BANK OF INDIA

INTRODUCTION

Bank of India was founded on 7th September, 1906 by a group of eminent

businessmen from Mumbai. The Bank was under private ownership and control till
July 1969 when it was nationalised along with 13 other banks. Beginning with one
office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank
has made a rapid growth over the years. In business volume, the Bank occupies a
premier position among the nationalised banks.

The Bank has 3101 branches in India spread over all states/ union territories
including 141 specialised branches. These branches are controlled through 48
Zonal Offices. There are 29 branches/ offices (including three representative
offices) abroad. The Bank came out with its maiden public issue in 1997 and follow
on Qualified Institutions Placement in February 2008.

The Bank has been the first among the nationalised banks to establish a fully
computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way
back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered
the introduction of the Health Code System in 1982, for evaluating/ rating its
credit portfolio. Total number of shareholders as on 30/09/2009 is 2,15,790.

The Bank's association with the capital market goes back to 1921 when it entered
into an agreement with the Bombay Stock Exchange to manage the BSE Clearing
House. It is an association that has bloomed into a joint venture with BSE, called
the BOI Shareholding Ltd. to extend depository services to the stock broking
community. Bank of India was the first Indian Bank to open a branch outside the
country, at London, in 1946, and also the first to open a branch in Europe, Paris in
1974. The Bank has sizable presence abroad, with a network of 29 branches at key
banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong and

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 Singapore. The international business accounts for around 17.82% of Bank's total
business.
 

Mission & Vision:

 
Our Mission
"to provide superior, proactive banking services to niche markets globally, while
providing cost-effective, responsive services to others in our role as a development
bank, and in so doing, meet the requirements of our stakeholders".

Our Vision
"to become the bank of choice for corporate, medium businesses and upmarket
retail customers and to provide cost effective developmental banking for small
business, mass market and rural markets"

Quality policies:

We, at bank of India, are committed to become the bank of choice by providing

 Superior
 Pro-active
 Innovative
 State of the art
 Banking service with an attitude of care and concern for the customers
and patrons.

Branches across world:

1. USA NEW YORK, SAN FRANSCISCO

2. West Indies CAYMAN ISLANDS
3. UK LONDON,BIRMINGHAM,EAST,HAM,LEICESTER,MANCHESTER,
WEMBLEY, GLASGOW
4. France PARIS
5. Belgium ANTWERP
6. Japan TOKYO, OSAKA
7. Hong Kong HONG KONG, KOWLOON
8. BEIJING REPRESENTATIVE OFFICE
9. Kenya NAIROBI

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 10.Singapore SINGAPORE
11.Cambodia PHNON PENH
12.Indonesia JAKARTA
13.UAE DUBAI (REPRESENTATIVE OFFICE)
14.TANZANIA A subsidiary of Bank of India

 REPRESENTATIVE OFFICE

PT Bank Swadesi, Tbk (A Subsidiary of Bank of India)

 SOCIALIST REPUBLIC OF VIETNAM

HO CHI MINH
CITY, VIETNAM (REPRESENTATIVE OFFICE)

 REPUBLIC OF SOUTH AFRICA

JOHANESBURG (REPRESENTATIVE OFFICE)

Associated companies:

1. STAR UNION DAI-ICHI LIFE INSURANCE CO. LTD.

2. Securities Trading Corporation of India Ltd. (STCI)

Services offered:

Online services:

:: Internet Banking : Pay Bills: Book Ticket : Tax Payment : Online Trading in
Shares : Star e-Remit : Internet Banking Demo

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Other online services:

Hassle free Banking, Payments, Remittances and Share Trading

1. Star Connect Internet Banking Services (Enjoy the convenience of Banking

from comforts of your Home and Office with a mouse click.)

O Star Connect Retail (for Core Banking Branches)

O Star Connect Corporate (for Core Banking Branches)

2. BOI STAR e-Pay (Single point for all your utility payments. Make utility
payments over a mouse click.)

O No more late payments.

O No more queues.

O No more hassles of depositing cheques.

3. Star e-Remit Service (An effective way to transfer money from any bank
account in the United States to anyone in India!)

4. Star Share trade (A fast, easy, transparent and hassle-free way to trade in
shares. Invest in shares traded on the Stock Exchanges without visiting) calling
your share-broker; track settlement cycles, write cheques/delivery instructions
for your purchases/sales.

5. e-Payment of Central Excise & Service Tax (Tax Payment made easy. Pay
your Central Excise and Service Tax)
Online from the comforts of your office or home, avoiding queues and last
minute rushes.

6. DGFT Online e Payment (A safe, secure and convenient mode of license fee
payment to
Directorate General of Foreign Trade, Ministry of Commerce, Government of
India, through the Internet without visiting the Bank.)

7. Online Booking of Indian Airlines Ticket (Travel Ticket booking made easy.
Select your flight, provide necessary details and pay through Bank of India
Internet Banking.)

