Economic Reforms Defined


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Economic reform is an action taken by the government targeting economic policy instruments designed to effect changes in the behaviours of public and/or private economic agents with a view towards either boosting their sustainable and non-inflationary demand addressed to the national economy or increasing their productive investments to achieve national economic growth and employment creation targets. Despite its apparent clarity, this definition needs to be further elucidated. Although it indicates that the final objective of the reforms is to achieve economic growth and employment creation objectives , it also clearly shows that, to do so, the reforms must first have a positive impact on the demand addressed the national economy and/or productive capacity building. Stimulating supply and demand is therefore an intermediate objective or a necessary transient point for any effective economic reform.
Many developing countries in the Asia-Pacific region, including China and India where nearly one third of the world’s population live, are currently going through economic transitions. The central objective of transition through economic liberalization is to improve the competitive efficiency of the economy in the global marketplace to sustain accelerated rates of economic growth and thereby continuously improve the security and well being of the people. India launched its market-oriented economic reforms in 1991. China launched similar reforms from 1978 and is now well ahead of India in integrating its national economy with the global economy. However, India is slowly but surely catching up in this race. The contrast in the experiences of these two countries with economic reforms under radically different political systems is remarkable. While comparisons between China and India are often made by development analysts and are inevitable when we discuss economic transitions in Asia, a more realistic assessment of the experiences of both these major countries of Asia can only be made if we explicitly take into account the stark contrast in their political systems. In India, post-1991 economic reforms have been evolutionary and incremental in nature. There have been delays and reverses in some areas due to the interplay of democratic politics, coalition governments, and pressure groups with vested interests. However, each of the five successive governments that have held office in India since 1991 have carried on these 1 I thank Dr. N K Paswan for his help in preparing the statistical tables included in this paper.
Economic reforms in India started on 24 July 1991with the adoption of the policy of  Liberalisation, Privatisation and Globalisation (LPG). After independence in 1947, Indian adhered to socialist policies. Attempts were made to liberties the economy in 1966 and 1985. The first attempt was reversed in 1967. Thereafter a stronger version of socialism was adopted. The second major attempt was in 1985 by Prime Minister Rajiv Gandhi. The process came to a halt in 1987, through 1966 style reversal did not take place. In 1991 after India faced a balance of payments crisis, it had to pledge 20 tonnes of gold to Union Bank of Switzerland and 47 tonnes to Bank of England as part of a bailout deal with the International monetary fund. In addition the IMF required India to undertake a series of structural economic reforms. As a result of this requirement the government of P.V. Narasimha Rao and his finance minister Dr. Manmohan Singh started back through reforms, although they did not implement many of the reforms the IMF wanted.The new neo-liberal policies included opening for international trade and investment, deregulation initiation of Privatization, tax reforms, the inflation controlling measures.
The overall direction of liberalization has since remained the same irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade union and farmers and reducing agricultural subsidies.
Liberalization
The term “Liberalization” stands for “the act of making less strict”. Liberalization in Economy stands for “The process of making policies less constraining of economic activity." And also “Reduction of tariffs and/or removal of non-tariff barriers.”
Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with neo-liberalism. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.
Privatization
The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.”
The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company.”
Privatization helps establish a "free market", as well as fostering capitalist competition, which its supporters argue will give the public greater choice at a competitive price. Conversely, socialists view privatization negatively, arguing that entrusting private businesses with control of essential services reduces the public's control over them and leads to excessive cost cutting in order to achieve profit and a resulting poor quality service.”
Globalization
Globalization is one of those words that seem to be all things to all people. Some use it in the narrow sense to mean increased trade and capital flows between nations. There is no question that such global integration has proceeded apace since the Second World War, and accelerated dramatically over the last two decades. Spectacular technical change, especially in information and communication, which has facilitated this integration, is also included by some others under the heading of globalization. To yet others, the perceived increase in economic and political power of mobile capital and skilled labor at the global level, vis a vis unskilled labor and sovereign governments, is what best characterizes the developments at the end of the 20th century and the beginning of the 21st . At the same time as discussion of globalization has come to dominate the international discourse, the national discourse is dominated by the issue of “economic reform”. In fact, globalization and economic reform are not unrelated because one of the key tenets of economic reform in the last ten years has been the opening up the national economy to international competition through more openness in trade and in capital flows. The other, and related, key tenet has been the rolling back of the state in major areas of economic and social activity. While the early zeal of globalizers and economic reformers has been curtailed somewhat in the last few years as the result of the financial crises of the late 1990s, and the realization from experience that what is needed is not “downsizing” but “rightsizing” of the state, these two tenets still define the thrust of what “economic reform” means in many developing countries, including in India.


Thursday, 06th Aug 2015, 07:52:34 AM

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