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Economic Reforms in India

Economic Reforms in India

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Published by Abhijit Jadhav

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Published by: Abhijit Jadhav on Sep 23, 2009
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The economic reforms or liberalization in India mark a shift from socialisteconomy to a market economy. Initiated by the then Indian Prime Minister P.V.Narasimha Rao and his Finance Minister Manmohan Singh, their immediate causewas a foreign exchange crisis during Chandrashekhar government when India hadto sell its gold reserves. Reforms ended the Licence Raj (investment, industrial andimport licensing) and several public monopolies.The UF government brought a budget that encouraged reforms but the 1997Asian financial meltdown and political instability caused economic stagnation. TheVajpayee administration continued with privatization, reduced taxes, introduceda firm fiscal policy aimed at lessening deficits and debts and enhanced initiativesfor public works.India under Nehru and Congress followed the Soviet model of planned economyto rid India of the exploitive colonial British economic policy and its vestiges afterindependence. Five-Year Plans achieved much but also led to heavycentralization, inefficient State capitalism, State monopolies in mining, machinetools, water, telecommunications, insurance, and electrical plants. The so-calledHindu rate of growth became a joke as India stagnated at 3.5% from 1950s to1980s, 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 thetelecommunications sector. Insurance has been opened to private investors, bothdomestic and foreign. The economy has grown at more than 6 per cent, coupledwith full macroeconomic stability. The rate of inflation is once again coming downafter spiralling alarmingly.Rising incomes have helped reduce poverty. According to official figures, theproportion of poor in total population has declined from 40 per cent in 1993-1994to 26 per cent in 2000.Most importantly, the attitude toward reforms has changed. Virtually everypolitical 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; itis also crowding out private investment.Infrastructure like roads, railways and ports all need expansion. Improvement inquality 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.

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