DEVOLOPMENT PROCESS AND SOCIAL MOVEMENTS IN CONTEMPORARY INDIA

ASSIGNMENT (SEMESTER-5)

SUBMITTED TO- DR.MANEESHA ROY

SUBMITTED BY-SHUBHANGNI BHOLA

SECTION-3B

ROLL NUMBER- 212902

Q2. Evaluate the impact of the economic reform process, which brought in many profound changes in
the Indian political economy. Underline those profound changes sectorally from a political-economic
perspective. Has liberalization contributed to the informalization of labour?

Ans. Following its independence, India implemented economic planning to become a rising India. It
sought to advance while guaranteeing a just allocation of the country's resources. Policies for licensing
concentrated on the public sector, import substitution, etc. This further resulted in inefficient resource
use, revenue shortfalls, bad economic management, technological nonadvancement, and a lack of
foreign exchange. The government had no choice but to bring the policy framework back into effect.
Consequently, a series of modifications were implemented to economic policy, commonly referred to as
economic reforms. The main objective of economic reforms was to usher in a new era of globalization,
which included the free movement of capital, human capital, technology, and goods and services,
particularly the migration of labour from one country to another. Economic reforms required the
integration of the Indian economy with the world economy and emphasis shifted to an export growth
strategy from import substitution strategy.

Throughout the first four decades of economic planning (1950–1990), the Indian economy was heavily
regulated. The development of the public sector for establishing a strong industrial sector, self-reliance,
import substitution, nationalization of banks, and state interventionist regime were the main goals of
the five-year plans. SAIL, ONGC, IOC, BHEL, and other important industries were also set up with its
assistance, but it also hindered the expansion of the private sector, private business plans, bureaucracy-
led corruption, public sector enterprises, a deteriorating trade balance, and the early 1990s financial and
economic crisis. India was required to borrow foreign currency from the International monetary fund
and adhere to its requirements, which included a stabilization and structural stability program, a
reduction in trade barriers, changes in its fiscal and monetary policies, and an active engagement in the
world economy.

The World Bank and International Monetary Fund requirements were met by India when it unveiled the
New Economic Policy (NEP). The NEP contained numerous distinct economic reforms. The principal
objectives of the measures were to facilitate trade for businesses and to cultivate a competitive
atmosphere within the economy. These policies can be broadly classified into two categories:
stabilization measures and structural measures. The objectives of short-term stabilization initiatives are
to manage inflation and address some of the vulnerabilities that have surfaced in the balance of
payments. In short, this suggests that it was necessary to keep sufficient foreign exchange reserves and
factor in the increasing costs. The goal of structural reform strategies, on the other hand, is to enhance
the economy's efficiency over the long run and concentrated on eliminating the rigidities in different
Indian economic sectors in order to increase the economy's efficiency and competitiveness abroad.
Three policies were put into effect by the government: liberalization, privatization and globalization.

The purpose of liberalization was to eliminate limitations and allow access to new economic sectors.
While there were some liberalization initiatives in the 1980s related to industrial licensing, export-
import policy, technology advancement, fiscal policy, and foreign investment, the reform policies that
were started in 1991 were more extensive and comprehensive. The regulatory framework in India was
implemented through a variety of means. Firstly, industrial licensing was implemented, requiring
government approval for any business venture, closure, or change in the quantity of goods produced.
Secondly, the private sector was prohibited from participating in many industries. Lastly, certain goods
could only be produced on a small scale. Lastly, there were restrictions on the distribution and pricing of
specific industrial products. Numerous limitations were eliminated by the reform measures that were
implemented in and after 1991. The industrial licensing for the following product categories was
eliminated: cigarettes, alcohol, hazardous chemicals, industrial explosives, electronics, aerospace, and
pharmaceuticals. Only the manufacturing of defence equipment, nuclear energy production, and
railroad transportation are currently considered public sector industries. Small-scale industry produced a
large amount of goods that are now underutilized. The market was granted free reign to set prices in
many sectors. Financial Industry Reforms: Commercial and investment banks, stock exchange
operations, foreign exchange markets, and other financial institutions are all part of the financial sector.
India’s Reserve Bank of India (RBI) oversees the country’s financial sector. RBI has a number of rules and
regulations that govern the financial sector of India. The RBI sets interest rates, determines how much
money banks can keep on hand, and controls the types of loans they can make to different industries,
among other things. Reducing the RBI's role from regulator to facilitator of the financial sector is one of
the main goals of the financial sector reforms. This implies that a number of decisions made by the
financial sector might be permitted to be made without first contacting the RBI. Both domestic and
international private sector banks were established as a result of the reform initiatives. The bank's
foreign investment cap was increased to approximately 50%. The ability to open new branches and
streamline their current branch networks without RBI approval has been granted to banks that meet
specific requirements. While banks are allowed to produce resources both domestically and
internationally, the RBI still has oversight over some managerial responsibilities in order to protect the
interests of the country and its customers. The Indian financial markets now accept investments from
Foreign Institutional Investors (FII), including pension funds, mutual funds, and merchant bankers.

