Failures in 25 Years of Reform in India


After adoption og liberalization in 1991 India has done well and one can see significant visible change. But, there have been some failures in policies, processes and outcomes in the post-reform period.
There is a need to focus on five areas in short and long terms.

(a) Slow Infrastructure development

Although there is lot of progress, almost all indicators score poorly if one looks at India’s infrastructure particularly compared with countries like China. For example, power shortage is perennial in India. This is one of the single biggest constraints for our growth. Meeting the energy requirements for growth of this magnitude in a sustainable manner presents a major challenge. It is not surprising that the index of infrastructure across states is highly correlated with per capita income and level of poverty. In the post-reform period, we have much greater dependence on private investment through different forms of public-private partnerships (PPPs) than was the case when the reforms started. PPPs have not met the expectations. Ahluwalia (2012) says “ policy is being framed such that PPPs should be a means of bringing private money into public projects and not siphoning public money into private projects!”. May be a different approach is needed on PPPs. Moreover clearances on environment and land acquisition should be faster so that investments can be improved. Similarly ease of doing business in India has to be undertaken. Vijay Kelkar committee’s recommendations would be useful to revive PPP in infrastructure projects. Particularly energy security is important for economic growth and providing power to many households.

(b) Failure in increasing labour intensive manufacturing

 Rise in manufacturing employment is need of the hour. Share of manufacturing in total employment has been almost stagnant at 11 to 12 per cent for a long time. It increased marginally to 13 per cent in 2011-12. In 2010, India accounts for 1.4% of the world exports of manufactures while the share of China is a whopping 15%. The reforms since 1991 have not been comprehensive enough to remove the bias towards capital and skill intensive industries. Also there are distortions in input markets like land and labour. For example, some strongly believe that among other things, labour market reforms are one of the key factors for revival of manufacturing sector particularly in the organized sector. A study by Ramaswamy and Agarwal (2013) strongly suggest that services sector would be an unlikely destination for the millions of low skilled job seekers. India needs to focus on manufacturing sector to provide large scale employment. Manufacturing has the capability because it has stronger backward linkages unlike the services sector. We cannot afford to neglect manufacturing at this stage of development. The policy signals have to clearly say that we stand to support manufacturing activity in a big way. India needs to focus on manufacturing sector to provide large scale employment. Manufacturing has the capability because it has stronger backward linkages. We cannot afford to neglect manufacturing at this stage of development. Labour intensity of organizing manufacturing sector has to be improved apart from increasing the productive employment in SMEs and unorganized manufacturing.

(c) Not taking advantage of demographic dividend

It is known that with demographic dividend, there will be large numbers joining labour force. Labour force in India is expected to increase by 32 per cent while it will decline by nearly 5.0 per cent in China over the next 20 years. India is supposed to have surplus of 56 million while rest of the world will have shortage of 47 million working population. Demographic dividend varies across regions. Northern states will have young population (dependency ratio in Bihar 1.05 , UP 1.08)Southern states have already started aging (dependency ratio TN 1.74, Kerala 1.79). There has been sluggish progress in education and skill levels of workers. Young population is an asset only if it is educated, skilled and finds productive employment. During the Twelfth Five Year Plan (2012–17), 50 million non-farm employment opportunities are proposed to be created and at least equivalent number of people would be provided skill certification. There are huge challenges in raising education and skills of workers and population. In India, education and skills of workers is low although it has been rising over time.
Regarding skill development, only 10 per cent of the workforce in the age group of 15-59 years received some form of vocational training in 2009-10. The percentage of workers who received vocational training was the highest in the service sector with 33 per cent. This is followed by manufacturing (31 per cent), agriculture (27 per cent). In the non-manufacturing and allied activities only 9 per cent had vocational training (GOI, 2013). But, the main problem is that vast majority of workers have non-formal vocational training. Only 11 million workers had formal training while 33 million workers had nonformal training. The present government has also emphasized the importance of skill development. This has to be given priority to take advantage of demographic dividend.

(d) Slow social sector development.

 Although there have been achievements in social sector during the reform period, the progress has been very slow. India has success in growth but there is a failure in progress of social indicators. The country is not only behind china but the progress is slower than many of the Asian countries. It is known that India’s rank of human development index (HDI) is lower compared to many other developing countries. Basically the argument is that compared to economic growth, reduction in inequality, hunger, malnutrition is much slower. Improvement in health and quality of education is slower. There is disconnect between economic growth and malnutrition. Slow reduction in  malnutrition is one of the failures in the post-reform period. We know that the solutions lie in improving agriculture, health, women empowerment and nutrition programs. Also, regional disparities are high in human development. Southern states have done better than Northern and Eastern states.

There are five problems in social sector: (a) low levels of social indicators (b) slow progress (c) significant regional, social and gender disparities (d) low level and slow growth in public expenditures particularly on health and (e) poor quality delivery systems. Social sector should be one of the focus areas for sustainability of economic growth and equity.

(e) Governance Failures

Reforms were expected to improve governance at various levels. However, there are new problems in governance and persistence of old problems including corruption. Apart from many achievements, the post-reform period also witnessed many scams in the financial and real sectors. These scams in the last 25 years could have been avoided with better governance. There has been a nexus between politicians, business people and bureaucracy. Crony capitalism is one of the factors for corruption. Jalan (2006) says the interface between politics, economics and governance, and their combined effect on the functioning of our democracy, which will largely determine India's future.

The analysis also suggests that the overburdened legal system needs legal reforms. Many people feel that governance problem is the biggest constraint for achieving our development goals in the country. The focus of reforms can now be shifted to more efficient delivery systems of public services. It has been recognized that better governance is very important for inclusive development. This is important for better implementation of sectoral policies and poverty alleviation programmes. 

Saturday, 08th Jul 2017, 10:38:11 AM

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