Since  winning independence from Great Britain in 1947, India has 

been thrust abruptly into the 20th century. Modern, industrial, medical 

and infrastructural techniques have been grafted onto a society still 

characterized by age old beliefs and class structures, without 

undertaking badly needed reforms and dealing with the issues of 

inequality in distribution of resources and incomes. These policy 

decisions have proved vital for the transitions India has been 

undergoing, one result of  not undertaking badly needed reforms has been 

the limited adaptive capacity of Indian society to change. This has 

consequently influenced the trajectory India is taking through its key 

transition and exacerbated the pressures on Indian policy makers. 

Compared with other countries in Asia such as Korea and Malaysia, India 

has certainly not performed well in the sectors of  alleviation of 

poverty, economic growth, per capita income. In this paper I will briefly 

address some vital transitions affecting India, how these created the 

need for change and consequently influenced Indias economic policy.

A family of transitions

        The demographic is critically important to Indias long term 

stability. With a population of 900 million in 1994 India is currently 

the second most populous country in the world. As figure 1 below shows 

from 358 million in 1958, Indias population has increased dramatically to 

its present numbers.

Figure 1. Population Growth in India.  Source: World Resources Database 1995


The population growth rate in India is currently 1. 9 percent and is not 

expected to decrease further at least until the turn of the century 

(World Resources, 1995). The reason for Indias rapid population expansion 

can be traced to the availability of modern foreign technology from the 

west. These technologies were developed in the west over several hundred 

years during which societal norms concerning the need for large families 

changed. As birth rates decreased, mortality rates due to technological 

improvements, also declined. In India, however, the sudden availability 

of these technologies resulted in death rates declining precipitously 

while birth rates remained constant resulting in a boom in the 


        Rapid population growth in India creates many pressures. In rural 

areas it  calls for intensified agricultural production to feed the 

growing numbers of people, which raises the risk of environmental 

degradation. Due to the intensification of agriculture, fallow periods 

needed for soil to regenerate are overlooked and cropland loses fertility 

which in turn, creates pressure to convert forests into cropland. Demands 

upon forests for fuelwood and grazing increase in tandem with population 

pressures. As family sizes increase, agricultural plots get smaller and 

the need for credit to purchase inputs to intensify production methods, 

or avert hunger, increases. The availability of credit from banks is 

inversely related to the size of the plot, which drives poor farmers to 

usurious moneylenders. The resulting need to repay loans or to escape 

from being trapped in such a desperate situations is one of the reasons 

behind rural to urban migration. 

        Indias urban population currently comprises 26 percent of the 

countries population and is expected to keep increasing. Public health 

spending per capita is over 6 times higher in urban areas than in rural 

areas and urban dwellers manage to earn almost twice the amount of their 

rural counterparts (World Resources, 1995). Greater access to social 

services in urban areas acts as a magnet attracting people to cities. 

Most Indian  cities consequently are ringed with slums and squatter 

settlements in which typically half of the cities population resides. 

The  prevalence of diseases rises resulting in increased expenditures by 

the government which also has to provide industrial employment for urban 

dwellers. A large and growing middle class also creates a demand for 

consumer goods and also consumes more resources and energy. Urban 

dwellers also tend to be more aggressive and politically active than 

their rural counterparts and exert political pressure which cannot be 

ignored Therefore expectations on the government and demands on it have 

risen in tandem with increasing expenditures, driving the need for 

economic performance to alleviate these pressures.

        Confronted by these combined problems Indias government tried to 

expand the countrys industrial base to provide employment, by building a 

monolithic public service sector and by intensifying agriculture. Indian 

policy makers tried to adopt the best characteristics of capitalism and 

socialism and developed a form of economy called the mixed economy.  The 

key facet of this was protectionism. Foreign access to the Indian economy 

was restricted to  49% of equity holdings in Indian firms and even this 

was discouraged. The state took on responsibility for providing the basic 

needs of the people through a large public sector which handled 18 key 

sectors. The industrial infrastructure was comprised mostly of public 

sector companies which were, however, mismanaged, poorly run and 

consequently incurred huge losses, draining the exchequer.

        Import substitution strategy in which trade and industrial 

incentives were biased in favor of production for the domestic market was 

emphasized. However, the inward looking focus on industrialization, and 

the excessive protection offered to industry by licensing and exorbitant 

import tariffs did not put any pressure on industry to reduce costs and 

increase efficiency. The result of this protectionism was that India 

could not produce key raw materials which had to be imported. Exports 

could not keep pace with imports and therefore therefore there was a gap 

in foreign exchange balances which was postponed by foreign borrowing and 

using remittances from Indians living abroad. Indian companies ended up 

relying more on costly capital than labor and industrial growth failed to 

generate much employment. The pattern of investment  became  highly 

elitist oriented, energy intensive, import guzzling and capital intensive.