Tax Reforms: Tax reforms pertain to the alterations made in the government's fiscal policy, which
encircles both taxation and public expenditure policies. Taxes come in two categories: direct and
indirect taxes. Individual income taxes and corporate profits are both considered forms of direct taxes.
Since 1991, there has been a decrease in the taxes imposed on individual’s income due to a perception
that high income tax rates play a significant role in evasion of taxes. It is commonly acknowledged that
income disclosure on a voluntary basis and savings are encouraged by modest income tax rates. The
corporate tax rate, which was very high , has been progressively decreased. To aid in the creation of a
single national market for goods and commodities, efforts have been made to reform indirect taxes, or
taxes imposed on commodities. Simplifying is another element of reforms in this field. A number of
procedures have been made simpler, and rates have also been significantly reduced, in an effort to
promote better compliance on the part of taxpayers.

Foreign Exchange Reforms: The foreign exchange market saw the implementation of the first
significant reform in the foreign sector. The Indian rupee was devalued against other currencies in 1991
to deal with balance of payments crisis. As a result, there was an increase in foreign exchange inflow. It
also set the precedent for restricting government control from the process of determining the value of
the rupee in the foreign exchange market.

Trade and Investment Policy Reforms: The goal of the trade and investment regime under liberalization
was to boost foreign investments and technology into the Indian economy while also making industrial
production more globally competitive. Additionally, encouraging the use of contemporary technologies
and the productivity of regional industries was one of the goals.

India imposed quantitative import restrictions in order to safeguard its domestic industries. This was
promoted by maintaining extremely high tariffs and strict import controls. As a result of these policies,
the manufacturing sector's growth was slowed and its efficiency and competitiveness decreased. The
goals of the trade policy reforms were to remove quantitative import and export restrictions, lowering
tariff rates and abolishing licensing on imports. With the exception of industries deemed hazardous or
environmentally sensitive, import licensing was abolished. In April 2001, quantitative import restrictions
on manufactured consumer goods and agricultural products were removed. To make Indian goods more
competitive in global markets, export duties had been eliminated.

Privatization is the process of relinquishing control or direction over a government-owned business.

There are two ways in which government-owned businesses can become private: either they are sold
outright or the government removes its ownership and management role from them. Disinvestment is
the process of privatizing public sector enterprises by offering a portion of their equity to the general
public. The government stated that the sale was primarily intended to facilitate modernization and
strengthen financial discipline. Additionally, it was envisioned that the PSUs' performance could be
raised by effectively utilizing private capital and managerial skills.

The government anticipated that privatization would give foreign direct investments a significant boost.
Additionally, the government has tried to increase efficiency of public sector undertakings by granting
them managerial autonomy. For instance, certain public sector undertakings were accorded a unique
status like miniratnas, navratnas, and maharatnas.The government recognizes public sector enterprises
and designates them as maharatnas, navratnas, and miniratnas in order to increase productivity and
give them the ability to compete more successfully in the liberalized global environment. More
operational and managerial freedom was granted to them so that they could make effective decisions in
order to run the business more profitably and efficiently. Miniratnas, or profit-making businesses, have
also been given more operational, financial, and managerial autonomy. Different status were assigned
to the Central Public Sector Enterprise like for instance, (i) Navratnas – (a) Hindustan Aeronautics
Limited, (b) Mahanagar Telephone Nigam Limited; (ii) Miniratnas – (a) Bharat Sanchar Nigam Limited; (b)
Airport Authority of India and (c) Indian Railway Catering and Tourism Corporation Limited. (i)
Maharatnas – (a) Indian Oil Corporation Limited and (b) Steel Authority of India Limited. When self-
reliance became a key component of public policy in the 1950s and 1960s, many of these public sector
enterprises were first established. They were established with the goal of giving the general public direct
employment opportunities and infrastructure so that high-quality products could be made accessible to
a large audience at a reasonable cost, and the companies could be held accountable to all parties
involved. These companies performed better after receiving the status. Academics contend that the
government partially privatized public enterprises through disinvestment, rather than assisting them in
growing and becoming global players. Recently, the government has made the decision to keep them in
the public sector, give them the freedom to grow in international markets, and allow them to raise funds
independently from financial markets.