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8. Online Booking of Indian Railway Ticket (Railway Ticket booking made easy.
Select your train, provide necessary details and pay through Bank of India
Internet Banking.)

9. e-Payment of Direct Taxes (Pay your Direct Tax online from the comforts of
your office or home, avoiding queues and l)

10. Now can transfer funds ONLINE across banks, through our Star Connect
Internet Banking Services, using RTGS/ NEFT facility.

Loans:

1. Personal Loan
2. Agriculture & Priority Sector (SME)
3. Commercial Loans
4. Trade Finance NRI Loans

Personal Loans:

1. Star Mitra Personal Loan

2. Star Personal Loan
3. Star Pensioner Loan Scheme
4. Star IPO Star Home Loan
5. Star Educational Loan Star Holiday Loan
6. Star Mahila Gold loan Scheme Star Mortgage Loan
7. Star Auto fin last minute rushes
8. Personal Loans

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 Date : 07/09/2010
Forex Rates
Sr.No. Currency TTS TTB TCS TCB
1 AUD 43.07 42.23 43.30 41.85
2 CAD 45.36 44.47 45.60 44.10
3 CHF 46.54 45.63 46.80 45.25
4 DKK 8.09 7.93 8.10 7.80
5 EUR 60.11 59.17 60.40 58.65
6 GBP 72.19 71.19 72.55 70.65
7 HKD 6.05 5.93 6.10 5.90
8 JPY 55.81 54.91 56.10 54.40
9 NOK 7.65 7.50 7.70 7.40
10 NZD 33.99 33.32 34.20 33.00
11 SEK 6.47 6.35 6.50 6.25
12 SGD 34.91 34.22 35.05 33.90
13 USD 46.80 46.40 47.05 46.00
Note : These are indicative rates & subject to change according to market movement

ROLE OF ECONOMIC DEVELOPMENT

INTRODUCTION
Economic development can be defined as the increase in the amount of people
in a nation's population with sustained growth from a simple, low-income
economy to a modern, high-income economy.

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Economic development is typically measured in terms of jobs and income, but it
also includes improvements in human development, education, health, choice,
and environmental sustainability.
Economic development, achieved largely through productivity growth, is very
important to both developed and developing nations. However, even though we
know that higher productivity leads to improved economic outcomes (for
example, higher income, more choices to the consumers, better quality products,
etc.), there has been no consensus among researchers about either the desired
path of development or the role of state in economic development. Concerning
the path of development, Lall (2001) says that the appropriate strategy for any
country depends not only on its objective economic situation but also on its
government policies and national views regarding the appropriate role of the
state.
Regarding the appropriate role of the state, it seems that for every argument in
favour of a smaller government role one can find a counter argument in favour
of a more active government role.

UNDERSTANDING ECONOMIC DEVELOPMENT

The term "economic development" is widely used by the ordinary public and
the popular media. The concept, however, is not quite as well understood as its
frequent use may suggest. First one must realize that the term "economic
development" in one form or another keeps surfacing in the popular media.
Instances of economic miracles (reflecting favorable effects of economic
development) regularly make headlines. Japan was in ruins after World War II.
Within 30 years, Japan emerged as an economic superpower and one of two
main economic rivals of the United States (Germany being the other). Similarly,
South Korea's economic situation was widely regarded as hopeless after the
devastation of the Korean War, but it too has turned into another Asian
economic miracle—South Korea now challenges Japan for a share of the export
markets in the United States and other countries. The economies of Taiwan and
Hong Kong are in such great shape that even mainland China (the country they
were once part of) views them with great respect. Malaysia and Singapore are
also cited as examples of economic success stories. Malaysia had only half of
the per capita income of Chile as recently as 1963; only 25 years later Malaysia

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had caught up to Chile. While these success stories have grabbed public
attention, one must also notice that many Asian, African, and Latin American
economies continue to languish in utter poverty. Moreover, the financial crises
of the late 1990s in many Asian countries, formerly considered miracle
economies, have added a note of caution in judging economic development
successes too fast. After all, Brazil's early development promise failed to
materialize.

While referring to underdeveloped countries many different terms are used. The
terms used are intended to describe the stage of development of these countries
in comparison to those that are more developed. As a result, the terms used are
almost always in pairs. The most dramatic way of referring to the two sets of
countries is to make a distinction between backward and advanced economies,
or between traditional and modern economies. As the term "backward" carries a
negative connotation, it is rarely used these days. It is much more popular to put
all countries of the world on a continuum based on the degree of economic
development. Using this criterion, several pairs of terms are employed in
distinguishing countries with different degrees of economic development—
developed and underdeveloped countries, more developed and less developed
countries (the latter are often simply referred to as LDCs), developing and
developed economies. As the terms "less developed countries" and "developing
countries" embody a sense of optimism, their use has become commonplace.
Developed countries are also referred to as industrialized countries. Countries
that have recently developed are referred to as the newly industrialized
economies.

