In late 80’s India was confronted with a grave fiscal and balance of payment crisis. To combat the critical situation Govt. of India launched an Economic Reform programmed in July 1991. The emphasis of the economic reform programmed was on attainment of macro-economic stability and shifting the Indian economy to a higher growth plan. The core of Indian’s economic reform strategy has-been to dismantle the central economic control exercised during the last four decades. some of the key measures taken under the reforms policy were-(i) Controlling the fiscal deficit, (ii) Cutting and rationalizing corporate taxes and personal income tax, (iii) Abolishing industrial licensing, (iv) Encouraging foreign investment, (v) Liberalization of import rules and cutting import duties, (vi) Encouraging exports, and (vii) Deregulating the capital market.
Economists feel that the key aspects of the economic reforms programmed are:
- Economist reform has been primarily in the form of economic, liberalization with the aim of decontrol, deregulation and ushering spirit of competition.
- The basic objective of the economic reforms programmed has been to expose the domestic economy to external competition and give domestic consumers’ wider choices. But nothing has been done to ensure competitiveness of the domestic economy according to experts.
Gains expected from the economic reforms programmed are higher economic growth and higher GDP growth. The economic reform programmed has contributed substantially to higher economic growth which has brought about an improvement in the standard of living of people in general. During the first five years of reforms programmed (1992-97) GDP growth averaged 6.9 percent, the highest ever for a five year period. There has been a turnaround in macroeconomic balances. The current account deficit from 3.5% in 1991 to 1.2 % in 1996-97. The debt service ratio declined from 32.4% to 23% during the same period. External debate as a percentage of GDP came down from 37% to 25%. Fiscal deficit declined from 8.6 % in 1990-91 to 5.1% in 1996-97. And foreign reserves have increased from 1 billion dollar to 27 billion dollar by now. According to a survey the total number of persons employed in rural India increased from 268 million to 294 million during six years of economic reforms. According to our prime minister Shri Atal Bihari Vajpayee the poverty ratio had declined by 10% i.e. from 36% in 1993-1994 to 26.1% in 1999-2000. This proves that the economic reforms initiated in the nineties are beginning to achieve the desired results of poverty alleviation.
On the social front, rate of infant mortality in rural India has declined from 86 per thousand births to below 80 per thousand. Literacy in rural areas improved from 44.7 % to 56% and birth rate declined from 29.5 per thousand to 27.2 per thousand and death rate from 9.8 per 1000 to 8.9 per thousand.
The essence of the reform is to increase productivity of all sections of society by making competition free and access to the markets easier. National pride and self esteem are best promoted by ensuring that we have high economic growth and can produce good quality products which can sell all over the world. There is no room in a globalized world economy delinked from the world trade in foreign investment. If we do not reform rapidly and position ourselves to compete, we are bound to be marginalized. Hence it is through economic reforms that we can keep pace with the fast moving world economy of today.
The achievements through economic reforms programmers, thus far may be termed as first generation reforms. Taking lesson from the achievements and failure on some fronts we are entering into the second generation of Economic reforms. Key aspects of second generation reforms are:
- It is believed that second generation reforms process must focus on building competitiveness of the economy and its different sectors. In order to achieve this many fundamental and structural reforms will have to be undertaken.
- Elimination of subsidies is necessary because subsidies have been responsible for the economic draw-backs especially inefficiency, corruption, malpractices etc. apart from putting the government finance into total jeopardy. Elimination of subsidies may help by automatic revival of many public sector units such as state electricity boards, railways and road transport undertaking, by encouraging private investment in infrastructure and by saving the government from huge burden of non-plan expenditure.
- Reform in public sector undertakings is a necessity for materializing economic reforms. The sick PSU’s must be sold out immediately because such units are merely parasites upon the exchequer. Viable PUS’s can be converted into professionally managed companies by re-bureaucratization and complete autonomy.
- Administrative reforms are a must for the successful campaign for reforms. The government must launch a major drive for simplification of rules and procedure so that corruption at all levels is completely eliminated and transaction cost is minimized. Administrative reforms must be accompanied by corresponding legal adjustment. Red-tapism should not be allowed to exist.
- It must be realized that there is urgent need of infrastructural reforms to clear all the hurdles in the way of the development of infrastructure.
- Improvement in health and literacy among the masses must be emphasized upon. One out of every three Indian is poor, undernourished, illiterate and of poor health. In this connection reduction in growth rate of population is vital. Fall in population growth is linked with health and literacy which are required to be improved on priority basis.
- In the opinion of economists political consensus is the biggest challenge in carrying out the second generation reforms. Populist policies dominate political thinking and political will for basic reforms is absolutely wanting. The reformers have to directly address issues like poverty rather than expect people to wait for a trickle down which may never come. The over-all focus of reforms has to involve all sections of the economy only then will the consensus emerge which shall not be dislodged.
According to the evaluation of economic reforms during the first decade in 1991-2000 by reserve bank of India economic reforms have helped accelerate the healthy economic growth of 1980’s in a more sustainable manner. The most critical issue having a bearing upon the reform process has to cope with the deceleration of agriculture and industry. Agricultural performance declined sharply due to diminished public investment and inadequate diversification. Industry has given a favorable response as a result of liberalization measures such as relicensing, de-reservation opening of foreign direct investment and the lowering of tariff and non-tariff barriers. Industry in India has become much more competitive domestically as well as globally. But industrial development has to be enhanced by stepping up the pace of intuitional reforms.
The central message of RBI’s currency and finance report is that economic reforms are a must for the economy to shift to higher growth pattern and that reforms need to be strengthened further to enable India to catch up with those middle income emerging economies which were similarly placed at the time of independence.
Economic reforms have brought about a widening disparity among the states despite a national policy of liberalization. If globalization has widened the gulf between developing and developed countries liberalization has resulted in greater degree of skew ness in the pattern of development leading to marginalization of some states in the overall dispensation. Reasons for the economic disparity may be enumerated as gap in education, health care and infrastructure. States which had a fairly well developed industrial base have been able to attract new investments both domestic and foreign. Reasons for poor growth in some states is a combination of factors like bloated public administration, a large appropriation of public resources for salaries and non-development expenditure including subsidies and loss making state enterprises. For success of the economic reforms government expenditure must be brought down. Further opening the economy to foreign direct investment is crucial for India to sustain the high rate of economic growth. And finally government’s resolve on economic reforms is the most important factor. India’s Prime Minister Shri Atal Bihari Vajpayee has asserted that there would be no going back on economic reforms as India should effectively respond to changes in the global economic environment to defend its interests.