India has instituted a number of industrial policies over the years, ranging from a wave of nationalization in the late 1970s to more modern re-opening of the country's markets and participating in the international economic system. More recently, the country has made a push for a booming telecommunications industry. This is one area can government can have a significant influence, because telecommunications are almost always highly regulated. Moreover, governments have the ability to invest or to undertake policies to encourage investment, in telecommunications resources. In 1994, India began with the National Telecom Policy. This set out the basis for competition in the telecom industry, including in basic services, cellular services and paging. This move also allowed for private long distance carriers. The NTP was the first step towards the liberalization of telecommunication in India, a move that preceded the technology boom but allowed for the infrastructure investment that has supported the country's call center and high technology industries (Singh, Soni & Kathuria, n.d.).
This policy set out the basic framework for the modernization of India's telecom industry. By creating the opportunity for profit, India encouraged infrastructure investment and innovation in this sector. The move came at the right time as well, just as cell phones were starting to take off, and just when the Internet was invented. The move at this time allowed India's infrastructure development to keep pace with the growth of telecommunications in general. The country did not support firms with things like low-interest loans, but it created the opportunity for investment by reducing the risk associated with investing in new technology and infrastructure.
The policy existed because there was market failure in telecommunications. Out of necessity, the original networks were developed as public goods, run by the government to ensure that the nation had some level of infrastructure without duplication. The change in technologies spurred the change in policy, but under the government-run system, telecommunications companies were not necessarily profitable, and they had no particular incentive to innovate. The government was running telecom not as a business but as a public utility. This created significant market failure. The move was therefore made to bring market forces into the telecommunications industry. While the industry was still influenced strongly by the government, it moved closer to being a market-based business, and subsequent reforms only served to improve the market's influence over the country's telecommunications business.
The subsequent reforms, however, do highlight that the move to modernize the industry was incomplete. There is reason to believe that the move was only partial, and that the government wanted to see what would happen before opening up the market more. When it was evident that the market was allocating resources in telecom more efficiently than the government had been, it made further moves to bring about more market participation in this industry.
Indian firms are not required to invest their own resources in telecom -- they may borrow. There are, however, some limits with respect to things like foreign ownership. This is common in telecom, as telecommunications is one of those industries with national security implications -- a nation would be insane to let the market run such an industry because foreign nations would be able to gain control over telecommunications infrastructure. In that sense, no legislation or policy will ever fully open up the Indian telecommunications market. However, the country is definitely taking a policy approach to allow the market to improve the state of the nation's telecommunications infrastructure, and the government is ensuring that it is encouraging this development, for the betterment of the country.
2. India still engages in trade protectionism. While all nations do at times, India is not among the world leaders of free market international trade. In the 1970s, it nationalized industries to keep out foreign competition. While India has improved since then, it still ranks poorly for trade freedom. India was a founding member of the World Trade Organization in 1995. Nonetheless, the World Bank reports that India's trade barriers are higher than those of most nations. Before the WTO, India commonly had tariffs in excess of 200% on foreign goods, and while those rates have declined, the country is lowering its trade barriers slowly, to allow time for its market to adjust. The view of the Indian government is that it maintains the right to protect local industries when the need arises. Only since...
For example, it has an average tariff of less than 15% on non-agricultural goods. This has allowed more foreign goods to enter the country and be more competitive, though it has put some pressure on domestic producers with respect to the quality of their goods, and the prices. All told, such a policy can cost jobs, but will also deliver a more efficient market in those non-agricultural goods.
India is involved with several disputes before the WTO. One such case would brought by India on South Africa. The latter nation instituted anti-dumping duties on Indian pharmaceuticals, in response to low prices for those drugs, and the threat that this represented to South Africa's domestic pharmaceutical producers. India made several claims, including that South Africa had not accurately calculated the dumping margin, and had not accurately calculated the damages (WTO, 2016).
3. India has faced financial crises before. In 1991, the country faced a balance of payments crisis. In 2013, there was a crisis that led to a crash in the country's stock markets. Capital controls were instituted in August of that year, but failed. There was capital flight at the time, but the new rules did not stem the capital flight, because foreign investors were worried that they might not be able to take their money out of India. As a result, foreign investment dried up, a consequence of a measure that sought to boost foreign confidence in India.
The country responded to that crisis with market interventions to try to prop up the value of the rupee. The country's currency controls were ineffective, so this intervention was required to help stabilize the economy. Aiding the country at the time, its economy was going well, with a 12% increase in exports the previous month. Such improvement in the trade balance bolstered the government's ability to intervene in the currency markets (The Economist, 2013).
The crisis a combination of exchange rate and banking crises. There were concerns at the time about the viability of several of the country's banks, and by late August the country had not sought the recapitalization of the banks as a means to stabilize the economy and restore confidence (The Economist, 2013). The exchange rate, which the government sought to manipulate, started trading out of the bounds that the government sought. Its ability to control the exchange rate was one of the factors in the capital flight, which in turn weakened the banking system. Thus, the moves that were made were intended to stem capital flight and give the government a chance to strengthen up some of the weaknesses in the economy.
' India remains at risk with respect to financial crises. Its banking system is still governed by relatively archaic structures, and still faces significant capital flight. Indians prefer to move their money out of the country, but there have long been prohibitions or restrictions against this. As a consequence, India still faces challenges with respect to capital flows, both into and out of the country. The Indian banking system cannot be said to be fully stable, and this will influence the value of the rupee as well. The conditions of the 2013 crisis were similar to the ones of the 1991 crisis, and most of those key underlying conditions still exist today in the Indian financial markets.
One change that has occurred is that the new head of the central bank, Raghuram Rajan, was one of the few people who anticipated the 2007 global crisis, noting the volatility of the new financial innovations (The Economic Times, 2015). This mostly means that they have a good person in charge to avoid financial crises, but this does not mean that there are adequate defenses in place. He has written about the reforms that he would like to see to India's financial system. Rajan envisions reforms that will bring about more of a market-based financial system, but also better regulation than what is presently in place. In particular he cites that as many as one-third of Indian households do not have access to any banking services, a gap that government funding has sought to overcome. A more developed, modern banking system is seen by Rajan as one of the country's most pressing needs, in particular to avoid another crisis in the future (Rajan & Prasad, n.d.)
India has, however, proven resilient to global crises. India's economy is growing quickly, more than most major economies, which provides a bulwark against financial crisis, at least for the…
