4 The active role of the public sector was duly reflected in the large volume of public investment, which since the early 1960s had reached proportions similar to those of private investment, due primarily to the strong investment effort of public enterprises (Table 1). The latter gained momentum in the 1980s, during which the public investment/GDP ratio reached its peak at 9.5 percent. In that decade, the public enterprise sector became India's major investor, a role that had traditionally belonged to the informal private sector (households and unincorporated businesses).

These trends, however, were partially reversed after the fiscal crisis of 1990/91 and the ensuing reforms, which led to a retrenchment of public investment and a parallel expansion of private capital accumulation, due in appearance to booming private corporate investment. However, it should be noted that the breakdown of private investment data between the incorporated and unincorporated sectors is not entirely reliable (see Little and Joshi 1994, Ch. 13). The reason is that investment by the unincorporated sector is derived as a residual, so any over- (under-) estimation of private corporate investment is correspondingly reflected in under- (over-) estimation of investment by the informal sector. Indeed, the investment/GDP ratios of the two subsectors display a strong negative correlation (equal to -.74) in the period 1960/61-1994/95, for which there is no clear economic justification.<sup>5</sup> As Table 2 shows, the massive investment effort of the public sector over the last three decades had a very heterogeneous nature. Part of it took the form of basic infrastructure capital in areas such as agricultural irrigation, transport, telecommunications and power. Another significant fraction corresponded to standard public sector activities such as public administration and defense. However, a rather substantial portion of total public investment was consistently devoted to industrial and commercial activities, notably in manufacturing, which in market economies are usually undertaken by the private sector (cf. the row labeled "other" in Table 2). In addition, this latter fraction of public investment expenditures showed an increasing trend until the late 1980s, rising from under 30 percent of total public investment in the 1960s to close to 40 percent in the second half of the 1980s.

The fact that vast public resources were employed in non-infrastructure projects certainly does not mean that India's infrastructure needs were satisfied. On the contrary, there is abundant evidence that inadequate roads and telecommunication networks and poor electricity supply continued to pose major obstacles to economic activity.<sup>6</sup> Indeed, the cross-country data presented in Table 3 clearly suggest that 5 The rates of growth of the corresponding sectoral capital stocks show a similarly negative correlation. The reliability of disaggregated private investment figures has recently been subject of controversy in India, as some observers have argued that the measured decline in household investment rates since 1990 is just a statistical artifact, likely due to the overestimation of private corporate investment. See Balakrishnan (1996) for further discussion.

6 See World Bank (1993).