The distinction among economies is also made based simply on income levels,
where income is expressed in per capita terms. Based on the income criterion,
countries have been classified into poor and rich economies. The World Bank
has further refined this division by categorizing poorer countries into low
income (less than $675 in per capita income in 1992) and middle income (per
capita income between $675 and $8,000 in 1992) economies. Countries with per
capita income greater than $8,000, mostly members of the Organization for
Economic Co-operation and Development (OECD), are dubbed as high income
or industrialized countries. The Organization for Economic Co-operation and

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Development (OECD) is an international economic organization of
33 countries. It defines itself as a forum of countries committed to democracy
and the market economy, providing a setting to compare policy experiences,
seeking answers to common problems, identifying good practices, and co-
coordinating domestic and international policies of its members.

The OECD originated in 1948 as the Organization for European Economic Co-
operation (OEEC), led by Robert Marjolin of France, to help administer the
Marshall Plan for the reconstruction of Europe after World War II. Later, its
membership was extended to non-European states. In 1961, it was reformed into
the Organization for Economic Co-operation and Development by the
Convention on the Organization for Economic Co-operation and Development.
Most OECD members are high-income economies with a high Human
Development Index (HDI) and are regarded as developed countries.

A third category consists of five developing countries (Oman, Libya, Saudi

Arabia, Kuwait, and the United Arab Emirates) that have relatively high per
capita income (in the $6,000 to $22,000 range in 1992), but have economies that
are more traditional than industrialized. These economies are referred to by the
World Bank as the "capital-surplus oil exporters." Three other economies—
Israel, Singapore, and Hong Kong—are also considered developing countries
despite per capita incomes of more than $13,000 in 1992. Finally, developed or
industrialized economies themselves are subdivided into market economies
(capitalist economies of the West) and non-market economies (communist or
centrally planned economies of Eastern Europe). The latter distinction is now
largely irrelevant as Russia and countries in Eastern Europe are all following the
capitalist route to economic development. These economies are referred to in
the popular media as belonging to a new category called "transitional
economies."

ECONOMIC DEVELOPMENT AND

ECONOMIC GROWTH

As one can see, labels used to distinguish between economically developed and
developing countries vary quite a bit. The terms used to describe the economic
development process itself, however, are much more rigorously defined. For

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example, while the terms "economic growth" and "economic development" are
often used interchangeably, there is an important distinction between these two
terms. The term "economic growth" refers to an increase (or growth) in real
national income or product expressed usually as per capita income. National
income or product itself is commonly expressed in terms of a measure of the
aggregate output of the economy called gross national product (GNP). Per
capita income then is simply gross national product divided by the population of
the country. When the GNP of a nation rises, whatever the means of achieving
the outcome, economists refer to it as a rise in economic growth. The term
"economic development," on the other hand, implies much more. This can best
be illustrated with the help of an example. If we look at the developments in
South Korea and Libya since 1960, we discover fundamentally different
situations. Both these countries experienced a huge rise in the real per capita
income, but the reasons for the increases are vastly different. Libya's increased
per capita income resulted from the discovery of crude oil reserves; Libya
harvested these oil resources with the help of foreign corporations that were
largely staffed by foreign technicians. Libya thus produced a single product of
great importance that was exported mainly to the United States and Western
Europe. While Libyans (both the government and people) received large
incomes from selling oil, they did not play a major role in producing that
income—income that increased based on a windfall gain.

Economists do not usually consider Libya's increased per capita income as an

instance of economic development. "Economic development" embodies a
greater number of characteristics than a rise in per capita income alone—it
implies certain fundamental changes in the structure of the national economy.
South Korea provides an example of a country that has experienced economic
development. The South Korean economy has also undergone a large increase
in its per capita income. In addition, it has witnessed some important structural
changes. Two of the most important changes taking place in South Korea are:
(1) A rising share of industry in the total national output (the real gross national
product) and the accompanying falling share of the agricultural sector in GNP;
(2) An increasing percentage of the total population of South Korea living in
cities rather than in the countryside. Aside from these two fundamental changes,
a nation undergoing economic development goes through a number of

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additional changes. The demographic composition of the population (age groups
that comprise the total population) changes as economic development
progresses. Consumption patterns of individuals also change—people no longer
have to spend the majority of their income on food and other necessities.
Instead, they spend a small fraction of their income on necessities and the
remaining large fraction on consumer durables and items that pertain to leisure
activities.

A key characteristic of economic development is that the people substantially

participate in the development process and in changing the fundamental
structure of the economy. While some foreign involvement is generally
inevitable, for economic growth to be described as economic development, the
people of the country must participate not only in the enjoyment of benefits
from the rise in per capita income, but also in the production process itself.
Moreover, economic growth must confer benefits on a broad group of
individuals—if it benefits only a small minority, it is not deemed as economic
development. It should be noted that while much more is implied by economic
development than economic growth, there can be no economic development
without economic growth (that is, a rise in the real per capita income).

