Revamping corporate governance

Government must be market-friendly, not business-friendly, and have a neutral relationship with all corporations

The economy of independent India has gone through at least two major episodes of policy transformation. The first, not widely mentioned in public discussions these days, was the beginning of planned development in April 1951 when the First Five-Year Plan was launched. The second, more widely discussed transformation was the liberalisation that took place in July 1991. Both of these led to an acceleration of the growth process, but they differed substantially in the role envisaged for the government.

The impact of these two transformations is evident in the changes in the growth, investment and trade pattern of the economy indicated period-wise in the accompanying table. Note also a third relatively low growth episode from the mid-sixties to the end of the seventies, marked by drought, a new agricultural growth policy, and a decade of political turmoil.

The extent of change brought about by the 195152 transformation episode may seem modest, but it represents a substantial transformation because it amounts to a ninefold increase from the 0.5 per cent average annual growth rate that had prevailed in the century preceding Independence. The focus of economic policy during the first period (1951 to 1965) was an emphasis on public-sector development, particularly in heavy industries, though private investment also blossomed, as the investment figures show.

Growth through export production was not seen as a possibility because the boom in the value of global trade really started only after the mid-sixties.