Major Reforms Can Stimulate Indian Economy

India has overcome its economic crisis with powerful planning and better reforms. These major economic reforms in India have successfully improved the charts and raised the bar higher with pride. The reforms had a positive impact on all the sectors covering industries, manufacturing, banking and also, and foreign markets. Since 1991, India has overpowered all the obstacles with the right reforms. 

The major economic reforms in India have led to 

• Increased competition
• Fall in inflation rates
• Improvement in GDP
• Reduction in poverty
• Increase in air travel and foreign tourists
• No Boundaries to foreign goods
• Expansion of automobile and telecommunication sector

Let us now learn in detail about these major economic reforms in India. 

New Industrial Policy

Industrial Policy is the official strategic effort to support the development and growth of the country. The laws are set to focus on all the sectors, majorly manufacturing. 

Under this policy, the industries enjoy freedom from licences and other controls. Let’s see some important points.  

• Freedom to import technology

The government has granted permission to use the latest technology with no barriers.  

• Contraction of the public sector

India has adopted a policy of not getting involved in non-profitable industrial units. Besides this, the government has decided to use the medium of privatisation in some public sectors.

• Free entry of foreign investment

This is one of the major economic reforms in India that have encouraged foreign exchange and investment. The year 1991 saw 51% of foreign investment in 34 high-priority industries without government permission. 

1. NRIs gained freedom in investing a total of 100% in the export areas.
2. Other restrictions by foreign investors have been removed. 
3. Foreign transactions are now simpler after the Foreign Exchange Management Act (FEMA) has been implemented.

• MRTP restrictions removed

Before the policy, industries had to seek permission to issue shares and build a new unit. After the Monopolies and Restrictive Trade Practices Act has been removed, the companies are not required to seek permission anymore.

This addition of major economic reform in India has led to growth and impacted the industries positively. 

New Trade Policy

This policy can be declared as one of the biggest and major changes and reforms in the Indian Economy since 1991. The restrictions held on foreign trade were lifted in one go. Some of the features of this Trade Policy are : 

• No restrictions on export-import and tax

Export-import tax on some items has been abolished, while some items still have the tax to a minimum level. The restrictions have been reduced to some extent.  

• Easy procedure of export-import

The procedure has been simplified which led to an increase in foreign market involvement. The procedure that initially included various documentation and paperwork has been limited to fewer steps. 

• Establishment of foreign capital market

The major impact of reforms is the establishment of the foreign capital market. With no barriers, there is an increase in the flow of sales and purchase of foreign exchange. 

• Full convertibility on current account

In the years 1994-1995, the items that were connected with the current account were no longer in control of the government. It could be sold or purchased by a foreign country with no restriction. Full convertibility on the current account was acceptable. 

Fiscal Reforms

Fiscal policy is the use of government revenue and expenditure to keep track of the Indian economy. It was practised after the Great Depression. 

The biggest problem that India faced was a fiscal deficit, the expenditure exceeded the income. In 1990-91, the fiscal deficit was 8% of the GDP. 

These were the solutions that have been taken to improve the situation. Tax rates for an individual and corporations have been reduced. The procedure has been simplified. A reduction in the import duties has been implemented, marking this as the major economic reform in India.

Monetary Reforms

Monetary Policy is the procedure that includes the authority controlling the cost of borrowings or money supply. This plan focuses on inflation rates for price stability.  

The points regarding these major economic reforms were :

• The Statutory Liquidity Ratio (SLR) has been reduced.
• The banks decide the rate of interest.
• Banks can collect money by issuing shares.
•  It is now possible to open banks in the private sector. 

Capital Market Reforms

The major economic reforms that are connected with the market where securities are sold or purchased are known as capital market reforms. 

• The Portfolio Investment Scheme was started. Under that scheme, the limit for investment by the NRIs has been raised. They can now invest in Indian Companies. 
• The Securities and Exchange Board of India, shortly termed SEBI, has been established.
• The restriction on interest on debentures and the price of shares has been removed. The registration of the sub-broker is mandatory.

Reforms in 2019-2020

Before Covid-19, the economic graph has seen a drastic change in GDP, productivity and employment rate. The environment has suffered too. The Indian government enforced some new major economic reforms to meet the expectations. 

• Reduced statutory barriers to increasing business.
• Review employment protection in the formal sector.
• Increase public spending to improve healthcare.
• Improve the state of the environment. 
• Improve the financial system. 

Conclusion

The major economic reforms in India began in 1991 and it is still in progress. Since then, the government has introduced new industrial policies for trade liberalisation, financial sector liberalisation, and foreign investment policies. In 2020, the government passed bills to liberalise the marketing of agricultural produce and took action for the rights of farmers. 

The 2021 Union Budget extends a proposal to set up reconstruction of assets to banish other toxic assets. 

Now that we know the history behind the major reforms of the Indian economy, you can get a grip on some more general knowledge topics that cover similar information for your railway exams.