THE ROLE OF SCIENCE AND

INNOVATION IN ECONOMIC
DEVELOPMENT

Perhaps the most important prerequisite of economic development is the

aspiring nation's access to the discoveries of modern science and innovators to
adapt these discoveries to the needs of marketplace. It would be impossible to
imagine the mighty industrial economies of the 20th century in the absence of
the technological knowledge arising out of many fields such as physics,
chemistry, and biology. A large majority of products used today did not exist
before the advent of modern science. While modern science is considered
absolutely crucial for the economic development of a nation, no country today
is fully cut off from the main fruits of science. Even the poorest developing
economies have access to the scientific knowledge, while fruits of scientific
discoveries are often embodied in many domestically produced goods (some of
them exported to more advanced countries). While developing countries do not
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have to rediscover the basic laws of thermodynamics, they do have to convert
the scientific discoveries into products and processes; such successful
conversions are called innovations. The latter task is often more difficult than
discoveries of pure science. Thus, as an alternative to internal innovations,
developing countries may be able to copy others' innovations or collaborate to
learn from those that have succeeded in converting scientific discoveries into
desirable products or processes. In fact, technology transfer has become an
important aspect of the quest for development. As the latest technology also
tends to be more efficient and productive, developing countries attempt to
borrow these in some fashion. Many of the latest innovations come with patent
rights, and thus the innovators of these products or processes must consent. As a
consequence of this constraint, developing countries have resorted to the use of
the joint venture, in which a firm from a developing country collaborates with
a firm from an advanced country in a production process involving advanced
(and sometimes not so advanced) technology.

While scientific knowledge is important for economic development, many

economists assume that most developing countries have access to basic
scientific discoveries. Further, while most economists believe that a nation's
failure to achieve economic development is mainly the result of economic
forces within the country, both economic and non-economic barriers exist to
economic development.

ECONOMIC BARRIERS TO DEVELOPMENT

Different models of economic growth and development reveal that capital

formation is an important vehicle of economic development. Capital formation
essentially refers to an accumulation of capital resources that are used in the
process of production (such as machines, plants, equipment, buildings, etc.). Of
course, capital assets will also embody technology. Sometimes, capital
formation itself can be considered to have two components: non-human and
human capital. A machine or a factory shed is an example of non-human
capital. Human capital formation takes the form of education and training of
individuals. Both human and non-human capital formations are important as
they both increase productivity and lead to economic growth. Moreover, a non-
human capital asset embodying an advanced technology also requires a better-
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trained human operator of the machine. The view that capital formation was
central to economic growth, called capital fundamentalism, was reflected in the
development strategies and plans of many countries over decades. Thus, the
solution to the problem of economic development was viewed primarily as
securing enough investment funds to generate a certain targeted rate of
economic growth.

Capital formation is essentially based on two factors: generating the desired

level of savings and converting them into investment in capital equipment
(and/or human capital formation). When savings from domestic sources were
deemed inadequate to generate the targeted rate of economic growth, foreign aid
donors were approached. Foreign aid and developmental assistance from
advanced industrialized countries in the 1950s and 1960s were justified by the
need to fill the savings gap. During those days, capital shortage in developing
countries was considered the single most important barrier to economic growth
and development. A heavy emphasis was put particularly on designing
economic development plans that embodied this point of view. Pakistan's third
five-year plan in the early 1960s, for example, showed a heavy initial
requirement of capital and a consequent need for an inflow of foreign capital (in
the form of foreign aid). It was believed that a large initial injection of foreign
aid would spur additional domestic savings, ultimately reducing the foreign aid
requirement in the long run.

It is now widely recognized that abundance of savings and capital formation are
not adequate to guarantee an accelerated pace of economic development, in
particular when capital is deployed in low-productivity projects. There are many
examples of capital being employed in an improper manner. Examples include
the large-scale showcase steel mills and thousands of small inefficient
hydroelectric plants. Moreover, investment projects financed by foreign
savings, even if highly productive, may have little effect on economic growth if
the recipient country's policies are not well suited to capture a fair share of
returns from these projects. Indeed, such was the experience of several natural-
resource-rich countries before the mid-1960s. These countries had little to show
at the end from major foreign investment projects.

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The crucial role of savings and investments in generating economic growth has
been well established in developed industrial economies. Based on one estimate,
more than 50 percent of the growth in aggregate income of nine developed
countries during 1960-1975 was due to an expansion in the physical capital
inputs alone. Many now believe that the very low investment rate during the
1970s and early 1980s in the United States was the primary reason for the low
U.S. per capita income growth since 1970, relative to the per capita income
growth in Japan and Western Europe.

