Economic Reforms: Ups and Downs

The government replaced old economic policies in India with new and improved policies to accelerate the country’s growth and development. The main economic reforms are a set of policies that helped shape modern India’s infrastructure and economy. Let us explore the successes and failures of economic reforms in detail.

New Economic Policies

Until 1990, foreign trade was restricted in India, and there were very few private sector industries. India’s economy was at its worst, unemployment was at its peak, and it was a period of depression. The condition of public sector enterprises was very poor. 

In 1991, the government of India realised that the country needed new policies. So they initiated a series of economic reforms to replace the old policies and the crisis created by them. 

The reforms launched by the government and economists in 1991 came to be known as the New Economic Policies (NEP). They consist of three broad components:

• Liberalisation: The liberalisation policy replaced licensing. Before 1991, many licences needed to be approved for trade.
• Privatisation: The privatisation policy was made and launched to replace quotas for industries.
• Globalisation: The globalisation policy was announced to replace the permits for exports and imports. It removed the barriers to trade between countries.

Elements of New Economic Policies

1. Liberalisation: 

Before 1991, industries had to take permission from the government to ask what they should produce and its quantity. It was a severe drawback for the Indian workforce.

Liberalisation gave those industries the freedom to produce any product they wanted in whatever quality they liked from the controls imposed by the government.

2. Privatisation:

Earlier, the role of the public sector in the Indian economy was not very prominent. The privatisation policy changed that and gave private sectors numerous opportunities to take a stand in the market. 

It was directly aimed at decreasing the public sector’s workload and providing better quality finished goods to the consumers. It also played a vital role in bringing foreign direct investment and strong competitors into the market.

3. Globalisation:

Globalisation was introduced to connect the Indian economy with the world economy. It encouraged Indian imports and exports and replaced the permit system. This policy made foreign trade easier and increased foreign investment as well.

7 Main Economic Reforms

The 7 reform movements introduced in India are as follows:

• Agricultural reforms
• Infrastructure reforms
• Land reforms
• Labour reforms
• GST 2.0
• Direct taxes reforms
• Financial sector reforms

Sectors Affected by Economic Reforms

1. Industry

The secondary and tertiary sectors of the economy have benefited most from economic reforms. Before the reforms, heavy industries were the government’s responsibility. Rigid price controls and restrictions on private investment choked the economy. 

As a result of economic reforms, the Monopolies and Restrictive Trade Practices Act (MRTP) was deregulated and superseded by the Competition Commission of India (CCI).

Before the main economic reforms, several activities were reserved only for the public sector enterprises. Now, mandatory permissions are expelled from the market. Not just Indian industries but foreign investment restrictions were also deregulated. This led to a huge growth in industry and services.

2. Foreign Trade:

International trade is one of the greatest determinants of a country’s economic development. Globalisation impacts the Indian market’s performance in the world. The failures of economic reforms were corrected to increase the share of the Indian economy in world trade.

3. Agriculture:

One of the biggest failures of economic reforms is that they did not cater to the agriculture domain. Rather, these reforms were highly focused on the development of the industrial and services sectors. It is a major drawback as the agricultural industry contains over 50% of the workforce in India. 

4. Income Inequalities:

Nearly stagnant growth in the agriculture sector and strong growth in other sectors have widened the income gap. Increasing income inequality is the most powerful weapon in the arsenal of those opposed to economic reforms. The failure of reforms to create inclusive growth had put the poor and oppressed out of reach of the fruits of development.

Conclusion

The 7 reform movements and the NEPs were made to accelerate the growth and development of the Indian government. These new policies and laws tackled the major restrictions on trade and economic growth. 

However, the main economic reforms affected different sectors differently. While the agricultural sector could not prosper, the policies helped grow the industry and services sector.