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Political Economy of Growth and Reforms in South Asia


Comparing Indian and Sri Lankan experiences of stagnation and growth
Saman Kelegama; Kirit Parikh / Global Development Network (GDN) , 2000

This paper attempts to examine the political economy behind the economic policies in South Asia and to draw lessons from them. Specific reform measures that India and Sri Lanka undertook are analysed and the political economy rationale of such policies are examined.

The political history and economic performance of South Asian countries are first briefly described. The failure of political governance and its consequences are then considered, and the main questions of political economy that emerge are posed.

Findings include:

  • growth in the South Asian region has been significantly influenced by the specific policy decisions taken by each government
  • the entrenchment of some policies, such as import-substitution and state intervention in both financial and labour markets, has resulted in delayed or stagnant levels of growth
  • a key feature of South Asian systems of governance is the high level of corruption which has served to undermine economic growth, by reducing efficiency, and by acting as a disincentive to potential investors
  • the similarity of background, motivations and compulsions of economic policy making in South Asia led to somewhat similar outcomes in terms of neglect of the social sector, rigid macroeconomic strategy, fiscal profligacy, trade distortions, centralisation, investment and inefficiency, resulting in slow growth and potential for crisis

The paper analyses the Indian and and Sri Lankan experiences and concludes that:

  • policies create their own vested interests which in turn resist reform, policies initiated by well-meaning people frequently get entrenched and become difficult to dislodge therefore policies need to be designed that liquidate themselves when the need for them no longer exists
  • from the Sri Lankan experience it is clear that all policy reform is determined by the electoral cycle
  • abrupt changes in broad strategy or in detailed components of a given strategy require considerable support and understanding by the population, it takes an event of some magnitude to convince the population and the government that new directions are necessary and possible
  • despite the chaotic situations encountered in Sri Lanka during the period 1977-1990, the country achieved an average growth rate of five per cent, commitment to a liberal trade and investment regime was one obvious contributory factor to this achievement, in other words, this growth occurred due to the dynamics of capitalism



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