While capital formation is no longer viewed as the ultimate instrument of

economic development in poorer countries, it is nevertheless recognized that
even a mildly robust pace of economic growth cannot be maintained over a long
time until these countries invest a sizable fraction of their gross national
product. At the very minimum the investment rate (the fraction of gross national
product invested) should be 15 percent and in some cases it may be required to
go as high as 25 percent. The 15-25 percentage interval provides a range of
likely requirements—the actual investment rate would depend upon the
environment in which capital formation takes place and the desired rate of
economic growth. Of course, the desired growth rate is generally based on the
development experience of other countries. Average rate of per capita income
growth in middle-income countries from 1965 to 1983 was about 3.5 percent. If
developing countries desire to match the per capita income growth experienced
by the middle-income countries in the post-1965 period, their per capita income
will have to grow at the rate of at least 6 percent per year, given that the average
rate of population growth in less developed countries is about 2.5 percent.

EXPORT-LED ECONOMIC GROWTH

Many low- and middle-income countries have attempted to use foreign trade,
rather than foreign aid, as a vehicle of economic growth. Favoring different
types of exports and imports, however, lead to different outcomes for economic
growth. One such strategy is to utilize exports of primary goods (agricultural
products and raw materials) to spur economic growth, often called primary-
export-led growth. Even now, exports of food and raw materials remain
principal means by which many developing countries generate resources to
import capital equipment and other necessary inputs that are essential for
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development goals. However, dependence on primary exports as a vehicle of
economic development is viewed as an option fraught with difficulty.

Many third-world leaders and some economists since the late 1950s have
argued that primary exports (except petroleum) cannot be used as an effective
vehicle of economic growth. This belief is based on several factors. First,
markets for primary products grow very slowly and, as a result, exports of
primary products grow slowly. There is an intrinsic reason for the slow growth
in markets for primary products—the elasticity of demand for foods is probably
less than one-half. This implies that if there is a ten percent increase in income
of an advanced nation, its food requirements grow by less than five percent.
Thus, imports of foods (and other primary products) would lag behind income
growth in industrialized countries. Second, prices received for primary exports
are relatively unfavorable. This implies that prices received for these goods will
fall on world markets, relative to prices paid for manufactured products
imported from industrialized nations by developing countries. Finally, export
earnings from primary exports are not stable. The fluctuations in export
earnings may be due to unstable demand for the product, supply of the product,
or both.

For the preceding reasons, dependence on primary exports is not preferred by

developing countries. More and more developing countries are attempting to
export manufactured products to developed nations. In most cases, these
manufactured products do not embody the highest level of technology. Efforts
of China and India provide examples of this change in emphasis. It should be
noted that manufactured big-ticket items (embodying high technology) are still
exported by advanced countries. Thus, while China may export toys and Taiwan
may export assembled televisions and radios, the United States still exports
airplanes. Nevertheless, exporting manufactured products has spurred economic
development in many developing countries, especially in smaller economies
such as Singapore, Taiwan, and South Korea. More and more nations are using
an export-led approach to economic development.

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NON-ECONOMIC BARRIERS TO
ECONOMIC DEVELOPMENT

In eyes of most economists, there is no single economic barrier to development

that can explain why so few countries were able to initiate economic growth
prior to the 20th century. While savings rates in many of these countries were
too low to finance investments necessary to achieve economic development, the
important question then remains as to why the savings rates were low. Poverty
alone cannot account for low savings rates—some poor countries in the late Ithh
century, such as Japan, were able to generate large amounts of savings needed
for growth. Japan's success in mobilizing large amounts of savings was partly
due to a strong governmental structure that helped extract a surplus through
taxation. Thus, economic explanations alone cannot account for why particular
economic barriers exist and non-economic barriers need to be considered.

POLITICAL AND GOVERNMENTAL BARRIERS

Governments and political institutions play an important role in the economic

development process even in capitalist countries. While early experiences with
economic development, such as England's experience during the 18th century,
did not involve a large role for government, the role played by the government
has steadily increased in importance. At the current time, if a government is
unable or unwilling to play an active role in the economic development process,
then the government itself is considered an obstacle to economic development.

A government can foster economic development in many ways. First and

foremost, governments must create and maintain a stable political environment
and a climate of peace in which modern enterprises, private or public, can
flourish. China's inability to initiate modern economic growth before 1949 is
largely explained by prolonged instability connected with civil war and foreign
invasions. After the creation of a stable political environment when
Communists took power in 1949, economic growth began. Civil strife, tribal
warfare, and political instability in several African countries have prevented
them from embarking on a path of serious economic development.

16
A stable government in itself, however, is not enough. In most cases, colonial
governments were able to provide political stability—often for a prolonged
period. This was the case for India under British rule and Korea under Japanese
rule. Nevertheless, very few European or Japanese colonies experienced
significant economic development. The benefits of the stable environment under
colonial rule mainly accrued to a small group of traders and investors from the
colonizing nation. Moreover, ruling Colonial nations made no serious attempt at
economic development through investment in training or through promotion of
industries. Many colonial nations initiated economic development strategies
after gaining independence. India provides such an example. After gaining
independence from the British in 1947, the Indian government started planning
to develop the country in an organized way. While India is still relatively poor,
it is one of a small group of countries, seven or so, that possess space
technology.

