ECONOMIC REFORMS

ECONOMIC REFORMS

The economic reforms were initiated in 1991.
Economic reforms denote the process in which a government prescribes declining role for the state
and expanding role for the private sector in an economy.
It is safer to see economic reform as a policy shift in an economy from one to another or ‘alternative
development strategies’.
Economic reforms In India

On July 23, 1991, India launched a process of economic reforms in response to a fi scal and balance-
of-payment (BoP) crisis.

The reforms were historic and were going to change the very face and the nature of the economy
in the coming times.
The reforms and the related programmes are still going on with changing emphasis and dimensions.
Back in the mid-1980s, the governments had taken its fi rst steps to economic reforms.
While the reforms of the 1980s witnessed rather limited deregulation and ‘partial liberalization
of only a few aspects of the existing control regime, the reforms started in early 1990s in the fi elds
of industries, trade, investment and later to include agriculture, were much ‘wider and deeper’.
Though liberal policies were announced by the governments during the reforms of the 1980s itself,
with the slogan of ‘economic reforms’, it was only launched with full conviction in the early
1990s.
But the reforms of the 1980s, which were under the infl uence of the famous ‘Washington Consensus’ ideology had a crippling impact on the economy.
The whole Seventh Plan (1985–90) promoted further relaxation of market regulations with heavy
external borrowings to increase exports (as the thrust of the policy reform).
By now as the benefi ts of the reforms have accrued to many, the criticism has somewhat calmed
down, but still the reform process is considered as ‘anti-poor’ and ‘pro-rich’.
The need of the hour is to go for ‘distributive growth’, though the reform has led the economy
to a higher growth path.
Reform measures
The economic reform programme, that India launched, consisted of two categories of measures:
Macroeconomic 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 gainful and quality employment
opportunities.

Structural Reform Measures
–  It includes all the policy reforms which have been initiated by the government to boost the
aggregate supply of goods and services in the economy.
–  It naturally entails unshackling the economy so that it may search for its own potential of
enhanced productivity.
–  For the purchasing capacity of the people to be increased, the economy needs increased income,
which comes from increased levels of activities.
–  Income so increased is later distributed among the people whose purchasing power has to be
increased
–  This will take place by properly initiating a suitable set of macroeconomic policies.
The LPG
The process of reforms in India has to be completed via three other processes namely, liberalization,
privatization and globalization, known popularly by their short-form, the LPG. These three processes specify the characteristics of the reform process India initiated. Precisely seen, liberalization shows the direction of reform, Privatization shows the path of reform and globalization shows the ultimate goal of the reform.
Liberalization
The ideology was the product of the breakdown of feudalism and the growth of a market or capitalist society in its place, which became popular in economics via the writings of Adam Smith
and got identifi ed as a principle of laissez-faire.
Pro-market or pro-capitalistic inclination in the economic policies of an economy is the process
of liberalization.
The most suitable example of this process could be China of the mid-1980s when it announced its
‘open door policy’.
The process of decreasing traits of a state economy and increasing traits of a market economy is
liberalization.
In the Indian case the term liberalisation is used to show the direction of the economic reforms—
with decreasing infl uence of the state or the planned or the command economy and increasing
infl uence of free market or the capitalistic economy.
It is a move towards capitalism. India is attempting to strike its own balance of the ‘state-market
mix’.
It means, even if the economic reforms have the direction towards market economy it can never be
branded a blind run to capitalism.
Privatization
The policies through which the ‘roll back’ of the state was done included deregulation, privatization
and introduction of market reforms in public services.
Privatization was used as a process under which the state assets were transferred to the private
sector.
The root of the term privatization goes to this period which got more and more currency around the
world once the East European nations and later the developing democratic nations went for it.
But during the period several connotations and meanings of the term ‘privatization’ have
developed. Some of them are described below:
–  Privatization in its purest sense and lexically means de-nationalization, i.e., transfer of the
state ownership of the assets to the private sector to the tune of 100 per cent. This route of
privatization has been avoided by almost all democratic systems.

–  The sense in which privatization has been used is 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 de-nationalization of less than 100 per cent ownership transfer from the state to the private sector. If an asset has been sold out by the government to the tune of only 49 per cent the ownership remains with the state though it is considered  privatization. If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatization.
–  The third and the last sense in which the term privatization has been used around the world, is very wide. Basically, all the economic policies which directly or indirectly seem to promote the expansion of the private sector or the market (economy) have been termed by experts and the governments as the process of privatization.

Globalization
The process of Globalization has always been used in economic terms though it has always taken
the political and cultural dimensions.
Globalization is generally termed as ‘an increase in economic integration among nations’.
The concept was popularised by the Organisation of Economic Cooperation and Development
(OECD) in the mid-1980s.
In its earlier deliberatization, the organisation had defi ned globalisation in a very narrow and
business-like sense—‘any crossborder investment by an OECD company outside its country of
origin for its benefi t is globalisation’.
The offi cial meaning of globalisation for the WTO is movement of the economies of the world
towards “unrestricted cross border movements of goods and services, capital and the labour
force”.
It simply means that the economies who are signatories to the process of globalization (i.e., signatories to the WTO) for them there will be nothing like foreign or indigenous goods and services, capital and labour. The world becoming a fl at and level-playing fi eld emerging in the due process of time For many political scientists, globalization is the emergence of a situation when our lives are increasingly shaped by the events that occur at a great distance from us about which the decisions are not taken by our conscious self.
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 obligations.
It is a different thing that India started the process of globalization right after the reforms 1991.
It should be noted here that the Indian idea of globalization is deeply and frequently inclined
towards the concept of welfare state, which keeps coming in the day to day public policy as an
emphatic reference.

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