Roles of the State and the Market in Economic Development

Indian Economy Essay Questions
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Indian Economy Essay Questions
Question One
Roles of the State and the Market in Economic Development
The government plays a crucial role in promoting economic growth in a country. Some of most common contributions of governments to the economic growth in their countries include the following;
Organizational change; governments promote organizational change, which influences the process of economic development (Marcu, 2014). It involves the expansion of the market size and the organization within the labor market. The state has the responsibility of developing the means of communications and transport to expand the market size since such schemes cannot be undertaken by private enterprises. This creates room for improved economic development and growth.
Economic and social overheads; one of the major obstacles to economic growth and development in under-developed countries is lack of such economic overheads as effective modes of transportations and communications, electricity, ports, and irrigation, among others (Sanchez-Graells 2016). In countries that are industrially advanced, the state provides such facilities. Such facilities promote economic growth as they clear obstacles to growth.
Education; Education is a major contributor to economic growth and development. As such, it is the role of the state to ensure that the population can access affordable education to equip them with the relevant skills and knowledge to contribute to economic growth (Lemstra & Melody, 2014). It results to futility if national development programs are initiated while the population is largely left illiterate. Provision of educational facilities increases occupational and geographic mobility, thus improving productivity and facilitating economic development.
Family Planning and Public Health; developing and maintaining public health services are some of the important functions whose responsibility lies with the government/state (Lemstra & Melody, 2014). It is important for the health of the population to be maintained so as to increase the productivity and efficiency of labor. A healthy nation is better placed to promote economic growth and development.
Reforms in institutional framework; economic development can be slow or inefficient in an institutional framework that is static (Sanchez-Graells 2016). An institutional framework that is rigid is a major hindrance to effective economic development. Therefore, one of the major differences between developed and under-developed countries are the attitudes and rigidity of framework adopted in both cases. As such, the state has the responsibility of implementing reforms in institutional frameworks to enhance flexibility and hence position the nation for economic development.
Role of State in Economic Growth: Comparing India to South Korea
Economic development in India is largely attributed to the state’s commitment and reforms, and the economic trends show the influence of the government on economic growth. In 2011, economic growth slowed down due to the government’s slowdown in expenditure and a decline in investment, resulting from investor pessimism on the commitment of the government to economic reforms (Shome, 2013). The government introduced reforms in late 2012, with deficit reduction measures that helped in reversing the slowdown. Further, economic development is due to; higher FDI, low dependency ratio, healthy investment and savings rates, and increased integration in the international economy. However, such factors like corruption and poverty slow down economic development.
Similarly, the state has contributed to economic development in South Korea over the last four decades. The country has also been hit by various financial crises, but the state has been formulating reforms to overturn the fate. It also introduced the US-South Korea Free Trade Agreement which was rectified by the two governments in 2011 and effected in March 2012 (Choudaha, 2017). This shows the contribution of the government through reforms. However, common challenges include heavy reliance on exports, an aging population, and an inflexible labor market.
Question Two
Why India Took so Long Open Up its Trade with the Rest of the World
The economic history of India is traced to the Indus Valley Civilization in 1700 AD. During this Civilization, India has a very stable and developed economy, which partly made it feel self-reliant and independent of the rest of the world (Constantinescu, Mattoo, & Ruta, 2020). However, it maintained good trade relations with some parts of the world, which is proven by the coins of different civilizations available at Indus valley. All the villages were economically independent and the country was a self-sufficient entity. However, the British invasion influenced the country’s economy, as India’s global market share of 22.3% declined to 3.8% between 1700 AD and 1952 (Bown & Tovar, 2011). This was mainly due to depletion of resources, and India started considering ways of locking out other countries. The colonial experience affected Indian economy, and the domestic policy formulated leaned towards protectionism, with a major emphasis on industrialization, import substitution, a large public sector, economic interventionism, central planning, and business regulation, foreign investment policies were left somewhat liberal.
The rise of Jawaharlal Nehru as the country’s first Prime Minister and the statistician Prasanta Chandra Mahalanobis saw the formulation of economic policy in the early years of India’s existence (Constantinescu, Mattoo, & Ruta, 2020). The first five-year plan for economic development in the country was implemented in 1952. During the first three decades, India registered effective economic growth and alienated from the rest of the world. The leaders formulated policies that hindered trade with other countries.
Since 1965, the country also became more self-reliant again and separated from the rest of the world. This was due to incre...