ECONOMIC REFORMS IN INDIA

Mr. Pankaj Jain

Faculty - Lovely Professional University Jalandhar

The Planning Era 1990 - 1991



A Critical Assessment ::

 

 

A rate of growth of average 3.2 per cent High population growth denies a significant dent on poverty A huge public sector with minimum returns A protective private sector

Philosophy of Reforms


To free the economy from the circumspection of socialist equity in the form of pervasive state control on production, low productivity, a distorted and disfunctional price system and a complacent overprotective private sector. To establish the supremacy of individual and the role of economic freedom

Perspective: year 1990-91



International reserve came down to $ 1.3 billion, less than 1 month import bill, and India was on the verge of default in foreign obligations [ short term debt]

    

Stagnant exports India s ratings down High deficits in domestic budget Public sector banks having large NPA PSU incurring huge losses

International Scene


USSR s disintegration

the currency rouble weakened

Overall confusion on the efficacy of command economy Some east European countries came out of socialist economic structure Loss of credibility of the command economy as disturbing revelation came out on lower productivity and disinformation about planning

IMF and new WTO Regime

New WTO regulations make domestic liberalization and globalization an integrated one exercise

Mechanism
 

Dismantling of the license and permit raj so that the rent-seeking system is abolished Minimize the role of the state in production except in some core and strategic areas Reform of the legal system to end monopoly of any group/ sector Financial sector reforms

Continued


Reform of the system to allow free market mechanism by

  

 

Dismantling the administered price mechanism Inducing firms to set own targets of production Removing all artificial barriers to unleash forces of competition Reforms of the tax system Removal of trade barriers

Financial sector reforms



Fiscal reforms--- change in the budgetary process makes the government accountable--- discipline in revenue-expenditure process Low inflation- low interest regime Changes in the banking sector making the system of bank credit more transparent_ efficient appraisal system and accountability for decision taking

Results of F.S. reforms



Role of capital is appreciated and effort are on to make capital cheaper at par world standard [ GOI yet to fulfill the just demand of the corporate sector]

More transparent estimate of the need for investment in the infrastructure sector--- how to mobilize the resources One estimate puts the requirement as $50 billion equivalent---role of foreign direct investment as perceived by the government. Whether FDI is good for the country is no longer the issue

India


Let us see some developments in economic scene

India__ Growth rates in 1990s

E C O N O M IC G R O W T H O F IN D IA
8

6 PERCENT REAL GDP

0 1990 1992 1994 1996 1998 2000 2002

India__ external sector

IN D IA 'S M E R C H A N D IS E T R A D E
60

50 IM P O R T S 40

30

EXPORTS

20

10

1990

1992

1994

1996

1998

2000

India__ international liquidity

I
45 40 35 30 25 20 15 10 5

I I

L B I

V I

1 9 9 3 -Q 3

1 9 9 4 -Q 3

1 9 9 5 -Q 3

1 9 9 6 -Q 3

1 9 9 7 -Q 3

1 9 9 8 -Q 3

1 9 9 9 -Q 3

S o u r c e : J o in t B IS - IM F - O E C D - W o r ld B a n k S ta tis tic s

 

I V B U U B I I

2 0 0 0 -Q 3

2 0 0 1 -Q 3

GNP of 12 countries[ as on 2001 ]

 

Pop million 284 127 82 60 59 1272 58 31 40 99 173 1033

GNP b$ 9901 4574 1948 1451 1377 1130 1123 662 587 550 529 474

Rank 1 2 3 4 5 6 7 8 9 10 11 12

GNP/C Rank Dollars 34870 35590 23700 24230 22690 890 19470 21340 14860 5540 3060 460 7 4 20 16 24 138 30 26 39 68 89 161

           

USA Japan Germany U.K. France China Italy Canada Spain Mexico Brazil India

Real GDP growth rates of selected countries during 1990--- 2000 [ per cent]
  

  

China Ireland India USA Japan Russia Ukraine

10.3 7.3 6.0 3.5 1.3 -4.8 -9.3

Need of the hour



Reforms of the infrastructure sector  Education_ universities  Legal system  Sense of accountability  A proper perspective of market mechanism  Redefine the role of Government

Need
  

Spread of innovation Incentive system An effective supervision system as reform process brings fragility also in the financial system.

WHY ECONOMIC FREEDOM IS NECESSARY AND FOR THAT A CONGENIAL ATMOSPHERE IS TO BE CREATED __ THAT SHOULD BE THE GOAL OF ECONOMIC REFORM

Issue__ Economic Freedom

Economic freedom__ parameters

         

Trade Policy Taxation Government Ownership Monetary Policy Restrictions on Foreign Investment Restrictions on Banking Wage and Price Controls Property Rights Regulations Black Market

Freedom and income

3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 Represse M stly Free

Aver e Annual Real er apita GDP Gr wth, 1980-1993

Freedom__ bop of some countries[ 2001]

Billions of U.S. $ -20 Australia Hong Kong (97) India Japan Korea Malaysia (97) New Zealand Philippines (97) Singapore Thailand Indonesia Vietnam (97) China -10 10 20 30 40 50 0