        Fiscal deficits created by pumping excess money into the markets 

comprised 11 percent of GDP in 199, 1limiting the governments ability to 

intervene effectively(Ghosh, 1994). The deficit created excess demand 

which couldnt be satisfied by domestic production and therefore increased 

demand for imports and created an inflationary environment. Inflation 

created an upward pressure on interest rates, raising the costs of 

production all around which eroded competitiveness of Indian goods 

abroad. Rising interest costs added to the governments debt burden and 

played a role in adding to the budgetary deficits. Along with the revenue 

and expenditure accounts. See Figure 2 below. The narrow base of the tax 

structure, lack of tax on agricultural income and extortionate taxes 

among the middle to upper class, encouraged evasion. The expenditure 

account was burdened by massive subsidies reaching 2.5 % of the GDP in 

1991, public sector and defence spending, therefore the government had to 

resort  to borrowing. The public debt to GDP ratio approaching 60% in 

1991, limited the governments ability to spend on vital social sectors 

such as infrastructure, education and health(Minocha, 1994).
Figure 2. Central Government Deficit.   Source: World Resources 1995


        This structural malady reduced India to a minor player in the 

global economy. The controls on production, licensing restriction along 

with high protective walls fostered monopolistic trends within the 

industry. The lack of competition ensured there was no pressure for 

change and the technological revolution which spread from the industrial 

nations to other Asian neighbors passed India by. Indian companies 

produced inferior goods which could only be sold in the domestic market. 

Since India does not have major reserves of petroleum its reliance on 

imports of petroleum and other bulk products consumed by the industrial 

sector required large amounts of foreign exchange which ensured large 

trade deficits on a regular basis since Indian industries earned 

negligible amounts of exchange through exports.

        All these factors increased Indias vulnerability to shocks, to 

finance these rising deficits India had to increasingly resort to costly 

foreign borrowings. This led to a huge foreign debt and the rise in debt 

service payments further weakened the balance of payments (Singh, 1994). 

This situation came to a head in 1991 when oil prices rose as a result of 

the gulf war and foreign exchange remittances from Indians in the gulf 

dried up. The foreign exchange reserves reached an all time low with the 

government in danger of defaulting on interest payments on foreign loans. 

To escape default the government took out an emergency loan of $2.2 

billion from the IMF(Foreign Trade, 1995). Part of the of the conditions 

attached to the loan were to restructure the economy. The government used 

this opportunity to introduce a comprehensive package of measures aimed 

at reforming the inflationary and wasteful tendencies of the economy. A 

key point which needs to be made is that although the fiscal crisis of 

1991 precipitated the shift in economic policies, these were long 

overdue. Pressures created by the other transitions were being felt much 

earlier and the government made a tentative attempt at economic reforms 

in 1984 which were subsequently abandoned. By 1991 pressures and 

indicators of crises from the other transitions could not be ignored any 

longer and provided impetus for change. 

New Economic Policy (NEP)

        The Government of India has begun implementing a comprehensive 

package of reforms aimed at correcting the distortions and weaknesses of 

the economy.  The reforms fall broadly in to two categories: 

stabilization procedures and structural adjustment package. Stabilization 

procedures involved a sharp devaluation of the rupee to 50 percent of its 

previous value, drastic cuts in fiscal deficits of the government and 

huge borrowing from the IMF. The accompanying credit squeeze and rise in 

interest rates contained the  inflation drastically from 17 percent in 

1991 to about 6 percent in 1993 (Sinha, 1994).

        The structural adjustment policies are wider ranging and are 

aimed at opening up the Indian economy to foreign competition and 

encouraging foreign investment. Structural adjustment measures attempt to 

unshackle industry from the myriad of administrative and legal controls 

which plague it. Restraints on growth such as industrial licensing have 

been removed for all new units and expansion of industrial units. Most 

public sector undertakings will soon be privatized and only six areas of 

strategic concern have been reserved for the public sector, such as 

mining, oil and gas exploration and exploitation, defence. Private and 

foreign participation is invited in some specific areas of these 

(Ministry of External Affairs, 1995).

        India is seeking access to foreign capital and technology.With 

this end in mind, direct  foreign investment of upto 100 percent is 

allowed and actively courted. Full repatriation of profits by private 

foreign investors who want to set up  wholly owned power generation units 

in India is also feasible. An area, India is actively courting foreign 

investment in is the power sector. India needs to double its existing 

power generation capacity which would only be possible with foreign 

technology and help. Domestic industries have also been deregulated and 

delicensed and foreign capital and foreign equity participation is 

encouraged in Indian companies. According to Indias Finance minister the 

journey on the road to self reliance has begun. Self  reliance in todays 

world  means the ability to earn foreign exchange to pay for all 

imports(Singh, 1994). With this end in mind  reforms in export and import 

policies have been undertaken and form the cornerstone of the new 

program. Integrating  Indias economy with the world economy is expected 

to increase competition, flow of capital and technology to India and lead 

to more growth and increased employment. From a stage of believing, 

government regulations would ensure social justice, the current 

government  has switched to a belief of market mechanisms ensuring growth 

and eventually poverty alleviation. The planning process and the public 

sector will take a back seat and market forces will be relied upon. Some 

key features of the new policy are discussed below.
Reliance on Foreign Capital and Debt

        The impetus for adopting reforms was provided by the critically 

low state of foreign exchange reserves in 1991. An emergency loan of  

$2.2 billion was taken out from the  IMF to tide over the crises. Today 

the exchange scenario is looking much better with reserves standing at 

around $27 billion, enough exchange to pay for eight months of 

exports.(Ministry of External Affairs, 1995). However, Indias net 

indebtedness has increased sharply by $18 billion. Adding to the existing 

indebtedness of $ 75 billion, shown in figure 3, Indias external debt is 

expected to rise to  $93 billion making it the second largest debtor 

nation in the third world after Brazil, see figures 3 and 4, below. 