Despite being widely perceived as the integration of a nation's economy with the global economy,
globalization is actually a multifaceted phenomenon. It is the result of a number of different policies
meant to change the world so that it is more integrated and dependent on each other. It entails
establishing connections and undertakings that go beyond social, cultural, and geographic barriers.
Globalization aims to create connections so that events occurring far away can have an impact on what
is happening in India. It is establishing a world without borders or uniting the entire world. One
significant result of the globalization process is outsourcing. When a business engages in outsourcing, it
means that it is hiring regular services from outside, primarily from other nations, that were previously
handled internally or domestically (such as security, computer services, legal advice, and advertising,
which are all handled by different company departments. Outsourcing has grown in popularity as a type
of economic activity in recent years due to the development of quick communication channels,
especially information technology (IT). Numerous services, like voice-based business processes popularly
known as BPO or call centres), record keeping, accounting, banking, music production, film editing, book
transcribing, clinical advice, and even teaching. Text, audio, and visual data related to these services are
digitalized and real-time transmitted across national borders and continents with the aid of
contemporary telecommunication links, such as the Internet. In order to obtain services with a
reasonable level of skill and accuracy at a lower cost, many small and medium-sized businesses as well
as multinational corporations are outsourcing to India. Over the post-reform era, India has become a
hub for global outsourcing due to its cheap labor costs and abundance of skilled labor.

The World Trade Organization (WTO) was founded in 1995 to replace the General Agreement on Trade
and Tariffs (GATT). When GATT was established in 1948, 23 countries were part of its global reach!
Indian companies are now active in many other countries due to globalization. For example, the Indian
public sector company Oil and Natural Gas Corporation has projects in sixteen different countries
through its oil and gas exploration and production subsidiary, ONGC Videshz. Tata Steel, a private
company that was established in 1907 and is among the top ten global steel companies, sells its
products in 50 countries and operates in 26 countries. It employs about 50,000 people overseas. HCL
Technologies, one of the top five IT companies in India, has offices in 31 countries and employs about
15,000 foreigners was formerly a small company that provided pharmaceuticals to big Indian
companies. By providing equal trading opportunities to all countries in the world market, global trade
organizations oversee all multilateral trade agreements. The World Trade Organization (WTO) is
expected to establish a rule-based trading framework that forbids nations from erecting arbitrarily high
trade barriers. In order to promote bilateral and multilateral trade, the WTO agreements, which address
trade in goods and services, aim to eliminate tariff and non-tariff trade barriers and expand market
access for all member nations. India, a significant WTO member, has taken the lead in promoting the
interests of the developing world and drafting just international laws, rules, and safeguards. India has
adhered to its WTO commitments to liberalize trade by lowering tariff rates and removing quantitative
import restrictions. Since developed countries make up the majority of the global trade, some
academics wonder why India is still a member of the WTO. Additionally, they claim that while developed
nations complain about agricultural subsidies received in their own nations, developing nations feel
duped because they are compelled to open their markets to developed nations but are denied access to
developed nations' markets. Agriculture has not grown as much during the reform era. The service
sector has grown at a faster rate than the industrial sectors, which reported fluctuations. This suggests
that the expansion in the service sector is the primary driver of the growth. A GDP growth rate of 9 or
9.5 percent is the goal set forth in the Twelfth Plan (2012-2017). The industrial, service, and agricultural
sectors must grow at rates of 4 to 4.2, 9.6 to 10.9, and 10 percentage points, respectively, in order to
reach such a high growth rate. Some academics, though, express concern that such rapid growth rates
may not be sustainable.

