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Subhash C. Jain and Ben L. Kedia

The critical aspects of growth in India are described. First among them is the creation of jobs, which is examined in this chapter. India must create 10 million jobs annually. For this to happen, manufacturing is the key to prosperity. It leads to economies of scale, impacts innovation and has a multiplier effect on the rest of the economy. For India to boost manufacturing, it must pursue a variety of strategic steps such as the overhaul of labor laws, simplifying land acquisition, providing tax incentives, encouraging foreign investment and other innovations.

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Subhash C. Jain and Ben L. Kedia

The chapter focuses on four aspects of economic growth: enhancing agriculture and farm productivity; building and improving basic infrastructure related to transportation, communication, energy availability, networks and bureaucratic efficiency; strengthening education at all levels, from primary schooling to higher education; and emphasizing innovations to make the most of limited resources. If these aspects are addressed adequately, India will be able to achieve its growth objective in a short time frame and join the ranks of developed countries.

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Subhash C. Jain and Ben L. Kedia

India must pay attention to four supporting factors in addition to the areas elaborated in the previous two chapters to achieve its economic aspirations. These include provision of basic services to the citizenry such as food, drinking water, sanitation, housing, energy, health care, education and social security; strengthening the rule of law; encouraging competition among states, and public-private enterprises; and promoting India’s cultural heritage. India can learn from the experiences of other nations, particularly the United States, to realize its economic endeavors. But at the end of the day, it must develop its own unique solutions to make headway on all fronts.

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Subhash C. Jain and Ben L. Kedia

This book traces the history of India’s progress since its independence in 1947 and advances strategies for continuing economic growth. Insiders and outsiders that have criticized India for slow economic growth fail to recognize all it has achieved in the last seven decades, including handling the migration of over 8 million people from Pakistan, integrating over 600 princely states into the union, managing a multi-language population into one nation and resolving the food problem. The end result is a democratic country with a strong institutional foundation. Following the growth strategies outlined in the book and with a strong leadership, India has the potential to stand out as the third largest economy in the world in the next 25 to 30 years.
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Chunlai Chen

Over the last three and a half decades, China has achieved remarkable economic growth with an annual average real GDP growth rate of around 10 per cent. Chapter 2 investigates empirically how FDI has contributed to China’s regional economic growth and how the local economic and technological conditions of host provinces influence the extent to which FDI contributes to local economic growth. Through the application of a provincial-level panel dataset containing China’s 30 provinces over the period 1987–2014 and regression techniques, the study finds that FDI has contributed to China’s economic growth directly through capital augmentation and technological progress and indirectly through knowledge spillovers on the local economy. The study also finds that the contribution of FDI to economic growth is influenced by local economic and technological conditions. FDI has stronger impacts on economic growth through capital augmentation and technological progress in the more economically developed coastal provinces than in the less-developed inland provinces. While FDI has a positive and significant impact on economic growth through knowledge spillovers in the developed coastal provinces, positive knowledge spillovers of FDI on economic growth are absent in the less-developed inland provinces. This finding provides empirical evidence to suggest that local economic and technological conditions, especially local absorptive capability, do matter in influencing the diffusion of knowledge spillovers from FDI to the local economy.

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Chunlai Chen

The heavy concentration of FDI in China’s coastal provinces has attracted hundreds of millions of rural migrants from inland provinces to work in coastal provinces. Every year these workers send massive remittances back home to support their families and hence boost their home town economies. This type of resource movement associated with FDI may play an important role in income distribution in China’s inland provinces. Chapter 5 aims to investigate the interregional impacts of FDI in the coastal region on urban–rural income inequality in inland provinces of China. Through the application of a provincial-level panel dataset containing China’s 19 inland provinces over the period 1987–2014 and the fixed-effects and instrumental variable regression technique, the study finds that FDI in the coastal region contributes to the increase in urban–rural income inequality in inland provinces. The explanation is that FDI in the coastal region generates negative spillover effects on the economic growth of inland provinces. This is because FDI in the coastal region is heavily engaged in the processing trade, has fewer industrial linkages and even competes with firms in inland provinces in both factor and product markets. In addition, the interregional migration and income remittance effect associated with FDI in the coastal region tends to increase urban–rural income inequality of inland provinces due to the average remittance sent by rural migrant workers being less than the average rural household per capita net income in inland provinces.

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Chunlai Chen

Foreign direct investment in China is heavily concentrated in the coastal region. Do inland provinces benefit from FDI in the coastal region? Chapter 3 investigates empirically the interregional impacts of FDI in the coastal region on the economic growth of inland provinces. By using a provincial-level panel dataset containing China’s 19 inland provinces over the period 1987–2014 and employing the fixed-effects and instrumental variable regression techniques, the study finds that, on average, FDI in the coastal region has had a negative impact on economic growth in inland provinces. By further dividing FDI in the coastal region into FDI in the coastal provinces engaging in medium-level processing trade and FDI in the coastal provinces engaging in high-level processing trade, the study finds that FDI in the coastal provinces engaged in medium-level processing trade has no significant interregional impact on the economic growth of inland provinces. However, FDI in the coastal provinces engaged in high-level processing trade still has a negative interregional impact on the economic growth of inland provinces. The explanation for this could be that processing trade has no industrial linkages with and cannot generate backward and forward knowledge spillovers to firms in inland provinces. Therefore, this study provides further evidence of the importance of industrial linkages in enhancing knowledge spillovers from FDI to the local economy.

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Subhash C. Jain and Ben L. Kedia

Political pundits and intellectuals, both in India and elsewhere, wondered if India could survive as a democracy given its huge diversity. But despite the challenges, it did. The chapter pinpoints major aspects of India’s success. Firstly, leaders who fought for India’s freedom continued to be active for a long time in post-independent India establishing a strong foundation for a democratic society with an appropriate institutional framework. Other factors include pluralism of religion, linguistic organization of states, administrative setup of the government through the selection of intelligent and capable individuals who kept the army away from politics, Hindi cinema and Bollywood movies which people enjoyed immensely throughout India, free mobility of people throughout the country, emerging communications technology and a common passion by Indians for the game of cricket. They have all been instrumental in maintaining the unity of the country.

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Subhash C. Jain and Ben L. Kedia

After independence, India had to promptly resolve three issues. First was the identity of the country, that is, what is India? Unlike other nations, India could not be identified by a religion or a language since its people belonged to different religions, spoke different languages and belonged to different castes. The leaders settled with the title Republic of India to encompass all people despite diversity. The second problem was the relocation of more than 8 million people who migrated from Pakistan. The third concern was the integration of more than 600 princely states into the Republic of India. Difficult as they were, all these challenges were successfully addressed and resolved.

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Subhash C. Jain and Ben L. Kedia

After independence, India successfully established a secular state with diverse cultures, religious traditions and languages. Independent India is unique and does not have the characteristics of a typical nation state. It represents oneness in the hearts of all people despite diversity of various dimensions. After independence, a major problem that the nation had to address was extreme poverty and economic development on all fronts became a major goal. While examining various development aspects, Indian leaders decided to seek economic prosperity through a planned effort. A new body called the Planning Commission was established to systematically create a five-year plan to undertake different programs for economic progress. It was also decided that public sector companies would play a major role in the industrial sector especially in the development of basic industries, such as steel, machine tools, aerospace and others.