Second Generation Reforms

Indian Economic Policy

A. Government determined Development from 1951 to 1991 1. Planning 2. Public Sector 3. State Regulation of Industries
B. Market Determined Development since 1991 1. Liberalization 2. Privatization 3. Globalization

Economic Performance during 50 years

1950-51 to 1980-81: growth rate 3.6% per annum. 1980-81 to 1990-91: growth rate 5.6% per annum. 1900-91 to 2000-01: growth rate 5.6% per annum 1992-93 to 2000-01: growth rate 6.1% per annum

Causes of the Crisis of 1991-92

Unsustainable Fiscal Deficits. Balance of Payment Problems. Crisis in the Middle East.

Central Feature of Currency Policy Debate

Growing Fast, Can Grow Faster. Failure to tackle Poverty and Unemployment. Entering new Hindu growth rate of 5%

Problems of Implementation
A. Losers Threaten Change 1. Farm Lobby 2. Bureaucrats 3. Trade Unions Winners are unsure of Gains 1. Elementary Education: 2% of GDP 2. Public Health: 1% of GDP 3. Drinking Water 4. Infrastructure

B.

Main Problems

Fiscal Deficit. Weak and Inefficient Financial System. Slow Industrial growth. Fall in Foreign Investment and weakening competitiveness. Accelerating Growth rate

Solutions
1. Fiscal Deficit (a) 9.6% of GDP in 2000-01. (b) Public Debt : 85% of GDP in 2001
Look at the Revenue and Expenditure side.

Solution:

Solutions
2. Financial Sector (a) Rising non-performing assets (NPAs). (b) High Cost Banking System.
Merger and Efficiency.

Solution:

Solutions
3.
(a) (b) (c) (d) (e)

Slow Industrial Growth Regulations. Labour Market. Small Scale Reservation Policy. Impoverished Infra-structure. High cost and substandard Products.

Solutions
4. Foreign Investment & Competition
(a) Welcome FDI. (b) Improve Productivity. (c) Capital Account Convertibility.

Solutions
5. Accelerating Growth Rate
(a) State and Central Agricultural Policy. (b) Public Investment in underdeveloped regions.

First Generation Reforms

Thrust areas of

Trade industry Finance

Second Generation Reforms

Thrust Areas of

All areas of First Generation Infrastructure: Social & Physical Labor Market Reforms Legal Reforms.