Reserves of foreign currency and foreign direct investment have increased quickly as a result of opening
of the economy. Around US$100 million in 1990–1991 and US$467 billion in 2012–2013 were made up
of foreign investments, which comprise both foreign direct investments (FDI) and foreign institutional
investment (FII). From roughly US$ 6 billion in 1990–1991 to roughly US$ 304 billion in 2013–2014, the
foreign exchange reserves have increased. India possesses a significant amount of foreign exchange
reserves globally. During the reform era, India is regarded as a successful exporter of textiles,
engineering goods, automobile parts, and IT software. Moreover, price increases have been contained.
However, the reform process has come under heavy fire for failing to solve some of the fundamental
issues affecting our economy, particularly those related to employment, industry, agriculture,
infrastructure development, and fiscal management.

Growth and Employment: Scholars point out that even though the GDP growth rate has increased
during the reform period, the country has not created enough jobs as a result of the reform-led growth.

Reforms in Agriculture: Agriculture has seen a slowdown in growth and has not benefited from reforms.
Public spending in the agricultural sector has decreased during the reform era, particularly in the area of
infrastructure, which includes roads, irrigation, electricity, market connections, and research and
extension (which was instrumental in the Green Revolution). Small and marginal farmers have been
negatively impacted by the removal of the fertilizer subsidy and the resulting increase in production
costs. Policy changes in this sector, including the removal of minimum support price requirements, the
lifting of quantitative restrictions on agricultural products, and the reduction of import duties on
agricultural products, have had a negative impact on Indian farmers who now have to contend with
more competition from abroad. In addition, production for the domestic market has given way to
export-oriented agricultural policy strategies, which emphasize cash crop cultivation above food grain
production. Prices for food grains are impacted by this.

There has also been a slowdown in industrial growth. This is a result of the decline in demand for
industrial goods brought on by a number of factors, including lower-priced imports and insufficient
infrastructure spending. Developing nations must expose their economies to increased capital inflows
and the flow of goods from developed nations, making their industries more susceptible to imports in an
increasingly globalized world. As a result, the market for homegrown goods has been supplanted by
cheaper imports. Imports are a competitive threat to domestic manufacturers. Lack of investment has
resulted in inadequate infrastructure facilities, including the power supply. Thus, globalization is
frequently perceived as fostering free trade in goods and services from other nations, which has a
negative impact on domestic sectors and job prospects in developing nations. In addition, a growing
country like India still does not have access to the markets of developed nations. For instance, the
United States of America has kept its quota restriction on the import of textiles from China and India in
place even though all export restrictions on apparel and textiles have been lifted in India.

Disinvestment- The government sets a goal for PSE disinvestment each year. Disinvestment was
intended to raise Rs 2,500 crore, for example, in 1991–1992. More than the target amount of Rs 3,040
crore was raised by the government. The achievement in 2013–14 was approximately Rs 26,000 crore,
while the target was approximately Rs 56,000 crore. PSE assets were sold to the private sector at a low
price, according to critics. This indicates that the government has suffered a significant loss.
Furthermore, the money gained from disinvestment was utilized to make up for the government's lack
of revenue rather than being used to expand PSEs and construct the nation's social infrastructure.

Reforms and Fiscal Policies: Public spending growth has been restrained by economic reforms,
particularly in the social sectors. The goal of the tax cuts during the reform era was to reduce tax evasion
and raise revenue, but they did not increase tax revenue for the government. Additionally, the
opportunities for increasing revenue through customs duties have been reduced by the reform policies
involving tariff reduction. Tax incentives were given to international investors in order to draw in their
capital, which further limited the potential to increase tax collections. Spending on welfare and
development suffers as a result.

GDP Growth, Employment and informalisation of labor and Poverty

Economic reform proponents emphasize that the reform process has the ability to quicken economic
expansion. Following the first economic upheaval in the early 1990s, the growth rate increased, and GDP
growth has averaged 7.5 in recent years. Nonetheless, the growth process has not been consistent and
has experienced yearly variations, sometimes as a result of unfavorable external circumstances and
other times as a result of unfavorable domestic factors. For instance, during the following three years
(2005–08), growth stayed consistently stable until the global recession struck, impacting the economies
of nearly every nation on the planet, including India. However, it is important to note that India's growth
rate was only slightly slower than other nations during the recessionary pressures, and that growth
resumed the following year, demonstrating the resilience of the Indian economy.It means that the
positive effects of economic reforms on the process of growth have finally been demonstrated.