Indias public debt to GDP ratio is approaching 60 percent of GDP. 

Interest payments on servicing foreign debts currently make up 4.5 

percent of GDP  and over 50 percent of current expenditure, as cas be 

seen from figure 4 debt service expenditures are approximately equal to 

current borrowing, which is creating a short sighted, cycle of incurring 

more debt to service interest payments (Sinha, 1994). South Korea and 

Malaysia avoided the debt trap during the 80s even though their debt was 

much higher. They did this by a fast expansion of exports which reduced 

their debt service to exports ratio. On the other hand Brazil and Mexico 

got caught in the debt trap in the early 80s with debt to GDP ratios of 

about 31% because of slow growth of their exports. 


Figure 3.  External and Long Term Public Debt.

Figure 4.   Debt Service Expenditures and Current Borrowing.

Source: World Resources Database 1995
     India is trying to attract foreign capital for investment in 

industries and infrastructure. The NEP is promoting joint projects and 

equity participation in India and allowing upto 100% equity 

participation. It is particularly trying to attract investment in power 

generation and utilities. Foreign investors have poured more than $ 1 

billion into the economy and an additional $ 5 billion into the stock 

market. The U.S. is the single largest investor with forty percent of the 

investments approved during the period 1991-1993 (Foreign Trade, 1995). 

The main areas of investment so far are in oil refining, power generation 

and consumer goods. Investment in India however, is still hampered by its 

continuing low credit rating. Standard and Poors, a leading U.S. credit 

rating agency recently decided to keep Indias long term credit rating at 

BB+ which is non investment grade (Prasad 1994). Despite this setback, 

foreign investment is expected to increase dramatically due to the 

incentives provided by the government such as automatic approval of 

projects, profit repatriation and convertibility of the rupee, use of 

foreign brand names. Indias decision to join GATT is also going to be a 

factor in this regard.

Export- Import :

        India plans to achieve a high rate of growth and avoid the debt 

trap which has plagued countries like Mexico, through a policy of 

aggressively promoting exports and reducing its dependence on imports. 

India wants foreign companies to set up bases for global operations and 

generate exports. India has several characteristics conducive to this. It 

has a vast pool of skilled technical manpower and a developed industrial 

base. It has a history of entrepreneurship and a legal system which 

countries like China lack. Underscoring this, exports soared 20 percent 

in 1993 compared to 1992 however, imports have also increased  by 23.9% 

and as in the past continue to outstrip exports, see figure 5 below.


Figure 5.       Exports vs Imports

        Exports are limping because of the higher rate of domestic 

inflation compared to other countries worldwide. This raises production 

costs which prices Indian goods out of foreign markets. The trade deficit 

has therefore continued to increase to 2.2 billion in the first four 

months of 92-93 as opposed to 770 million during the same period in 91-92 

(Prasad, 1994).  Most assumptions of India being able to repay its debt 

and interest payments have been made on the basis of assumptions of 

exports outstripping imports. This seems uncertain given the current 

worldwide recession in developed countries and the collapse of the Soviet 

Union which accounted for 16 percent of Indias export market (Sinha 

1994). Korea and Malaysia avoided the debt trap in the early eighties by 

vigorous expansion of exports when the world economy was more open and 

booming. In the nineties this achievement may be harder to duplicate. 

According to the 1992 human development report of UNDP, 20 out of 24 

industrial countries are more protective today than they were 10 years 

ago (UN, 1995). Although it is too early to tell, exports are expected to 

increase since profits from exports are exempt from taxes and foreign 

companies will be allowed to repatriate profits, India is specifically 

targeting intra firm trade i.e. companies obtaining components for 

products from different areas for its exports. This is where Indias large 

skilled manpower base and infrastructure and resource base will hopefully 

make a difference.
Government Expenditures and Revenues

The NEP intends to reduce government expenditure in the market and 

redirect it towards social and poverty alleviation programs. Sick public 

sector enterprises will be closed and phased out and foreign equity 

participation invited where ever possible. Public sector monopoly will be 

maintained in six key sectors, some with foreign assistance. The 

government intends to focus most of its expenditures on several key areas 

such as defence, poverty alleviation programs and creating employment. 

The NEP intends to cut all subsidies including those to agricultural and 

to rural industries. No action has however been taken to reduce the 

bloated administrative expenditure. The continuous increase in government 

expenditure particularly in budgetary subsidies together  without 

reforming the tax system and continuing losses in the public sector have 

also contributed to the budgetary gap.  

