Pre Reform Post Reform
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THE MODEL OF ECONOMIC MANAGEMENT IN INDIA A PRE-REFORM/POST-REFORM COMPARISON NOUFAL PALATHINGAL
The first wave of economic reforms, as a part of the New Economic Policy (NEP) 1991 aimed to impart a new element of dynamism to the growth process of the economy. There has been a judicious blending of real sector policies designed to step up the momentum of growth with financial policies that ensure macroeconomic and financial stability. The major trust of the NEP will be “to increase the efficiency and international competitiveness of industrial production, to utilize foreign investment and technology to a much greater degree than in the past, to improve the performance and rationalize the scope of the public sector and to reform and modernize the financial sector so that it can more efficiently serve the needs of the economy.” The NEP focused its attention to dismantling the edifice of controls and a large number of stabilisation measures were designed to restore internal and external confidence. The SAPs find their origin in the growth of neo-liberalism during the decades of 1980s and the 1990s. The neo-liberalism affirms the role of market in economic decision making and correspondingly limits the role of the state to rule-setting and contract upholding. This type of growth aims at establishing a global market-based system. It is often nicknamed as the “Washington Consensus” as it has the approval of the ‘Brettonwoods Twins’ – IMF and the World Bank.
Pre-Reform Strategies
Post-Reform Strategies
Closed economy
Open economy
Self-reliance
Integration with world markets
State-led economic growth
Market-determined economic growth
Import substitution
Export orientation
License-dominated regime
Delicensing, deregulations & debureaucatisation
Frequent state interventions
Selective and effective state interventions
Politically administered prices
Market-determined prices at large
Not much concern for deficits
Contain all kinds of deficits
Development by inflationary process
Deflationary monetary & fiscal policies
PSUs as engines of growth
Private investments as growth engine
Dominance of PSUs
Withdrawal from the areas of private interest
Philosophy of natural monopoly
Minimize the gap between public and private sectors
Restrictions on FDI & MNCs
Inducement to FDI & MNCs
Restrictions on currency movements
Liberalisation of restrictions
State-controlled interest rates
Deregulation of interest rates
State-controlled credit
Credit policy reforms
Underdeveloped capital market
Reforms in capital market
Huge public sector budgetary resources
Minimize public sector budgetary resources
High tax rates
Tax reforms
Thus, in the new economic environment, the vocabulary itself has undergone a change. Earlier, the key words or phrases were control of commanding heights, nationalisation, employment generation, protection of domestic industry, indigenization of technology and public monopoly. But, today, the key words or phrases are international competitiveness, efficiency, profitability, technology upgradation, foreign capital, liberalisation, privatisation, globalization and golden handshake.
2
The first wave of economic reforms, as a part of the New Economic Policy (NEP) 1991 aimed to impart a new element of dynamism to the growth process of the economy. There has been a judicious blending of real sector policies designed to step up the momentum of growth with financial policies that ensure macroeconomic and financial stability. The major trust of the NEP will be “to increase the efficiency and international competitiveness of industrial production, to utilize foreign investment and technology to a much greater degree than in the past, to improve the performance and rationalize the scope of the public sector and to reform and modernize the financial sector so that it can more efficiently serve the needs of the economy.” The NEP focused its attention to dismantling the edifice of controls and a large number of stabilisation measures were designed to restore internal and external confidence. The SAPs find their origin in the growth of neo-liberalism during the decades of 1980s and the 1990s. The neo-liberalism affirms the role of market in economic decision making and correspondingly limits the role of the state to rule-setting and contract upholding. This type of growth aims at establishing a global market-based system. It is often nicknamed as the “Washington Consensus” as it has the approval of the ‘Brettonwoods Twins’ – IMF and the World Bank.
Pre-Reform Strategies
Post-Reform Strategies
Closed economy
Open economy
Self-reliance
Integration with world markets
State-led economic growth
Market-determined economic growth
Import substitution
Export orientation
License-dominated regime
Delicensing, deregulations & debureaucatisation
Frequent state interventions
Selective and effective state interventions
Politically administered prices
Market-determined prices at large
Not much concern for deficits
Contain all kinds of deficits
Development by inflationary process
Deflationary monetary & fiscal policies
PSUs as engines of growth
Private investments as growth engine
Dominance of PSUs
Withdrawal from the areas of private interest
Philosophy of natural monopoly
Minimize the gap between public and private sectors
Restrictions on FDI & MNCs
Inducement to FDI & MNCs
Restrictions on currency movements
Liberalisation of restrictions
State-controlled interest rates
Deregulation of interest rates
State-controlled credit
Credit policy reforms
Underdeveloped capital market
Reforms in capital market
Huge public sector budgetary resources
Minimize public sector budgetary resources
High tax rates
Tax reforms
Thus, in the new economic environment, the vocabulary itself has undergone a change. Earlier, the key words or phrases were control of commanding heights, nationalisation, employment generation, protection of domestic industry, indigenization of technology and public monopoly. But, today, the key words or phrases are international competitiveness, efficiency, profitability, technology upgradation, foreign capital, liberalisation, privatisation, globalization and golden handshake.
2
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