Annual Average GDP Growth Rate

1980-81 to 1990-91 5.6

1990-91 to 2000-01 5.5
2000-01 to 2009-10 10.4
2010-11 7.9
2011-12 7.0
(Source-Economic Survey 2011-12)

Poverty ratios have decreased as a result of economic reforms, though not consistently. The Table
demonstrates that while poverty rates in both rural and urban areas decreased significantly between
1983 and 1984, the post-reform period has seen a less dramatic decline, making economic reforms
incapable of accounting for the entire decline. The table presents a satisfactory picture, showing that
between 1993 and 2000, poverty decreased by almost 10% in both rural and urban areas. Nevertheless,
the percentage of the population living below the poverty line increased between 2004 and 2005,
suggesting that the strategies used to reduce poverty were ineffective. Stagnation in rural growth has
been identified by few economists as a major cause of it. In summary, the entire scenario demonstrates
an unsatisfactory reduction in India's poverty during the post-reform era.

Reduced unemployment and poverty are the results of faster growth and more qualitative employment.
But until one looks at the nation's rate of population growth as well, this equality is meaningless. Even
though India's population growth rate decreased from 2.12 to 1.93 between 1994 and 2000, the labor
force and employment also decreased during that time, raising serious concerns about the effectiveness
of economic reforms. This is demonstrated in the following table. A decline in the quality of employment
was also confirmed by this startling development, which caused the organized sector employment to
decline from 1.20 in the pre reform period to just 0.53 in the post reform period.

In the same time frame and with considerably greater intensity, from 2.39 percent in 1999–2005 to 1.71
percent in 2004–2010, employment growth also decreased in 2000. In the age of globalization, this is a
major setback because employment growth must be consistent, if not accelerated, in order to
accommodate the growing labor force. Although this trend was justified by the clear effects of the
stabilization program, it is crucial to examine this image now, before it is too late. According to the data
in this table, there was a very slight improvement in employment conditions from 1999/00 to 2004/05
and a significant improvement from 2004-05 to 2009-10. Employment growth in the organized sector
was substantially slower during the first phase as compared to the expansion of the labor force or
employment overall. Consequently, the unorganized sector was absorbing a large portion of the
incremental labor force. The number of employees in the unorganized sector increased at a significantly
slower rate than the labor force during the second period, in contrast to the significant migration of
workers from the unorganized to the organized sector.A positive trend can be seen in the rise in formal
employment in the organized sector, which went from 1.73 to 4.02 percent over the same time period.
This is the case due to the fact that quality employment requires a rise in the organized sector's
workforce. Furthermore, compared to the public sector, the private sector has performed better in
generating job opportunities.

Preliminary estimates of jobless growth indicate that it increased from 4.5% in 1983–1993–1994 to 5.5%
in 1993–1994 and 2004–2005. Looking at this fact, it appears as though the labor force that is employed
has changed into the labor force that is unemployed. Women who may return to the workforce after a
"break" in their careers and teenagers who work part-time or summer jobs and eventually quit have an
impact on the labor force growth in addition to the population growth rate.

According to the most recent data available for the years 2004–05, only 6% of all jobs were in the
organized sector. The large portion of India's labor force that is employed in the informal economy has
resulted from the slow growth of employment in the organized sector. If we look at the data in the table
above, this becomes clear. These figures provide an explanation for the significant difference in worker
employment between the formal and informal sectors of the economy, which raises serious concerns
about the nature of employment. Although the employment trends in the informal sector have largely
not changed over the course of the two periods, the number of informal workers employed by the
formal sector has increased from 20.5 million in 1999–2000 to 29.1 million in 2004-2005. Consequently,
there has been an informalization of employment in both the formal and informal sectors of the Indian
economy. In the informal sector alone, women make up roughly 96% of the workforce, compared to
91% of men. Approximately 65–70% of workers in urban areas are employed in the organized sector.