        Tariffs have been rolled back from nearly 300 percent to peak 

rates of 50 percent with most duty rates unified at 25 percent (India 

Budget Statement, 1995-96) with further reductions planned. The complex 

and inefficient tax structure which is a cause for concern has been 

reworked to reduce customs and excise taxes and corporate taxes and 

personal tax exemption limits have been increased. However, it is still 

far to narrow with the bulk of the governments revenue coming from excise 

taxes and taxes on interstate commerce. Agricultural income and rural 

industries are not taxed which excludes 70 % of the population from the 

tax net. Although the number of Indians paying taxes is low, for those 

who do pay taxes, rates are high, therefore evasion is rampant. The 

government is attempting to widen its tax base and has proposed 

establishing a tax on agricultural income. Due to political opposition 

this has not been implemented therefore, the governments revenue 

gathering abilities are severely limited.
Fiscal Imbalances, Inflation and growth

        The NEP succeeded in bringing the rate of inflation down from 17 

percent in 1991  to about 6 percent in 93. The fiscal deficit has been 

brought down from 11 percent of GDP in 1991-92 to 5 percent  in 92-93.  

Economic growth has been a modest if unspectacular 5 percent and the 

stock market is trading near its all time high (Sinha, 1994 and Foreign 

Trade, 1995). However, with the population also growing at 2% per annum 

India has to aim at a higher rate of growth to record a improvement in 

the standard of living of its people. According to the eighth five year 

plan, the number of persons requiring employment would be 58 million 

during 92-93 and 94 million during the 10 year period 92-2002. These 

comprise a 23 million backlog of unemployment in 92, an estimated 

increase of 35 million in the labor force during 92-97 and by another 36 

million during 97-2002. The adjustment measures will also add an 

estimated 11 million to the list of the unemployed. These figures imply 

the real growth in employment generation should be about 4.5 percent per 

annum if full employment is to be reached by the end of the eighth plan 

and 3.5 percent if it is to be attained by the end of the ninth plan 

(Sinha, 1994). 

        There are criticisms that the reductions in deficit have been 

brought about by the soft option of reducing capital expenditure and 

postponing settlement of dues to domestic creditors. The adverse effects 

of this, on investment, growth rate and employment generation are a bomb 

in waiting The governments plans to close large public sector firms will 

also create a large amount of unemployment. The government hopes that 

these will be absorbed by new enterprises which will also provide full 

employment. However, if production trends continue as in the past most of 

the new enterprises and projects will tend to be capital intensive due to 

the availability of large amounts of foreign technology, foreign is 

geared toward employing as little labor as possible.
Implications for other transitions

Demographic Transition

        There are vast demographic differences among  Indias various 

regions. The transition from high to low fertility is nearly complete in 

some states, notably Kerala and Tamil Nadu in the south, with average 

fertility rates of two children. Indias demographic vulnerability is 

concentrated in a few states in the north, most notably Bihar and Uttar 

Pradesh which have fertility rates as high as eight children per woman. 

The impetus for population growth can be traced to the inequalities which 

characterize Indian society. People are not poor because they have large 

families, they tend to have large families because they are poor since in 

this case wealth flows from child to parent. Large families are in the 

economic interests of poor parents, in a situation like this having more 

children is a sensible and rational thing to do. Countries such as Sri 

Lanka and even Kerala a state in India, which have carried out land 

reform, reduced inequalities and made efforts to improve the welfare of 

rural masses have tended to be successful at reducing fertility rates 

(Murdoch, 1988).  Landlessness is high in India, with percentages of 

agricultural landless households estimated to be 15 percent. Even more 

important is the proportion of smallholder households, whose landholdings 

are too small to provide a sustainable livelihood, with the percentage 

being about 40 percent (U.N., 1995). Therefore a necessary step in order 

to slow the impetus for population growth is to undertake social and 

economic reforms to raise the status of the poor and their standard of 


        Indias NEP which will most likely, widen inequality and income 

gaps. The economic reforms could also result in higher prices of 

necessities which will be market determined, instead of controlled by the 

authorities, which will place an additional burden on the poor. The lack 

of emphasis on rural planning and paucity of funds to do so will make it 

harder to arrest the population growth rate, corresponding benefits in 

employment and income generation, GDP growth rate may be offset to an 

extent by the increased population. Consequently government expenditures 

will also rise in this regard. A larger population will place even 

greater pressure on the natural resource base in India and create demand 

for more cropland, agricultural products and demand more services, 

effecting the agricultural transition and exacerbating rural to urban 


Agricultural Transition

        About 70% of Indias population is still agricultural and rural 

based.  Over the last four decades India has more than tripled food 

production, due to green revolution inputs of fertilizes, pesticides and 

better seeds. As figure 6 below, illustrates cereal production has 

increased from 85 thousand tons in 1961, to 200,000 tons in 1989, this 

has been accompanied by a greater percentage increase in fertilizer 


Figure 6. Cereal Production and Fertilizer Consumption.
Source: World Resources Database 1995


