Economic Reforms denote the process under which a government prescribes declining role for state and expanding role for the private sector in an Economy. ’ The different strategies of development Evolved through a long period of trial and error by the different countries under the influence of different sets of ideologies.
* Once the soviet union went for the planning model most of the developing countries after their independence were influenced by socialism and the governments there took a central role in planned development.
* The Experiences of these economies gave rise to a new ideology which is popular as the washington consensus.
* The term was usually seen as a corollary of promoting naked capitalism, openness in the economy and an open attitude towards foreign investments, etc.,
* The Government of the developing economies were criticised by the political parties in the opposition and the critiques for being soft to the dictates of the IMF and WB and becoming a party to promote neo-imperialism.
* But these policies, in many cases proved little better than the previous policies in promoting growth over an extended period of time.
* The East Asian economies had promoted a development strategy which had its most distinctive feature as the balance they were able to strike between the role of the state\government and the market\the private sector in their economies.
* This was really a new kind of the mixed economy which was never permanently inclined towards either state intervention or the free market.
* But always a balanced mix of the state and the market according to the requirement of the socio economic situations of the Economy.
ECONOMIC REFORMS IN INDIA
* On july 23rd, 1991, India launched a process of economic reforms in response to a fiscal and Balance Of Payment (BOP) crisis.
* The ultimate goal of the IMF was to help India bring about equilibrium in its BOP situation in the short-term and go for macroeconomic and the structural adjustments so that in future the Economy faces no such crisis.
1) Macro Economic Stabilization Measures
* It Includes all those economic policies which intend to boost the aggregate demand in the economy be it domestic or external.
* For the enhanced domestic demand, the focus has to be on increasing the purchasing power of the masses which entails an emphasis on the creation of the gainful and quality employment opportunities.
2) Structural Reform Measures
* It includes all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and service in the economy.
* The process of reform in india has to be completed via three other process namely liberation, privatization and globalization, popular, by their short form the LPG.
* Similar reform process started by some other economies since the 1980's were voluntary decisions of the concerned countries.
* But in the case of India it was an obligatory decision taken by the Government of the time in the wake of the BOP crisis.
* The reforms India carried or is carrying out at present were neither formulated by India nor mandated by the public.
The IMF conditions put forth for India were as under
* Devaluation of the rupee by 22 percent.
* Drastic reduction in the peak import tariff from the prevailing level of 130 percent to 30 percent.
* Excise duties ( i.e., CENVAT now) to be hiked by 20 percent to neutralize the revenue short falls due to the custom cut.
* All government expenditure to be cut down by 10 percent annually (i.e., cutting the most of running the government and denotes, interests, pays, pension and the PF, subsidies).
* A pressure on the Government to consolidate the fiscal deficit and go for fiscal prudence the reform process india initiated.
* Liberation shows the direction of reform, privatization shows the path of reform and globalization shows the ultimate goal of the reform.
* The term of liberalization has its origin in the political ideology "liberalism". Which took its form by early nineteenth century.
* The term is sometimes protrayed as a 'meta-ideology' capable of embracing a broad range of rival values and beliefs.
* The ideology was the product of break down of feudalism and the growth of a market or Capitalist society in its place which became popular in economies via the writings of Adam smith and got identified as a principle of laissez - faire.
* With the USA on the south pole and China on the north any policy movement towards "the south" is liberalization.
* The movement from the south to the north will be known as Illiberalization.
* The process of decreasing traits of a state economy and increasing traits of a market economy is liberalization.
* In the Indian case the term liberalization is used to show the direction of the economic reforms with decreasing symptoms or the state or the planned or the command economy and increasing symptoms of the free market or the capitalistic economy.
* The policies through which the rollback of the state was done included deregulation, privatization and introduction of market reforms in public services.
* Several connotations and meanings of the term Privatization have developed.
* Privatization in its purest sense and lexically means denationalization i.e., transfer of the state ownership of the assets to the private sector to the tune of 100 per cent.
* The sense in which Privatization has been used in the process of disinvestment all over the world.
* This process includes selling of the shares of the state-owned enterprises to the private sector.
* Disinvestment is denationalization of less than 100 percent ownership transfer from the state to the private sector.
* The third and the last sense in which the term privatization has been used around the world, is very wide.
Globalization is generally termed as an increase in economic integration among nations.
* A closer integration of their economies.