It should also be noted that political independence does not necessarily imply
that a sovereign government would pursue an active policy to promote
economic development. The decisions to pursue economic development involve
trade-offs—some people may become better off following economic
development while others may become worse off. If political power is in the
hands of those who will become worse off, the country's leaders may impede
efforts towards economic development. In some instances, nations have pursued
social goals rather than economic development. In Cuba during the 1960s, much
effort was expended to redistribute income to benefit the poor and to improve
education, rather than to promote economic development. Nevertheless, sooner
or later, stable governments in developing countries are bound to pursue
economic development.

SOCIAL BARRIERS.

Economic development rides on the shoulders of entrepreneurs who venture to

do things that benefit them and the society. Whether or not a society has a
sufficient number of entrepreneurs to foster modern economic growth may
depend on the society's values and structure. Many of the developed nations of
today encouraged entrepreneurs who pursued dreams in search of reaping
potential profits from innovations. What has prevented the development of
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entrepreneurship in underdeveloped economies? Some believe that certain
individuals in a traditional society are blocked from becoming entrepreneurs,
which normally implies more social prestige, power, and wealth. These blocked
minorities attempt to rise through entrepreneurship. However, it is difficult to
establish a clear causal relationship between the blocked minorities and
entrepreneurship. Perhaps more important than this relationship are the factors
other than minority status that induce people to become entrepreneurs. David
McClelland, a Harvard University psychologist, believes that the need for
achievement is a factor—certain societies produce a high number of individuals
with strong desire to improve themselves financially or to be recognized by the
society for their achievements. The experience of Malaya provides a historical
example that illustrates McClelland's premise. Malaya was a country rich in
resources, but natives of Malaya—primarily fishermen and farmers comfortable
with their lives—did not become entrepreneurs until the middle of the 20th
century. Meanwhile, migrant Chinese mining workers who survived diseases
such as malaria became entrepreneurs in Malaya. One interpretation of this
episode is that the Chinese possessed a strong desire to rise and the Malays did
not.

GOVERNMENT POLICIES AIMED AT

ECONOMIC DEVELOPMENT

Modern governments are playing an active role in promoting economic

development, primarily within two categories. The first category includes
communist and socialist governments that use a centralized planning process to
promote growth. In a centrally planned economy, the government literally
makes the consumption and savings decisions, channeling the surplus funds into
investment to promote economic growth. The Soviet Union used such a
centrally planned system after the Communists took power in 1917. While
Russia no longer follows the central planning model, a few countries, such as
China and Vietnam, still do.

The second category consists of governments that primarily believe in market

economies, but play an active role in promoting economic development. These
governments promote economic growth in many ways. One way of promoting
growth is to make active use of monetary and fiscal policy to spur savings and
18
investments. Fiscal policies are also used to provide tax incentives that are
conducive to risk-taking and innovations. Some capitalist governments have an
industrial policy in place—directly or indirectly the government supports a
pattern of industrial development. Finally, a government may follow an active
policy of promoting foreign trade.

AN OVERVIEW OF THE INDIAN ECONOMY

The economy of India is the eleventh largest economy in the world by

nominal GDP and the fourth largest by purchasing power parity (PPP).
Following strong economic reforms from the socialist inspired economy of a
post-independence Indian nation, the country began to develop a fast-paced
economic growth, as free market principles were initiated in 1990 for
international competition and foreign investment. India is an emerging
economic power with a very large pool of human and natural resources, and
a growing large pool of skilled professionals. Economists predict that by
2020, India will be among the leading economies of the world.

India was under social democratic-based policies from 1947 to 1991. The
economy was characterized by extensive regulation, protectionism, public
ownership, pervasive corruption and slow growth. Since 1991, continuing
economic liberalization has moved the country towards a market-based
economy. A revival of economic reforms and better economic policy in
2000s accelerated India's economic growth rate. In recent years, Indian cities
have continued to liberalize business regulations. By 2008, India had
established itself as the world's second-fastest growing major economy.
However, the year 2009 saw a significant slowdown in India's GDP growth
rate to 6.8% as well as the return of a large projected fiscal deficit of 6.8% of
GDP which would be among the highest in the world.

India's large service industry accounts for 55% of the country's Gross
Domestic Product (GDP) while the industrial and agricultural sector
contribute 28% and 17% respectively. Agriculture is the predominant
occupation in India, accounting for about 52% of employment. The service

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sector makes up a further 34% and industrial sector around 14%. The labor
force totals half a billion workers. Major agricultural products include rice,
wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo,
sheep, goats, poultry and fish. Major industries include telecommunications,
textiles, chemicals, food processing, steel, transportation equipment, cement,
mining, petroleum, machinery, information technology enabled services and
pharmaceuticals. India's per capita income (nominal) is $1,030, ranked 139th
in the world, while its per capita (PPP) of US$2,940 is ranked 128th.
Previously a closed economy, India's trade has grown fast. India currently
accounts for 1.5% of World trade as of 2007 according to the WTO.
According to the World Trade Statistics of the WTO in 2006, India's total
merchandise trade (counting exports and imports) was valued at $294 billion
in 2006 and India's services trade inclusive of export and import was $143
billion. Thus, India's global economic engagement in 2006 covering both
merchandise and services trade was of the order of $437 billion, up by a
record 72% from a level of $253 billion in 2004. India's trade has reached a
still relatively moderate share 24% of GDP in 2006, up from 6% in 1985.

