Development, Globalization and Economic Policy

Modernisation theory

Modernisation theory is a body of mid-twentieth-century thought that explains development as the transition of traditional societies to modern ones through a sequence of stages. All of its versions share the aim of explaining how traditional societies modernise, although they differ in method and emphasis. During the Cold War, the developmental path of newly decolonised states was commonly framed as a choice between the communist and capitalist models, which is one reason the theory is read as a product of that bipolar context. Ashis Nandy characterised it as a secular theory of salvation, because it promised a developed future through a linear progression. The theory also addressed individuals rather than only macro change. Alex Inkeles and David Smith described the modern man as a pattern of attitudes, including openness to new experiences, independence from traditional authority, and belief in science and technology. The modern man also takes an active part in civic affairs, so rejection of civic and political activity is not part of this pattern. The theory predicts that developing economies will catch up with developed ones by adopting the social and economic institutions of Western capitalism. Its early growth drew on both evolutionism and diffusionism, and Hoselitz gave marginal men and deviants a role as innovators and entrepreneurs in economic growth. M. J. Levy, by contrast, kept the Parsonian pattern variables central to explaining modernisation, rather than shifting the emphasis to colonialism. Inkeles's list of modern attitudes includes a belief in distributive justice, not punitive justice.

Dependency theory critique

The critique of dependency theory holds that subordination to the world market does not by itself seal the fate of a nation. Its proponents argue that inequality, poverty, low productivity and slow growth in the periphery, together with the tendency to import luxury goods and transfer profits abroad, arise chiefly from domestic social structures rather than from trade relations. On this view, underdevelopment depends mainly on internal political and social arrangements, so the balance of forces within the periphery matters more than its external position. Because the causes are placed inside the periphery, the critique leaves room for development through participation in the world market, and it does not treat unequal exchange as an insurmountable barrier. Dependency theory itself was formulated as a critique of modernisation theories, which assumed that developing societies would follow the path of Western industrial societies once traditional barriers were removed.

Post-development theory

Post-development theory questions the assumption that development is a universal goal and treats it as a discourse shaped by the modern West. Within this current, M. K. Gandhi's Hind Swaraj is read as an early critique of modernisation, because it rejects the civilisation of modern industry, railways, machinery and the centralised state in favour of an alternative conception of the good life. Gandhi's objections to industrial production form part of the same critique of industrialisation, and post-development writers treat them as a precursor of their own arguments. The text's main object is modern civilisation and the colonial order, not social hierarchies such as the varna system or practices such as honour killings. Arturo Escobar's analysis of the development discourse treats development as a top-down, ethnocentric and techno-centric approach that reduces people and cultures to statistical figures moved up and down a chart of progress. He also argues that critics of development remain bounded by its categories, because they must articulate their critiques within the development framework. Escobar nonetheless sees grassroots and autonomous social movements as a source of alternatives, rather than dismissing them as too limited in scope.

Primitive accumulation in India

Primitive accumulation refers to the dispossession of land and common resources from rural populations so that capital can accumulate, and the concept is used to analyse land acquisition and industrial expansion in India. Any measure that extends such dispossession continues the process rather than reversing it. Instruments such as the Land Acquisition Act of 1894, which lets the state take private land, and Special Economic Zones, which take land for industrial and commercial use, extend dispossession. Measures that reverse the process instead give rural households alternative sources of income or credit, so that they need not give up their land or productive assets. A guaranteed wage employment scheme such as NREGA and microfinance lending to the poor are examples, because they reduce dependence on dispossession and help households keep or rebuild productive assets.

Balanced budget multiplier

The balanced budget multiplier measures the change in equilibrium output when government expenditure and lump-sum tax revenue change by the same amount. It is built from two separate effects, the expenditure multiplier \frac{1}{1-c} and the lump-sum tax multiplier \frac{-c}{1-c}, where c is the marginal propensity to consume. Adding them for an equal change \Delta G = \Delta T gives \Delta Y = \frac{1}{1-c}\Delta G - \frac{c}{1-c}\Delta T = \Delta G, so the balanced budget multiplier equals 1 whatever the value of c. A balanced change in fiscal policy therefore raises output one-for-one, because the expansionary effect of spending is only partly offset by the contractionary effect of taxes. The trade multiplier is a different concept, since it relates equilibrium output to exports and imports rather than to government budgets.

Bretton Woods institutions

The Bretton Woods institutions were created at the 1944 conference at Bretton Woods and include the International Monetary Fund and the International Bank for Reconstruction and Development, the core of what is now the World Bank. The conference also aimed to set up an International Trade Organization to supervise trade rules, but that organization was never ratified. Its trade provisions were carried forward through the General Agreement on Tariffs and Trade, GATT, signed in 1947 as a provisional arrangement, and GATT is the organization that grew out of the Bretton Woods agreement in this sense. Institutions outside this system should not be confused with it. The Reserve Bank of India is the national central bank, NAFTA is a regional trade agreement among North American countries, and ASEAN is a regional organisation of Southeast Asian states, so none of them arose from the Bretton Woods agreement.

Services sector growth across Indian states

The sectoral classification of Indian states and Union Territories is based on the sector that contributes the largest share of their gross value added. In the recent classification of the Economic Survey, services is the leading sector in a large group of states and Union Territories, while agriculture and industry lead the remainder. Services-led growth is therefore a major pattern across much of India. Students should note that dominance by the services sector is measured by its share of output, not by its share of employment, so a state can be services-driven even where agriculture still employs most of its workers.

Liquidity Adjustment Facility (LAF)

The Liquidity Adjustment Facility is the Reserve Bank of India's instrument for managing daily liquidity in the banking system. Under it, banks borrow from the central bank through repo transactions against collateral at the repo rate, and they park surplus funds with the central bank through reverse repo transactions at the reverse repo rate. The two rates form the corridor within which the overnight money market operates, and changes in them signal the stance of monetary policy. Other instruments often confused with the facility belong to different functions. The cash reserve ratio is a reserve requirement on deposits, the statutory liquidity ratio is a prudential holding requirement, the bank rate is a standing refinancing rate, and call money and MIBOR are market interest rates.

Index of Industrial Production weights

The Index of Industrial Production is a fixed-weight index, in which each sector carries a weight equal to its share of value added in the base year, and the weights are not changed as the index is updated. Within the index, manufacturing carries by far the largest weight, around four-fifths of the total, while mining and electricity carry much smaller shares. Because the weights are fixed at the base year, the manufacturing share in later periods is measured by this base-year weight and not by the current composition of output. The index therefore measures the volume of production by sector rather than the sectoral contribution to GDP at current prices.