Earlier, Indian businesses and industries were shielded from worldwide competition by the Indian Government. As a result, the economy was not ready to compete globally with large, well-established corporations and organisations. 

However, in 1991, the government committed to foreign bank-recommended reforms and declared the New Economic Policy (NEP) to strengthen the Indian economy and ensure its future prosperity. As a result, the need for economic reforms has been implemented in many parts of the Indian economy to decrease rigidity from a long-term view and to improve the country’s international competitiveness.

What Are Economic Reforms?

Economic reforms is a concept that describes the significant changes that began in 1991 with the goal of trade liberalisation of the economy and accelerating its growth rate.

The reforms aimed to enhance the participation of the private sector in the Indian economy’s growth strategy. Policy changes were recommended for technical advancement, industrial licensing, and abolishing constraints on the private market, foreign investments, and international commerce. LPG (Liberalisation, Privatisation, and Globalisation) is the popular term used for the three main economic reforms.

In other words, economic reforms imply deregulation or reduction in government size rather than increased restrictions or government initiatives to reduce the damages caused by market failure.

India’s New Economic Reforms

Since the late 1970s, India has experienced numerous economic reforms in the shape of liberalisation. Although a complete series of economic reform measures were implemented in 1991, they directly impacted the country’s growth rate. Therefore, in 1991, the Indian Government implemented neoliberal policies known as the New Economic Reforms. This reform was founded on liberalisation, globalisation, and privatisation.

Need for Economic Reforms

The primary elements that contributed to the government implementing economic changes since 1991 were as follows:

1. Imports outpaced exports, resulting in a decline in foreign exchange reserves.
2. There was a repayment issue because of the unfavourable balance of payments.
3. As public expenditure expanded higher than receipts, the budget deficit widened.
4. A rise in the price of goods and services had a negative effect on investments.
5. State-owned firms failed due to extremely low returns on investments.
6. The Gulf issue increased the price of crude oil, which had a detrimental impact on the country’s balance of payments.
7. A high proportion of funding comes from deficits.
8. The disintegration of the Soviet Union.

The Primary Objectives of the Industrial Policy

1. To liberate India’s manufacturing sector from the constraints of unscrupulous bureaucratic restrictions.
2. To open up the Indian economy to connect it with the rest of the world’s economy.
3. To remove limitations on foreign investment and exempt entrepreneurs from the MRTP Act’s prohibitions.
4. To relieve the burden on state enterprises that were experiencing significant losses.

Economic Reform and its Consequences

Structural reform policies must be implemented consistently to maintain significant growth and expand employment possibilities, as is now commonly understood. Additionally, such policies can help eliminate some of the factors contributing to the highly unequal distribution of income, which significantly impacts human resource planning.

1. India has overcome its most significant economic crisis in record time through reforms.
2. FDI and FII inflows into India have expanded dramatically.
3. India’s economy is becoming increasingly integrated with the rest of the world’s economy.
4. Reforms have enhanced competition in areas such as banking, resulting in increased customer choice and efficiency. Additionally, they have resulted in a rise in the private sector and growth in these areas.
5. Inflation rates fell as reforms increased the output of goods and services, resulting in either dropping or maintaining constant prices. It was also a factor in keeping inflation in check because of the increased competition.
6. The Gross Domestic Product (GDP) increased significantly.

Will The Lowest Growth Rate In A Decade Halt Economic Reforms?

In 2012-2013, India’s GDP expanded by 5%, the slowest rate in the last ten years. High inflation, investor scepticism, a decline in demand for Western products, and high inflation are all factors contributing to this poor performance.

Gross Domestic Product (GDP) increased by 4.8% between the fourth quarter of 2012 and the first quarter of 2013. The Indian Government implemented policies and adopted reforms to stimulate the economy. Unfortunately, economists continue to observe a decline in economic activity in the country.

Because of increasing threats to India’s economic reforms and growth, it has a 33% chance of losing its existing grade. In addition, corruption scandals evaded various government leaders, complicating existing economic reforms. While the Indian economy has had the lowest economic growth in a decade (5%), this does not deter the administration from making efforts to change the economy.

Even former President Barack Obama of the United States recommended that the Indian Government pursue economic reforms. Thus, despite India’s economic development challenges, the Indian Government is not hindered from implementing additional economic changes. For example, the government has liberalised the aviation and retail industries to attract foreign investment. In addition, to ease the burden of subsidies, it has also lowered fuel costs slightly.

It has to open up the insurance and pension industries, which may be a challenging task in the future. However, economic reforms are rising in number, and Indians feel convinced that the economy will now slowly but steadily improve.

Conclusion

Economic reforms were performed in India to alter the economic activity to liberalise the economy and promote economic growth. These new economic changes resulted in a structural shift in the proportion of different sectors of the national income that were previously undefined. Most of the current economic reform initiatives have been geared toward structural improvements in the agriculture sector, industrial sector, banking industry, and international commerce. The need for economic reforms was made feasible by broad and thorough liberalisation, privatisation, and globalisation policies.