THE STATE AND ECONOMIC DEVELOPMENT

The role of the state in economic development began to change dramatically
with the advent of the Industrial Revolution. In the West, the resulting
industrialization and economic development were based on the establishment
of individual property rights that encouraged the growth of private capital.
Competition and individual enterprise thrive in this environment because
individuals pursue their self-interest of survival and wealth accumulation.
The instinct to survive under competitive pressures yields innovation and
productivity increases, which eventually lead to both increased profits for
business and lower prices to consumers.
However, the rise and spread of capitalism led a number of thinkers to
examine the consequences of the market-based approach to development.
Socialists argued that capitalism (or private ownership of capital) can lead to
greater inequalities of income and wealth, while developmental economists
argued that private decisions may not always lead to socially desirable
outcomes (particularly in the case of market imperfections). Indeed, many
policymakers at the time saw market failures as quite common and therefore

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assumed that only appropriate government interventions could guide an
economy to a path of sustained economic development (Krueger, 1993).
The governments in these newly independent nations assumed a significant
role in economic development. They sought to quickly and substantially raise
the standard of living through directed and controlled economic development.
Apart from everything else, these developing countries invested heavily in
education to promote literacy and to ensure an adequate supply of technical
manpower to meet their growing needs. Further, these previously colonized
nations did not want to subject their poor and weak economies to
international economic fluctuations and thus sought to industrialize through
import substituting industrialization, where imports were expected to be
increasingly replaced by domestic production.
In this paper we examine economic development in India, a former British
colony that became one of the most closed economies in the world, to
contrast the roles of government intervention and individual enterprise in that
country’s economic growth. In particular, we demonstrate that, given recent
economic reforms in India, along with the evidence for the role that
individual enterprise can play in a country’s economic growth, the Indian
government should devise policies that rely more on individual enterprise,
with its emphasis upon individual initiative and self-interest, to spur
economic development. Further, we describe the special role that can be
played in the economic development of India by a greater emphasis upon
entrepreneurship.

THE INDIAN STRATEGY OF ECONOMIC DEVELOPMENT

India’s economic development strategy immediately after Independence was
based primarily on the Mahalanobis model, which gave preference to the
investment goods industries sector, with secondary importance accorded to
the services and household goods sector (Nayar, 2001). For example, the
Mahalanobis model placed strong emphasis on mining and manufacturing
(for the production of capital goods) and infrastructural development
(including electricity generation and transportation). The model downplayed
the role of the factory goods sector because it was more capital intensive and
therefore would not address the problem of high unemployment in India.

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Any increase in planned investments in India required a higher level of
savings than existed in the country. Because of the low average incomes in
India, the needed higher levels of savings had to be generated mainly by
restrictions on the growth of consumption expenditures. Therefore, the Indian
government implemented a progressive tax system not only to generate the
higher levels of savings2 but also to restrict increases in income and wealth
inequalities.
Among other things, this strategy involved canalization of resources into their
most productive uses.4 Investments were carried out both by the government
and the private sector, with the government investing in strategic sectors
(such as national defence) and also those sectors in which private capital
would not be forthcoming because of lags or the size of investment required
(such as infrastructure). The private sector was required to contribute to
India’s economic growth in ways envisaged by the government planners.
Not only did the government determine where businesses could invest in
terms of location, but it also identified what businesses could produce, what
they could sell, and what prices they could charge. Thus the strategy of
economic development in India meant
(1) Direct participation of the government in economic activities such as
production and selling and
(2) Regulation of private sector economic activities through a complex
system of controls. In addition, the Indian economy was sheltered from
foreign competition through use of both the “infant industry argument” and a
binding foreign exchange constraint. Imports were limited to goods
considered essential either to the development of the economy (such as raw
materials and machines) or to the maintenance of minimal living standards
(such as crude oil and food items). It was over time that India created a large
number of government institutions to meet the objective of growth with
equity. The size of the government grew substantially as it played an
increasingly larger role in the economy in such areas as investment,
production, retailing, and regulation of the private sector. For example, in the
late 1950s and 1960s, the government established public sector enterprises in
such areas as production and distribution of electricity, petroleum products,
steel, coal, and engineering goods.