        With the increasing intensity of agriculture however, cropland 

has been losing fertility at an increasing pace as fallow periods 

necessary for soil to regenerate are overlooked. Soil degradation such as 

salinization, loss of nutrients and erosion seriously affect 85 million 

hectares of land(World Resources, 1995). Since the total amount of 

cropland has not declined it can be inferred as cropland has been 

abandoned, new marginal forest areas have been brought into forest 

production, thereby accelerating the loss of forests. As noted earlier, 

population pressures have fragmented family plots and increased 

intensification of agriculture. Therefore if the poor own land it is 

unproductive and they lack the credit to improve it. Large farmers may 

take over small plots, since credit is readily available to them, these 

farmers tend to practice capital and input intensive agriculture which 

displaces marginal farmers. Marginal farmers will be hit hardest by the 

NEPs goal of  removing subsidies and may intensify unsustainable and 

environmentally destructive farming practices. To the extent that land 

fragmentation is not matched by the introduction of intensive and 

environmentally sustainable agricultural techniques, the farmers with 

exceedingly small plots will be forced to mine their land, by shortening 

fallow periods, cutting remaining trees, or by migrating and engaging in 

ecologically destructive practices of land extensification on  marginal 


        The thrust in the current NEP is to promote application of green 

technologies, therefore there is an implicit thrust towards favoring 

large farmers in the NEP. The focus on promoting exports of farm products 

will also favor large farmers and provide an incentive for large factory 

farms. The government is also removing procurement quotas for grains and 

staples. An implication of this is the non availability of grains for the 

domestic market. For example, despite 91-92 being a bumper year for wheat 

harvests and  India growing more wheat than the U.S and Canada combined, 

loosening of restrictions led to hoarding by farmers and traders despite 

the high prices offered by the government. The government eventually had 

to import 2.5 million tons of wheat from the U.S. and Canada at high 

cost(Gupta, 1994). Given the NEPs goal of removing all subsidies and 

letting the market determine prices, this does not bode well for the poor 

who cannot afford to pay high prices for necessities. Although the per 

capita availability of food has increased, from 1975 to 1989 the total 

proportion of households with adequate nutrition has remained the same 50 

per cent of agricultural workers are still malnourished. From this it can 

be inferred that food resources are being appropriated by the affluent 

section of society, evidenced in the sharp rise of consumption of meat, 

poultry and dairy products.  

        On the flip side application of better agricultural technologies 

could improve water efficiency, introduce modern soil conservation 

procedures and genetic technology and help raise agricultural outputs, 

which might lead to declining prices. However, intensifying agricultural 

production by applying modern capital intensive farming techniques will  

likely, lead to widespread rural unemployment.

Urbanization Transition

        The urbanization transition is driven in India by the dual forces 

of rural to urban migration and existing population growth in cities. 

Population pressures in rural areas as well as declining productivity of 

agricultural lands and shrinking plots drive migration. Since the average 

urban citizen manages to earn more than his rural counterpart, migration 

is looked upon as a viable means of escape from a desperate rural 

situation and a way to repay debts. India has the second  highest number 

of urban dwellers in the world at a total of 220 million or 26 % of the 

population. According to projections made by the World Resources 

Institute in figure 7, Indias urban population is going to increase 

steadily with a corresponding decline in the rate of growth of rural 

population reflecting the transformation from a predominantly agrarian to 

a manufacturing industry based economy.

Figure 7. Rural vs Urban Population.                    Source: WRD 1995

         Public health spending per capita is over 6 times higher in 

urban areas than in rural areas (World Resources, 1995). The urban poor 

also have greater access to social services, such as health care, than 

their rural counterparts which acts as a magnet driving urbanization. 

Increased urban pressure could amplify the urban problems of congestion 

and pollution. Most of Indias cities are already near full capacity or 

have exceeded it  and a third to a half of residents live in slums, 

squatter settlements or the pavements. Most urban areas already face 

shortages in drinking water, energy, garbage disposal (World Resources, 

1995). The spread of the plague in 1994 which was concentrated in large 

cities highlighted the role urban areas play in the spread of diseases. 

        The contribution of Indias urban sector to net domestic product 

rose from 29% in 1950-51 to 60% in 1990-91(World Resources, 1995)  Most 

of the employment in manufacturing, trade, commerce and transport is 

concentrated in urban areas while the rural sector is largely 

agricultural. In India the planning process is heavily biased in favor of 

urban areas to the detriment of rural areas, borne out by the pattern of 

allocation of resources, industries are generally not located in rural 

areas unless they pollute. The availability of employment opportunities 

in urban areas will attract rural populations especially since the goal 

of the NEP is to increase jobs in urban sectors and shift the employment 

pattern from agricultural to industrial. Urban populations also 

increasingly determine the countries political goals and the shape of its 

policies. Not surprisingly the greatest demand for change and continued 

reforms comes from the urban middle class, who stand to benefit most from 

these changes.


Forestry and Toxicity 

        The demographic, agricultural and urbanization transitions in 

turn will affect the forestry and toxicity transitions. Forested areas 

which covered 40 percent of the land area in 1947 has declined to 19 

percent. Although forests are currently not shrinking, degradation is a 

serious problem, denuded wastelands cover 130 million hectares(UN, 1995) 

which may have been degraded cropland abandoned in favor of converting 

forests into farmland. As more land is degraded and abandoned due to the 

increasing intensity of agriculture, more forestland will be brought 

under cultivation.   These lands are vulnerable to erosion and cause 

floods exacerbating problems elsewhere. Population pressures in rural 

areas place demand on forests for fuelwood and grazing. Indias forests 

can sustainable provide an estimated 41 million cubic meters of fuelwood 

per year, yet demand is estimated to be 240 million cubic meters. As 

Figure 8, below shows even exponential  growth in fuelwood production 

cannot produce enough fuelwood, to satisfy demand. 

