment, an stable inflation and exchange rate besides other instruments.
  • From 2014 onwards, we find a renewed synergy in creating conducive environment for the private sector so that the economy could be able to attract enough investible fund to further the process of development
  • Presently, the current investment model of the economy is private-led and for this the GoI proposes to put in place the right kind of financial system, legal framework, labour laws, etc.
    • The main idea of this model is to ‘unshackle’ the hidden potential of the private sector.
    • To the extent the role of the government is concerned, it will be limited to being a regulator with an increased tone of a “facilitator” and a caretaker of the wellbeing of the disadvantaged and marginalised sections of the society, so that the face of the economic reform remains ‘humane’