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 In the late 1960s, it nationalized the banking and insurance sectors. To
alleviate the shortages of food and other agricultural outputs, it provided
modern agricultural inputs (for example farm machinery, irrigation, high
yielding varieties of seeds, chemical fertilizers) to farmers at highly
subsidized prices (World Economic Indicators, 2001). In 1970, to increase
foreign exchange earnings, it designated exports as a priority sector for active
government help and established, among other things, a duty drawback
system, programmes of assistance for market development, and 100 per cent
export-oriented entities to help producers export (Government of India,
1984).
Finally, from the late 1970s through the mid-1980s, India liberalized imports
such that those not subject to licensing as a proportion to total imports grew
from five per cent in 1980-1981 to about 30 per cent in 1987-1988 (Pursell,
1992). However, this partial removal of quantitative restrictions was
accompanied by a steep rise in tariff rates.
This active and dominant participation by the government in economic
further decided that exports should play a limited role in economic
development, thereby minimizing the need to compete in the global market
place. As a result, India became a relatively closed economy, permitting only
limited economic transactions with other countries.
Due to government intervention, particularly the high levels of government
subsidies, it was clear by 1990 that India was living beyond its means. The
result was a severe payments crisis in which, for the first time, the
government physically transported gold overseas to prevent defaulting on
foreign commitments. To meet its immediate balance of payments crisis,
India also entered into a structural loan adjustment agreement with the
International Monetary Fund (IMF).
1. In spite of recent tax reforms in India, the present tax system still works
against the individual self-interest to survive and accumulate wealth and,
as a result, still leads to the hiding of income, wealth and expenditures.
Indeed, whereas in the United States and the Republic of Korea, the
highest tax rate applies to an income level of $250,000 and $66,000,
respectively, in India that same tax rate applies to an income of only
$3,400. Simply reforming its tax system to bring it in line with

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 comparable nations should yield several substantial benefits to the Indian
economy.

2. The Indian civil service provides attractive career choices for young job
seekers due mainly to the excellent job security, non-monetary
compensation, and opportunities for influence available in those careers.
For example, despite minimal salaries for individuals holding top-tier
positions in such areas as administration, police, revenue and railways,
these civil servants are entitled to high job security and heavily subsidized
housing, transport, medical services, telephone privileges, and at times
domestic help. We believe that the policies underlying compensation to
government employees should be reformed such that they are based
primarily on market principles. The advantages of doing so include
eliminating departments known for corrupt practices, making explicit the
true cost of a government employee’s performance, and giving
government employees a good sense of their market worth.

3. Finally, considerable reform is needed in the Indian real estate sector. A

large proportion of the land is owned by the government, and any land
made available for private use is governed by archaic ownership, zoning,
tenancy, and rent laws. Further, this government control of land has
reduced the amount of land available for trading purposes. The result is
that Indian land prices are the highest among all Asian nations relative to
average income (Lewis, 2001).

CONCLUSION
The Indian economy provides a revealing contrast between how individuals
react under a government-controlled environment and how they respond to a
market-based environment. The evidence presented here suggests that recent

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market reforms encouraging individual enterprise have led to higher
economic growth in that country.
The reasoning here is not new, although it is refreshing to discover that this
“tried-and-true” reasoning applies to developing as well as to developed
nations. Specifically, reliance upon a free market, with its emphasis upon
individual self-interest in survival and wealth accumulation, can yield a wide
range of economic benefits.
In India those benefits have included, among other things, increased
economic growth, reduced inflation, a smaller fiscal deficit, and higher
inflows of the foreign capital needed for investment.

We further conclude that India can generate additional economic growth by

fostering entrepreneurial activities within its borders, particularly within its
burgeoning middle class. Not only has entrepreneurship been found to yield
significant economic benefits in a wide variety of nations, but India
specifically has reached a point in its development where it can achieve
similar results through entrepreneurial efforts. Among other things, India is
poised to generate new business start-ups in the high technology area that can
help it become a major competitor in the world economy. For example, it has
a strong education base suited to entrepreneurial activities, increased inflows
of foreign capital aimed at its growing information technology services
sector, and a host of successful new business start-ups. To pursue further the
entrepreneurial approach to economic growth, India must now provide
opportunities for:
(1) Education directed specifically at developing entrepreneurial skills,
(2) Financing of entrepreneurial efforts, and
(3) Networking among potential entrepreneurs and their experienced
counterparts.
Obviously, the government can play a substantial role in helping to provide
these types of opportunities. It can also provide the appropriate tax and
regulatory policies and help the citizens of India to understand the link
between entrepreneurial efforts and economic prosperity. However, its role
overall must be minimized so that the influence of the free market and
individual self-interest can be fully realized.

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Only time will tell if increased entrepreneurial activities in India will actually
yield the economic benefits found in so many other nations of the world.
Should India decide to pursue that avenue of economic development, then
future research needs to examine the results of India’s entrepreneurial
programme.
Perhaps more important, that research also needs to determine how India’s
success in entrepreneurial efforts might differ from those pursued in
developed nations.

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