Figure 8.   Actual Fuelwood & Charcoal Production and Projections Using 

Curve Fits

Source: World Resources Database, 1995

         This demand has increased in the wake of the reforms following 

increased prices of commercial fuels such as kerosene. Studies show heavy 

demand for fuelwood in cities (U.N, 1995) consequently forest cover 

surrounding urban areas is being reduced. Fuelwood is also being diverted 

from the rural areas where was a non commercial product to urban markets. 

Shortages in rural areas induce illegal collection without consequent 

replanting. In addition 25 percent of Indias 400 million livestock graze 

in forests which have a estimated capacity of only 31 million. Urban 

areas also create more demand for timber and paper, As Figure 9, below, 

shows from 1980 to 1990 paper production rose 105 percent accompanied by 

a significant increase in  wood production ( World Resources 1995). 

Population growth increasing  the intensity of agriculture which further 

leads to urbanization will only serve to increase pressures on forests.

Figure 9.     Sawnwood and Paper Production in Thousand Metric Tons.

Source WRD 1995


        Urban areas also create a demand for energy which results in 

large hydroelectric projects, intensified coal production and consumption 

which release pollutants. Suspended particular matter and sulphur dioxide 

constitute a major portion of the atmospheric pollutant load in many 

cities in India and cause respiratory problems especially among children, 

for example 3 out of 5 people in Calcutta are estimated to suffer from 

respiratory diseases related to air pollution. Urban and industrial 

growth emit greenhouse gases and other pollutants, emissions of carbon 

dioxide, a greenhouse gas have increased dramatically, in the past two 

decades. Levels of suspended particulates in most cities consistently 

exceed WHO standards.  Most urban settlements in India exist without 

proper sanitation and waste disposal methods other than the nearest 

river. According to a survey conducted by the Central Pollution Control 

Board in 1988, of 212 cities with populations of more than 100,000 only 

71 had sewer systems. of the 6.5 billion liters of sewage generated daily 

in the 12 major metropolitan areas, only 1.5 billion were collected. 

(World Resources, 1995).
Figure 10.   CO2 Emissions.                             Source: WRD 1995



        One of the challenges India faces over the next several decades 

is how to speed economic growth without exhausting the resources upon 

which growth relies. Environment health is of importance to Indias 

future. Economic growth may create capital to invest in environmental 

protection, better technology and efficiency can make a positive 

contribution. For example cookstoves can improve fuelwood efficiency, 

thereby alleviating pressures causing forest  degradation and reducing 

demands on womens time which could be spent on being educated and 

learning marketable skills. Health hazards associated with burning 

biomass fuels which expose millions of women to high levels of harmful 

substances will be lowered by adopting cookstoves and other devices like 

solar cookers.  India currently has the largest solar cooking program in 

the world, having sold over 250,000 by 1993(UN, 1995). However, India 

needs modern environmental management techniques and environmental laws 

need to be enforced. A comprehensive Environmental act was promulgated in 

1986, compliance, however has been lax and most state governments have 

not shown much interest in enforcing regulations. Regulatory agencies 

also tend to be understaffed, underfunded and vulnerable to political and 

monetary pressure.

Critical Issues


        It is only when people can satisfy their needs, have control over 

the resource base and have secure tenure to land that the long term 

requirements of environmental protection can be satisfied. In practice 

environmental values and their associated social costs are often regarded 

as secondary considerations, to be shifted onto other parts of society or 

future generations. In India the opportunity costs of resource saving 

technologies tend to be prohibitively high for the poor, whose production 

and maintenance strategy is shaped, instead to derive short term benefits 

from the available natural resources. The costs of resource depletion and 

degradation are externalized and sacrificed by both industry and the 

poor, alike. Rural families are characterized by high fertility 

preferences, faced with limited access to  capital, improved technology 

and other production inputs, they can often exercise effective control 

over only one input, their own family labor. 

        Because the same factors may be responsible for both high 

fertility and environmentally unsustainable resource use practices, their 

identification is important for the search of policy responses that may 

effectively integrate environmental, economic and demographic concerns. 

Governments can alleviate or exacerbate the stresses farmers experience 

in maintaining their livelihood, through pricing, monetary policies, land 

reforms, access to institutional credit, development of infrastructure 

and provision of health, education and contraceptive services. These 

policies can exert considerable environmental impact by altering the use 

of land based resources. These same policies can influence fertility 

behavior through their effects in the costs of and returns from children. 

The environmental effects of the different transitions India is 

undergoing have not been experience or have only been dimly perceived in 

the past, a number of their components cannot be fully anticipated until 

they actually occur, at which time it may be too late to counteract them. 

Hence there is a challenging task to choose an appropriate long term 

strategy when standard short term  solutions such as market forces may 

not be able to provide sufficient insurance against the risks associated 

with the various transitions. 

