Economic Reforms for Modern India

The term ‘economic reform’ usually refers to changes made to existing laws and policies. India introduced several economic reforms to promote economic stability and improve the economy since its independence. The main aim of these is to establish a good economic standing and provide for the needs of the country and its people.

India faced a major crisis in 1991, after which it had to find ways to improve its economic situation, due to which new reforms were introduced. Since India’s independence, the New Economic Policy (NEP), consisting of various economic reforms under three heads, i.e., Privatisation, Globalisation, and Liberalisation, has been adopted. 

Privatisation

• Privatisation is the process of transfer of ownership and control of an asset from the government to any private entity
• This can be done either by the withdrawal of the government from the management or by the outright sale of public sector companies
• Privatisation was undertaken with a point of working on monetary discipline and working with modernization by utilising private capital and administrative ability
• The public authority visualised that Privatisation could give solid stimulus to the inflow of FDI
• Also, to increase the efficiency of the PSU’s managerial autonomy in decision-making has been provided to them by granting them special statuses such as Maharatnas, Navratnas, and Miniratnas

Globalisation

• It is the process of integration of the economy of a country with the world economy
• It is a complex phenomenon aiming to transform the world into greater interdependence and integration by creating networks and activities transcending economic, social, and geographical boundaries, thus creating a borderless world

Liberalisation

Liberalisation incorporated shutting down monetary limitations and opening different areas of the economy. Different arrangements under liberalisation were as follows: 

Deregulation of Industrial Sector

Earlier in India, mechanisms such as industrial licensing, reserving certain industries for the public sector, policies permitting only small-scale industries allowed in certain areas, controls on price fixation, and distribution of certain products were used to regulate the industry. Later, the reforms made the following changes: 

• For all product categories like alcohol, hazardous chemicals, cigarettes, electronics, industrial explosives, aerospace and drugs, and pharmaceuticals, industrial licensing was obliterated 
• Only defence equipment, atomic energy generation, and railway transport were reserved for the public sector
• Many goods manufactured by small-scale industries have now been de-reserved
• The market has been permitted to determine the prices in many industries

New Economic Policy, 1991

• After the crisis of 1991, India introduced economic reforms to improve its situation
• The New Economic Policy of 1991 has three important components: liberalisation, privatisation, and globalisation, also known as LPG
• Increased competition, higher demand, adoption of new technology, development of human resources and skills, and increased focus on customers have been some of the benefits of these reforms
• Since the liberalisation process began, the Indian marketplace has opened up to both private and public sector enterprises
• The private sector was encouraged to grow, and only eight industries were restricted to the public sector in 1991
• This growth of the private sector is known as privatisation
• Slowly, the country began to carry out those enterprises with foreign organisations. This is called globalisation

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

• It is an act of the Indian Parliament to combat black money, hidden foreign assets, and income 
• It involves imposing tax and penalties on such income
• The Lok Sabha passed this Act on May 11, 2015, and the Rajya Sabha on May 13, 2015
• This law aims to bring income and assets held outside the country back into the country
• Failure to obey the rules under this Act has serious outcomes, including fines and possibly imprisonment

Goods and Services Tax (GST)

 Following are some benefits of GST:

•  The establishment of a single national market, a push for the “Make in India” project, increased investment and jobs, a simplified tax structure, ease of doing business
• Procedures that are more automated and make better use of information technology
• Costs of compliance are reduced, agriculture, trade, and industry benefit
• It benefits small traders and enterprises
• It removes the application of taxes at every stage of supply
• Although GST has been criticised, its benefits exceed its drawbacks

Demonetisation, 2016

On November 8, 2017, Prime Minister Narendra Modi announced the demonetisation of all Rs. 500 and Rs. 1,000 banknotes. The following are the goals of making such an announcement: –

• Reduce the use of black money, increase cash in the banking system, stop the handling of fake currency, reduce all possible finances for terrorists
• Many limits were placed on the government’s plan to stifle it. The public ran into several issues in meeting the standards on such short notice
• According to recent estimates, India is still recovering from the demonetisation shock, despite the rise in popularity of digital payments and cashless transactions

Conclusion

Economic reforms refer to changes in existing rules and regulations concerned with economic growth. Post-Independence, India was faced with the responsibility of rebuilding its economy. Thus, reforms were introduced, such as the abolition of privy purse and licence Raj and the introduction of banking reforms.In 1991, faced with a crisis, India had to promote economic development, which led to the introduction of the New Economic Policy 1991, also known as LPG reforms. In recent times, with the introduction of GST and demonetisation, the country aims to continue growing on the economic front.