THE SECOND GENERATION REFORMS (OPERATION 2-G)

NOUFAL PALATHINGAL

The first wave of economic reforms, as a part of the New Economic

Policy (NEP) 1991 aimed to impart a new element of dynamism to the
growth process of the economy. The trust will be “to increase the
efficiency and international competitiveness of industrial production, to
utilize foreign investment and technology to a much greater degree
than in the past, to improve the performance and rationalize the scope
of the public sector and to reform and modernize the financial sector so
that it can more efficiently serve the needs of the economy.” The NEP
focused its attention to dismantling the edifice of controls and a large
number of stabilisation measures were designed to restore internal and
external confidence.

After completing one and a half decades, we can say that the ‘first
generation reforms’ were “crisis-driven.” An appraisal of the
achievements and shortcomings of the reforms necessitated the need
to reform the reform process undertaken during the nineties. The need
for a changing growth strategy paved the way for ‘second generation
reforms’ based on the motto of the attainment of “growth with social
justice.”

The philosophy of second generation reforms observes that “growth is

not just an end in itself. It is the critical vehicle for increasing
employment and raising the living standards of the people, especially
of the poorest. Sustained and broad-based growth, combined with the
programmes for accelerating rural development, building roads,
promoting housing, boosting knowledge-based industries and
enhancing the quality of human resources will impart a strong impetus
to employment expansion. There can be no better cure for poverty
than this in our country.”
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Although lip sympathy has been paid to a policy of ‘pro-poor growth’,

very little effective action programme has been undertaken so far. It is
in this context, the ‘second generation reforms’ seriously aim at taking
programmes of enlarging employment, reducing poverty and building
capabilities of the poor sections of the society.

► THE 2 STAGES OF ECONOMIC REFORMS:

A comparison between the 2 stages of economic reforms on various

socio-economic counts may be summarised as follows
Second Generation
First Generation Reforms
Reforms
Reduce inflation Improve social conditions
Increase international
Restore growth
Priorities competitiveness
Dismantle institutions of Maintain macroeconomic
protectionism and statism stability
Change macroeconomic Boost competitiveness of
rules the private sector
Reform Reform production,
Strategy Reduce size and scope of financing and delivery of
the state health care, education and
other public services
Drastic budget cuts and
Reform of labour markets
tax reform
Restructuring of
Price liberalisation
government
Trade and foreign Upgrading regulatory
investment liberalisation capacities
Instruments
Sectoral conversion and
Private sector
restructuring complex
deregulation
privatisations
Restructuring relations
Easier privatisations between states and the
central government
Public Immediate Medium and long-term
Impact High visibility Low public visibility
Administrat
ive Moderate Very high
Complexity
Nature of Temporary corrections Permanent elimination of
Political widely distributed among special advantages for
Costs population specific groups
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Thus, we can say that the second generation reforms target issues of
equity, regional and sectoral allocation, good governance, institutional
changes and hard decisions on competition policy, labour policy,
disinvestment and privatization.
► BASIC OBJECTIVES:

There are 3 basic objectives for the second generation reforms. They
are as follows
1. attainment of 8 to 9 per cent rate of growth of GDP,
2. Considerable emphasis on human development such that there is
at least 20 per cent point improvement in social indices such as
rate of literacy, rate of infant mortality, expectancy of life at
birth, extent of malnutrition and incidence of infectious diseases,
and
3. Reversing the trend of worsening regional disparities by initiating
a trend of reduction in the gap between per capita SDP of the
poorest states and the highest per capita SDP, and also reducing
the disparities in the state of infrastructural development.

The successful implementation of the second generation reforms

requires the following parameters as
• Strengthen the foundations of growth of our rural economy,
especially agriculture and allied activities
• Nurture the revolutionary potential of the new knowledge-
based industries such as infotech, biotechnology and
pharmaceuticals
• Strengthen and modernize traditional industries such as
textiles. Leather, agro processing and the SSI sector
• Mount a sustained attack on infrastructure bottlenecks in
power, roads, ports, telecom, railways and airways
• According the highest priority to human resource
development and other social programmes and policies in
education, health and other social services, with special
emphasis on the poorest and weakest sections of the society
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• Strengthen our role in the world economy through rapid

growth of exports, higher foreign investment and prudent
external debt management and
• Establish a credible framework of fiscal discipline.
► ANALYSIS & OBSERVATIONS:

As Nobel Laureate Amartya Sen opines India should reset its economic
priorities to make them ‘people-oriented’ rather than ‘commodity-
oriented.’ Economic reforms and social development have to go hand
in hand. We must have a “consensus-driven second generation
reforms” as against the “crisis-driven first generation reforms.” We will
need to improve the quality of our reforms which requires a good
analysis to identify the critical bottlenecks to higher growth and
poverty reduction, innovative design of policy, taking account of socio-
political constraints and supportive institutional changes, all of these
will improve the efficiency and sustainability of reforms. Thus, we can
say that any development strategy should lead us to the following ends
as

• Attainment of a higher rate of growth of GDP,

• An enlargement of the employment potential leading to full
employment,
• Reduction of population living below poverty line,
• Reduction of regional disparities, and
• Promotion of equity leading to better opportunities of
development for the poor and less well off sections of the society
by providing education, training in skill formation and better
health facilities.

The second generation reforms are systemic and conceived as a

package of coordinated action in several areas. The pace of second
generation reforms has been described as the ‘homoeopathic rate of
reforms’, implying thereby that while reforms are happening slowly,
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they are addressing the ills of the economy in a more fundamental

manner.

While it is true that India’s programme of economic reforms has been a

mixed bag of success and failures, a final judgement on it has to wait.
Given the global environment and the hardships that have badly
afflicted the ‘Asian Tigers’ of the yesterday, India’s programme of
economic reforms is already being touted as the ‘role model of
successful reforms.’