(SOURCE-NATIONAL COMMISSION FOR ENTERPRISES IN THE UNORGANISED SECTOR, 2007)

CRITICAL ANALYSIS OF THE ECONOMIC REFORMS

The last ten years have seen significant reforms that have greatly reduced state influence over the
domestic economy. In almost every industry, the state monopoly has been eliminated and the private
sector has been welcomed. The era of the License Raj has ended. Though progress has been made, there
is still a reservation for the two small-scale industries. Fashion recently opened to all investors due to its
significant export potential.

1991 saw a widespread implementation of import licensing in the field of international trade, with
goods classified as restricted, prohibited, and limited permissible, and open general licensing (OGL).
Although the most lenient category, OGL only included 30% of imports. Furthermore, according to the
OGL system, a few requirements needed to be met before importing was authorized.

Import licensing is no longer in effect. This includes clothing and textiles, which are still protected in
developed nations due to the multi-fiber arrangement. With the average tariff rate falling to less than
25%, the highest tariff rate (including the tariff surcharge and the so-called Special Additional Duty) has
decreased to 45%. Like in other developing Asian nations, the rules governing foreign investment are
liberal. The New Telecom Policy, which was released in 1999, established the goal of offering phones on
demand by the year 2002. The private sector is now a significant player in the telecommunications
industry. This objective has already been fulfilled in a lot of cities. Both fixed and cellular service are now
available to the private sector, including foreign investors. India's telecom services are proliferating as a
consequence.

India's electricity sector is arguably the most significant reform area. A sufficient supply of power is
necessary for almost every sector of the economy, including services, agriculture, and industry, to
successfully undergo transformation. In practically every state, the power industry has been a
government monopoly and is infamously inefficient, with widespread electricity theft being one of its
problems. A number of states have recently implemented reforms entailing the privatization of power
distribution and generation; however, thus far, no particularly noteworthy outcomes have been found.
The most benefit can be obtained in this area through creative reforms.

In the past ten years, economic reforms have largely ignored agriculture. In addition to fertilizers,
farmers also require a sufficient supply of electricity and water. Although they are currently given away
for free, their supply is extremely erratic. Additionally, farmers must not have to accept a procurement
price that is less than the market price in order to receive the full market price for their goods. Export
prohibitions also need to be gradually lifted. It is widely acknowledged that primary education needs to
be expanded. However, changes in the field of higher education are also required. In India, state
universities continue to be monopolies. The state cannot afford to waste any more resources in order to
reduce the fiscal deficit. Thus, similar to the majority of other nations, such as Bangladesh and the
People's Republic of China, private universities need to be permitted to enter India.

Reforms in the financial sector—in particular, banking reform—remain a distant objective. Even though
international banks are now permitted to open branches in India, they haven't yet made a significant
impact. Although it will take time for the banking sector to be privatized, significant efficiency gains
could be realized if labor laws are changed to reinstate the hire and fire policy. Bank layoffs have been
exceedingly difficult, and voluntary retirement plans are very expensive.

CONCLUSION
In order to lighten the burden on public sector companies, the main goals of the reforms were to
promote privatization, decrease bureaucratic controls, remove barriers to direct foreign investment, and
introduce liberalization. The LPG model, proposed by the government to integrate the Indian economy
with the global economy, was the central component of economic reforms. Economic reforms have had
a favorable effect on GDP growth and have satisfactorily increased foreign investment. However, these
reforms have not provided the necessary stimulus to address the larger issues facing our country, such
as unemployment and poverty. The public sector's almost complete cessation of capital investments in
agriculture is another indication that it has been neglected. Furthermore, economic reforms have not
been able to quicken the growth of industry. In comparison to Indians, foreigners have benefited more
from economic reforms in entering the Indian market. Proof of this can be found in the ongoing trade
imbalance. In terms of lessening regional disparities, economic reforms have also fallen short. There is a
growing disparity over time between the larger and smaller states. India and other nations have
experienced both positive and negative outcomes from the liberalization and privatization policies that
have accompanied the globalization process. According to some academics, globalization presents
opportunities for developing countries' large industries to grow into significant players in the
international arena, as well as for increased access to global markets and advanced technology.

REFERENCES
1) Indian Economy NCERT CLASS 11th

2) Economic survey 2011-12

3 )Asian Development bank reports

4) India’s Economic Reforms- What Has Been Accomplished? What Remains to Be Done? - Arvind
Panagariya