Analysis and Policy Recommendations

        The Indian economy is going through a critical transition at the 

present. How India emerges from this transition will have broad 

implications for its populace and will determine the face of modern 

India. India badly needs modern technology, the efficiency it brings and 

resultant competition to its complacent industries. The infrastructure in 

India is inadequate and demand has far outstripped supply in many sectors 

such as energy generation. With a huge and ever expanding population 

India needs to husband its resources, discourage wastage and promote 

their effective usage, which modern technology has evolved to do.

        Based on Indias past performance and widening income distribution 

gap, increasing inequalities and inflationary tendencies it can be 

inferred, the past economic model was not working well. In this regard 

the NEP is a much needed shot in the arm. Rapid economic growth and 

efficient industrialization is possible through outward oriented policies 

for trade because they encourage efficient firms and discourage 

inefficient ones. Creating a more competitive environment for both 

private and public sectors promotes higher productivity and growth. 

producing a favorable effect on poverty alleviation.

        Some surface indicators however, do not seem encouraging, India 

is currently caught in a debt trap which is eating up most of its current 

expenditures with the result the government cannot play a role in the 

economy and protect the poor from market fluctuations. Due to exports not 

keeping pace with imports the trade deficit has widened, creating 

problems repaying debt,. How India handles the debt trap will determine 

whether it follows Brazil and Mexicos form of development or Koreas. 

Unfortunately India is going through its transition at a time when most 

world economies are not growing and are in recession and are themselves 

looking for markets. Most of Indias imports since 1991 have tended to be 

of consumer goods, foreign companies seem keen  on exploiting Indias 

large middle class of 300 million who can afford to buy consumer goods. 

Even U.S. trade literature touts Indias huge market not its potential for 

investment (U.S. Dept. of Commerce, 1995). Therefore a short term 

solution might consist of, not eliminating tariffs completely and 

restricting import of consumer goods for the time being until the foreign 

debt and balance of payments deficit is resolved. Otherwise the burden of 

paying for the consumption of the well off Indian classes will fall on 

the Indian government in the form of increased foreign debt burden. While 

foreign technology and help in needed areas like energy generation, 

infrastructure should be welcome it is premature to throw open the Indian 

market to firms bent on exploiting it.

        India also needs to be wary of foreign capital. Foreign capital 

can create great social costs if it dominates the countries productive 

resources. By benefitting only the wealthy and foreign investors, it can 

accentuate inequalities and expose poor to market fluctuations beyond 

their control. The poor often end up paying for capital which they never 

wanted, benefitted from and only made their condition worse and 

purchasing power drop. India should not forget that foreign capital does 

not seek to democratize nations but seeks the highest possible returns. 

Therefore a path should be laid out that offers opportunities to direct 

capital investment in socially meaningful ways without jeopardizing 

national sovereignty and public and environmental health (Adapted from 

Cervantes, 1993).

        Structural issues may not also be resolved by a market friendly 

approach. Many countries which have relied on market forces for growth  

including Korea and Japan, implemented radical land reforms before they 

embarked on a high growth path. Privatization of social services came 

after a long period of government operated services, after people were 

able to pay for them(Sinha, 1994). The free market operates efficiently 

within a given structure of the economy. If a given structure is highly 

unequal the market will only reinforce it. Since the market takes care of 

effective demand only, it does not respond to the needs of poor people if 

not backed by purchasing power. So far economic growth in India has 

resulted in increasing concentration of economic power and widening 

inequalities, elitist oriented production structure, declining growth of 

employment, rising prices and growing social tensions. The NEP based on 

trickle down economics and the purchasing power of the top 30 percent of 

the population does not reverse this trend. It will have an immediate 

impact on 200 million people the other 700 million will see only pain in 

the beginning.

        Therefore the government has to balance liberalizing the economy 

with some measures to protect the poor and employment generation schemes 

which it intends to do. However, due to the resource crunch there has 

been a near stagnation in the governments outlay for social services for 

the past two years. The government therefore has to increase revenues and 

take care of foreign debt. This will be a hard task considering interest 

on debt consists of 50 percent of current expenditures. Other countries 

such as Israel and Malaysia have successfully negotiated debt write-off 

from the IMF and India could try to the same or negotiate more favorable 

terms. Due to political pressure the government has not been able to 

reduce expenditures by closing sick public sector units and increase 

revenues through broadening taxes. Unless these measures are carried out 

they may lead the government to increase borrowing and postpone spending 

on critical items like population planning, poverty alleviation and 

ecological regeneration.

        The large number of unemployed people is also a serious problem 

especially since this number will increase as sick public sector firms 

are closed. It is estimated the stabilization program will  create extra 

unemployment of at least 8-11 million people who may not be absorbed by 

new enterprises(Ghosh, 1994). The NEP is bound to create greater 

inequalities in the short run and greater unemployment problems since new 

technology tends to be more capital intensive than labor intensive. 

        A focus on employment generation and a feasible strategy for 

devising the same seems to be missing, in the NEP. Generating employment 

for 700 million people is not possible without having a labor intensive 

mix of technology. The NEP is geared to do just the opposite. In a poor 

country the composition of growth may have greater relevance than the 

rate of growth. Since the principal constraint in India is capital, 

investment should be allocated in areas where the amount of capital used 

per unit of output is low, as Table 1 shows, agriculture, therefore 

becomes the primary candidate for a higher share of investable resources. 

