Date post: | 15-Jan-2015 |
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ECONOMIC REFORMS IN INDIA
BYShubham Goel
Period 1947- 1990
The historical discontinuity after independence
The Plan strategy
A nation building exercise
The experiment with socialism
WHY ECONOMIC REFORMS
A rate of growth of average 3.2 per cent
High population growth denies a significant dent on poverty
A huge public sector with minimum returns
A protective private sector
WHO DID IT?
These reforms (1990s) were brought in by a team led by Dr.Manmohan Singh, who was Finance Minister at the time, and is currently the Prime
Minister.
Philosophy of Reforms
To free the economy from the circumspection of socialist equity in the form of pervasive state control on production, low productivity, a distorted and dis-functional price system and a complacent over-protective private sector.
To establish the supremacy of individual and the role of economic freedom
Perspective: year 1990-91
International reserve came down to $ 1.3 billion, less than 1 month import bill, and India was on the verge of default in foreign obligations [ short term debt]
Stagnant exports India’s ratings down High deficits in domestic budget Public sector banks having large NPA PSU incurring huge losses
International Scene USSR’s disintegration… the currency trouble
weakened
Overall confusion on the efficacy of command economy
Some east European countries came out of socialist economic structure
Loss of credibility of the ‘command economy’ as disturbing revelation came out on lower productivity and disinformation about planning
Role of IMF The Washington consensus about
the ‘transition economies’ Dismantle command economy
structure Reduce the size of government Privatization of state undertakings Reduce and remove budget deficit Make currency stable and current
account convertible
Mechanism Dismantling of the license and
permit raj so that the rent-seeking system is abolished
Minimize the role of the state in production except in some core and strategic areas
Reform of the legal system to end monopoly of any group/ sector
Financial sector reforms
Financial Sector Reforms
Reforms--- change in the budgetary process makes the government accountable--- discipline in revenue-expenditure process
Low inflation- low interest regime
Changes in the banking sector – making the system of bank credit more transparent_ efficient appraisal system and accountability for decision taking
Results of F.S. reforms Role of capital is appreciated and effort
are on to make capital cheaper at par world standard
More transparent estimate of the need for investment in the infrastructure sector--- how to mobilize the resources
One estimate puts the requirement as $50 billion equivalent---- role of foreign direct investment as perceived by the government. Whether FDI is good for the country is no longer the issue
India Growth rates in 1990s
ECONOMIC GROWTHOF INDIA
0
1
2
3
4
5
6
7
8
19
90
19
92
19
94
19
96
19
98
20
00
20
02
PE
RC
EN
T R
EA
L G
DP
Growth Rates (% p.a) 1980s v/s 1990s
1980s(1983-1994)
1990s(1993-2000)
Higher Growth in
1980s 1990s
GDP Per Capita 2.9 4.9
Real Income Per Capita 3.1 4.2
Private Consumption p.c. 1.7 3.6
Private Consumption p.c. 1.2 1.3
Real Wages per worker
All India 2.6 4.4
Rural 2.7 4.1
Agricultural Households 2.8 3.1
Agricultural Workers 2.4 3.1
Urban 2.2 4.9
Cost of Cultivation Survey 3.3 4.4
India__ international liquidity
INTERNATIONAL RESERVES AND FOREIGN DEBT OF INDIA
5
10
15
20
25
30
35
40
45
1993-Q3 1994-Q3 1995-Q3 1996-Q3 1997-Q3 1998-Q3 1999-Q3 2000-Q3 2001-Q3
INTERNATIONALRESERVES
DEBT SECURITIES ISSUED ABROAD
SHORT-TERMCOMPONENT
Source: Joint BIS-IMF-OECD-World Bank Statistics
The biggest drop in The biggest drop in inflation…inflation…
9.59.1
7.4
4
1970s 1980s 1990s 2000-4
% decrease in inflation
The fastest rise in The fastest rise in incomes….incomes….
2013
7
36
70
1950s 1960s 1970s 1980s 1990s
% rise in per capita income
Real GDP growth rates of selected countries during 1990--- 2000 [ per cent]
China 10.3 Ireland 7.3 India 6.0 USA 3.5 Japan 1.3 Russia -4.8 Ukraine -9.3
NEW GENERATION ECONOMIC REFORMS
TELECOM Telecom sector opened up to the private sector
and for foreign investors with 74% equity cap As many as 61 million new phones have been
added since 1998-99 which is more than thrice the number of lines added in the preceding five decades
INSURANCE Insurance sector was opened up in August 2000. Insurance Regulatory and Development
Authority (IRDA) regulates the insurance business.
India in 2050India in 2050
-5,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
US 2
003
$ bi
llion
s
0
1
2
3
4
5
6
7
8
2005-10 2015-20 2025-30 2035-40 2045-50
5-Ye
ar P
erio
d A
vera
ge P
erce
nt P
er
Ann
um
Brazil
China
India
Russia
India will be the 3rd largest economy….
…..with the highest growth rate of BRICs
Reform: Progress & Prospects
Progress so far Prospects
Infrastructure 4/10 Progress to be slow
External Economy 7/10 Will continue to shine
Privatization 4/10 Selective disinvestment
Labour Reforms 3/10 Unlikely under UPA Bureaucracy 3/10 No significant
changes
Current position of Reforms The reforms process has been slowed down__
Reasons Inability to carry out reforms in some crucial
sectors like legal infrastructure and education
Resistance by interested groups Lack of political will Role of powerful bureaucracy as they feel
threatened with diminutive public sector A section of corporate sector beneficiary
of old system
Reforms slowed down?
Low literacy message of reforms not reaching
Lack of genuine administrative reforms at the grass-root levels
Transparency in public policy lacking that creates credibility gap a breeding ground of violence
Need of the hour
Reforms of the infrastructure sector Education_ universities Legal system A proper perspective of market
mechanism Redefine the role of Government
Conclusion
We are in the middle of the process of reforms….
Only expectations about the better future
End of discussion