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Economic Reforms in India

The economic reforms in India marked a shift from a socialist economy to a market economy, initiated in the early 1990s in response to a foreign exchange crisis. Reforms ended the system of licenses required for investment, industries, and imports. While reforms encouraged growth, financial crises and political instability caused economic stagnation. Continued reforms, like privatization and tax cuts, helped reduce poverty and grow the economy over 6% annually. However, challenges remain like high fiscal deficits, inadequate infrastructure, difficulties for farmers, and the need for accelerated reforms to achieve higher levels of development.

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Abhijit Jadhav
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827 views3 pages

Economic Reforms in India

The economic reforms in India marked a shift from a socialist economy to a market economy, initiated in the early 1990s in response to a foreign exchange crisis. Reforms ended the system of licenses required for investment, industries, and imports. While reforms encouraged growth, financial crises and political instability caused economic stagnation. Continued reforms, like privatization and tax cuts, helped reduce poverty and grow the economy over 6% annually. However, challenges remain like high fiscal deficits, inadequate infrastructure, difficulties for farmers, and the need for accelerated reforms to achieve higher levels of development.

Uploaded by

Abhijit Jadhav
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ECONOMIC REFORMS IN INDIA

The economic reforms or liberalization in India mark a shift from socialist


economy to a market economy. Initiated by the then Indian Prime Minister P.V.
Narasimha Rao and his Finance Minister Manmohan Singh, their immediate cause
was a foreign exchange crisis during Chandrashekhar government when India had
to sell its gold reserves. Reforms ended the Licence Raj (investment, industrial and
import licensing) and several public monopolies.

The UF government brought a budget that encouraged reforms but the 1997
Asian financial meltdown and political instability caused economic stagnation. The
Vajpayee administration continued with privatization, reduced taxes, introduced
a firm fiscal policy aimed at lessening deficits and debts and enhanced initiatives
for public works.

India under Nehru and Congress followed the Soviet model of planned economy
to rid India of the exploitive colonial British economic policy and its vestiges after
independence. Five-Year Plans achieved much but also led to heavy
centralization, inefficient State capitalism, State monopolies in mining, machine
tools, water, telecommunications, insurance, and electrical plants. The so-called
Hindu rate of growth became a joke as India stagnated at 3.5% from 1950s to
1980s, while per capita income averaged 1.3%, even as Pakistan grew by 8%,
Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%.
Today, the private sector has become an active participant in the
telecommunications sector. Insurance has been opened to private investors, both
domestic and foreign. The economy has grown at more than 6 per cent, coupled
with full macroeconomic stability. The rate of inflation is once again coming down
after spiralling alarmingly.

Rising incomes have helped reduce poverty. According to official figures, the
proportion of poor in total population has declined from 40 per cent in 1993-1994
to 26 per cent in 2000.

Most importantly, the attitude toward reforms has changed. Virtually every
political party today recognizes the need for continued reforms.

Though slow pace of reforms is credited with India’s firm fundamentals and
weathering the shock of global economic depression, yet all is not well with
India’s reforms and the fiscal deficit remains in doldrums. The combined deficit at
the Centre and States exceeds 10 per cent of GDP. This deficit is unsustainable; it
is also crowding out private investment.

Infrastructure like roads, railways and ports all need expansion. Improvement in
quality of service and delivery systems is a must. The government has recently
started building roads, but the pace remains slow. India’s power sector is also in a
horrible State.
Economic reforms have bypassed agriculture. Farmers are committing suicide and
do not get full market price for their product. Procurement prices are below the
market price. Further, export restrictions must be phased out.

If India grows at 6 per cent per annum on a sustained basis, it will take 14 years to
reach the current level of per capita income of People’s Republic of China, 36
years to reach Thailand’s, and 104 years to reach that of the United States.

Thus, the need for accelerated growth can hardly be overemphasized.

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