(Ghosh, 1994). 


Table 1.    Capital Output Ratios Under 5 Year Development Plans



                 1950-55  1955-60  1960-65  Annual Plans  1965-70  1970-75  1975-80  1980-85__  

Agriculture      2.48     2.51     4.37     1.96          3.63     3.35     4.75      6.56

Manufacturing    5.52     7.49     6.67    29.76         11.64     8.73     6.96      7.63____

Source: Ghosh, 1994


        In the field of rural and agricultural development there is 

hardly any change from the approach of treating them as appendages to the 

main development program. Given that 70 percent of Indias population is 

rural based and that is where the highest incidence of poverty is, this 

is a serious lapse. Spending on rural industries has remained stagnant. 

which has followed the example of earlier plans of treating rural areas 

as incidental to the planning process. The view of the NEP seems to be 

that rural and agricultural jobs are not productive consequently, there 

is a focus on encouraging rural to urban migration. In the words of 

Indias finance minister Manmohan Singh and architect of the NEP  earlier 

industrial growth failed to attract the poor away from rural areas. With 

70 percent of our society still dependent on farm and rural sector jobs, 

India is one of the most stagnant societies in terms of movement of labor 

towards more productive industrial jobs. Therefore the faster pace of job 

creation in the NEP would shift workers from less productive rural jobs 

to more productive urban jobs (Singh, 1994).  

        Inferring from this statement the intention of the NEP seems to 

be shifting rural and agricultural populations to urban areas and 

replacing traditional subsistence agriculture with capital 

intensive agriculture.  The industrial infrastructure would therefore have
to absorb the bulk of India's population which might not                                                                                                                                agriculture. The industrial infrastructure would therefore have to absorb the bulk of Indias population which might not

be possible. This also has alarming implications for other transitions,
although population growth may decrease as a result of increased access to
health services and contraceptives and greater value of female labor,
urban squalor would be greatly increased. Epedimiological risks would
certainly increase as squatter settlements boom. The toxicity and forestry
transitions would be impacted as emissions and outflow of sewage and
wastes would increase and become concentrated spatially. The already overburdened
health, sanitation and infrastructural facilities would collapse. Demands for
energy would increase and lead to more pollution. As noted earlier government
expenditures on the average urban resident are much higher than the rural
counterpart, therefore government expenditures would greatly increase.
Since urban populations tend to be more aggressive, pressures on the
government for changes could increase accelerating the rate India takes
through its key transitions. This would further lower the adaptive capacity
of society and determine the trajectory and final outcomes of the transitions.

        So far the government seems to be taking a slow consensus based 

approach to reform. The slow rate of movement through the transition may 

be critical in enhancing Indian societies adaptability to change and may 

ensure negative effects are dealt with. The trajectory India takes 

through its economic transition will be determined by Indian policy 

makers who at the very least are conscious of the need to be re-elected. 

Their response to this factor will determine the outcome of the 

transitions India is facing.

The IPAT Paradox

        Impact (I) on the environment is based on the interaction of 

population (P), affluence (A) and technology used (T).  I = PAT (Ehrlich, 

1990). The impact on the environment is related to the number of people 

and the amount they consume. Simply put a large number of poor people 

will place pressure on limited resources and have a large impact on the 

environment. This impact, however, is lessened if they are poor and they 

are relatively poor thereby consuming less. Technology plays a role in 

determining impact, traditional labor intensive technologies and advanced 

capital intensive technologies which produce more from a given resource 

with less pollution, have the least impact.  In between are the, 

intermediate cheaptechnologies in vogue throughout the developing world 

which have the most impact and cause wastage.

        Affluence causes a large impact on the environment. Rich people 

consume more per capita than poor people, place more demand upon 

resources and industrial processes. Satisfying demands by the affluent 

classes will drive the industrial system and use more natural resources 

for energy and raw materials emissions of pollutants from industrial 

processes would be expected to increase. As Figure 11 shows there is a 

link between increased GDP and fuel production which causes pollution. In 

India commercial fuel production and consumption have closely mirrored 

increases in GDP.
Figure 11. Energy Trends vs GDP                 Source WRD 1995

        In order to decrease the fertility rate and arrest population 

growth India first needs to increase affluence. In other words income 

inequalities need to be lessened and people need to be made affluent in 

order to remove the incentive to have children.  Affluent people however 

place more demands upon the environment an have more impact than per 

capita than poor people. Thus India is caught in a catch 22 situation 

solving which needs a multi-pronged approach. Rather than pinning all 

expectations and hopes on market reforms it might be wise to take a 

lesson from the example of Kerala a state in South India which has made 

remarkable strides in areas such as health care, education and population 

control. Over several decades, the state government carried out land 

reform, mandated education through the tenth grade, instituted a minimum 

wage and the right of labor to organize and built the most extensive 

medical facilities in India. The results are impressive: despite a per 

capita income of about $ 300, many indicators such as literacy, infant 

mortality, and life expectancy are close to industrialized countries with 

far higher per capita incomes.  More importantly, it also has the lowest 

fertility rate with an average of just 2 children per woman which is 

replacement level.

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