* The globalization lasted from 1800 to almost 1930, interrupted by the Great Depression and the two war which led to retrenchment and several trade barriers were erected since early 1930's.
* The concept was popularised by the organization of economic cooperation and Development (OECD) in the mid 1980's again after war.
* India became one of the founding members of the WTO and was obliged to promote the process of globalization, though its economic reforms started with no such obligation.
* It is a different thing that India started the process of Globalization right since the reforms were started in the 1991, itself.
* It should be noted here that the Indian idea of globalization is deeply and frequently inclined to words concept of the welfare state which keeps coming in the day to day public policy as an emphatic reference.
GENERATIONS OF ECONOMIC REFORMS
* Though there were no such announcements or proposals while India launched its reforms in 1991, in the coming times, many generations of reforms were announced by the Governments.
* A total number of three generations of the reforms have been announced till date while experts have gone to suggest the fourth generation.
First Generation Reforms (1991 - 2000)
* It was in the year 2000 - 2001 that the Government for the first time, announced the need for the second Generation of economic reforms and it was launched the same year.
* The board - coordinates of the first generation of reforms may be seen as under.
i) Promotion to private sector: This included various important and liberalising policies decisions i.e., de-reservation and de-licensing of the industries, abolition of the MRTP limit, abolition of the compulsion of the phased production and conversion of loans into shares simplifying environmental laws for the establishment of the industries etc.
ii) Public sector reforms: The steps taken to make the public sector under takings profitable, efficient, their disinvestment, their corporatization etc. Were the major parts of it.
iii) External Sector Reforms: They consisted of policies like abolishing quantitative restrictions on import, switching to the floating currency regime of exchange rate, announcing full current account convertibility reforms in the capital account, permission to foreign investment.
iv) Financial Sector Reforms: Several reform initiatives were taken up in the areas of the banking sector, capital market, insurance, mutual funds etc.,
v) Tax Reforms: This consisted of all the policy initiatives directed towards simplifying, broadcasting, modernising, checking evasion etc.
Second Generation Reforms (2000 - 01 onwards)
* The major components of the reform are as given below.
i) Factor Marketing Reforms:
* Considered as the back bone for the success of the reform process in India itself, by the major experts it consists dismantling of the Administered Price Mechanism (APM).
* There were many products in the economy whose prices were fixed/ regulated by the Government Viz. petroleum, sugar, fertilisers, drugs etc.
ii) Public Sector Reforms: The Second generation of reforms in the public sector especially emphasises on the areas like greater functional autonomy, free leverage to the capital market, international tie-ups and greenified ventures, disinvestment (strategic) etc.
iii) Reforms in the Critical Areas: The second generation reforms also commit to suitable reforms in the infrastructure sector (i.e., power, roads, especially as the telecom has been encouraging), agriculture, agricultural extension, education and the health care etc.
* These areas have been called by the Government as the critical areas.
* These reforms have two segments.
* The first segment is similar to the factor Market Reforms. While the second segment include a broader dimension to the reforms. viz. corporate farming, research and development in the agriculture sector, irrigation, inclusive education and the health care.
Some other important areas were also emphasised
a) State's Role in the Reforms: All new steps of the reforms were now to be started by the state with the centre playing a supportive role.
b) Fiscal Consolidation: The FRBM Act is passed by the centre and the fiscal responsibility Act (FRA's) is followed by the states as an era of new commitments to the fiscal prudence starts in the country.
c) Greater Tax Devolution to the States: The finance commissions as well as the planning commission start taking greater fiscal care of the states.
* And for the first time it the states had a net revenue surplus collections in the fiscal 2007 - 08.
d) Focussing on the Social Sector: The social sector gets increased attention by the Government with mani fold increases in the allocations as well as show of a greater compliance to the performance of the development programmes.
Third Generation Reforms
* This generation of reforms commits to the cause of a fully functional panchayatiraj institution so that the benefits of the economic reforms, in general, can reach the gross - root level.
* The eleventh plan goes on to ratify the same sentiments and view regarding the need for the third generation of reforms in India.
Fourth Generation Reforms
* This is not an official generation of reforms in India.
* Basically, in the early - 2002 some experts coined this generation of reforms which entail a fully information technology enabled India.
* They hypothesised a two - way connection between the economic reforms and the Information Technology (IT) with each one reinforcing the other.