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Subhash C. Jain and Ben L. Kedia

In 30 years, India will celebrate 100 years of independence. Based on where the nation stands today, it is reasonable to assume that in 2047, it will be counted among developed countries. India’s economy is set to become the third largest in the world behind the United States and China. Indians, by and large, are enterprising people and have a fascination for technology. With dynamic leadership, India should be able to realize its dreams for the future. The country has a free road to travel. However, there are obstacles that India must cross, both external and internal. India is located in a tense neighborhood surrounded by expansionist China and unstable Pakistan. Internally, a number of potholes may derail India’s progress such as the Naxalite insurgency, the spread of populism in some states, widespread corruption, growing inequality among the masses and dire environmental decay. Even with these problems, India’s future looks bright.

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Subhash C. Jain and Ben L. Kedia

In 1950, after three years of independence, India became a constitutional democracy. The Constitution abolished untouchability, the centuries-old lingering issue. At the same time, while Hindi was identified as the national language, for the unity of the country, for 15 years English was accorded the same status to facilitate communication between non-Hindi-speaking states/people and those who spoke Hindi. Finally, following the Constitution, the first free election was held in 1952, a remarkable feat for a country without any prior experience in the matter. After five years, the second election was held in 1957, establishing the tradition of a vibrant democracy for the future.

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Conclusion and policy implications

A Critical Assessment

Chunlai Chen

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Subhash C. Jain and Ben L. Kedia

As India began its endeavors to develop the economy, it faced a variety of problems that created obstacles for smooth progress. Firstly, China invaded India in 1962. Then, Nehru passed away in 1964, temporarily creating a vacuum in leadership. Meanwhile, the continuing trouble with Pakistan took its toll. In addition, bad monsoon rains in successive years meant farmers were unable to feed India’s growing population. About the same time in 1965, the constitutional provision to make Hindi a national language after 15 years became a major issue, especially among non-Hindi-speaking states. The country was at a critical juncture whereby a mistake in this matter could split the country. Fortunately, Prime Minister Shastin took the bold step of extending the role of English as a national language while non-Hindi people were unwilling to accept Hindi. After Shastin died, Indira Ghandi became prime minister. In her initial years, Bangladesh was established as an independent country from Pakistan. More importantly, however, the country adapted Mexican high-yield wheat to Indian growing conditions, solving the country’s food shortage problem.

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Chunlai Chen

Foreign Direct Investment and the Chinese Economy provides a comprehensive overview of the impact of foreign direct investment, with extensive empirical evidence, on the Chinese economy over the last three and a half decades.
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Subhash C. Jain and Ben L. Kedia

The strategic thrust depicted in the previous chapters can only succeed if four foundational pillars are in place. These pillars or levers for action are: emphasis on technology; advancement of women’s equality; organized urbanization; and enhancement of education at all levels. India is fully aware of the importance of these factors, and the current government has been taking steps to advance its strategic thrusts. It has taken a number of bold initiatives, and it is hoped that the pattern will continue in the future.

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Subhash C. Jain and Ben L. Kedia

The chapter examines the strategic thrust that India needs to create enough jobs in view of its large population and grow at a respectable rate to provide a comfortable living for its people. One crucial aspect of this thrust is the promotion and encouragement of large companies to become globally competitive. This is feasible if all factors of production, that is, labor, land, capital and technology, are simultaneously addressed, making it easier for companies to take the risk, make investments and grow competitively. At the same time, India must encourage entrepreneurship to spread industrial culture far and wide, and open the door to innovation. India needs both large companies and small enterprises to create an industrial society for growth and prosperity.

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Chunlai Chen

Since the economic reforms implemented in late 1978, China has achieved remarkable results in increasing per capita income and improving the living standards of the Chinese people, which have been attributed to the rapid economic growth. However, with this fast economic growth, income inequality, especially urban–rural income inequality, in China has actually worsened. While FDI has contributed to China’s economic growth, has FDI also contributed to the increase of income inequality in China? Chapter 4 investigates empirically whether FDI has improved or worsened urban–rural income inequality in China. By using a provincial-level panel dataset containing China’s 30 provinces over the period 1987–2014 and employing the fixed-effects and instrumental variable regression techniques, the study finds that the effect of FDI on urban–rural income inequality is non-linear. At first, FDI increases urban–rural income inequality. And after reaching a critical level, FDI starts to reduce urban–rural income inequality through employment creation, knowledge spillovers and contribution to economic growth. Overall FDI will contribute to reducing urban–rural income inequality in China as FDI inflows continue to rise. However, the study also finds that FDI has indirectly contributed to increasing urban–rural income inequality in China through its significant role in international trade. In addition, the study finds that there exists a Kuznets inverted-U curve relationship between urban–rural income inequality and economic development, suggesting that urban–rural income inequality will gradually decline in China as China’s economy continues to grow and per capita income keeps rising.

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Chunlai Chen

Foreign direct investment in China has created a large amount of employment opportunities for rural surplus labor and the heavy concentration of FDI in China’s coastal region has attracted hundreds of millions of rural migrants from the inland region to work in the coastal region. This type of rural–urban and cross-region population migration associated with FDI may have impacts on China’s urbanization development, especially on the urbanization development in the inland region. Chapter 6 uses a city-level panel dataset covering China’s 262 cities for the period 2004–13 and employs the dynamic panel system Generalized Method of Moments (GMM) model with the instrumental variables regression techniques to investigate empirically both the impacts of FDI on urbanization development in China and the interregional impacts of FDI, especially FDI in the coastal region, on the urbanization development of the inland region. The study finds that FDI has played a significantly positive role in the urbanization development of a host city. However, the study also finds that FDI in other inland cities and FDI in coastal cities have different interregional impacts on the urbanization development of an inland city. FDI in other inland cities could contribute to increasing the urbanization development of an inland city as FDI in other inland cities can create positive interregional knowledge spillovers due to its low level of engagement in processing trade and extensive industrial linkages with firms in inland cities. However, FDI in coastal cities impedes the urbanization development of an inland city because FDI in coastal cities has negative interregional spillover effects resulting from its high level of engagement in processing trade and lack of industrial linkages with firms in inland cities.

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Subhash C. Jain and Ben L. Kedia

Until 1991, India continued to follow the model of economic development where state planning and public sector enterprises were the levers of growth. This model delivered a dismal growth rate of 3–4 percent. At the same time, regulations on all fronts prevented India from becoming part of the global economy. In 1991, the government, forced by a shortage of foreign exchange, liberalized the economy. The reforms had a tremendous positive impact, both economically and politically. The economy grew at a decent rate, creating opportunities in all sectors. Yet, considering the size of India’s population, many more reforms are needed on a continual basis. For example, inefficient firms must be eliminated. Corruption must be controlled. As India stands today, it looks to current Prime Minister Modi to take bold steps in leading the country to abolish poverty, and creating a substantial middle class.