The Indian Economic Reforms - Essay Example

Download file to see previous pages The Indian Economic reforms refer generically to the changes introduced in July 1991 in all major sets of policies in the face of a looming Balance of Payments (BOP) crisis and substantial macroeconomic instability. These changes mark a significant paradigm shift in the Indian development strategy. The Indian economy had adopted the path of centrally planned development since its independence in 1947.
The socialist framework of the erstwhile USSR was a major motivation and the basic growth model that was adopted was in essence a variant of the Feldman model that was followed in the USSR (Nayyar, 1997). The Indian economy at that time was predominantly agrarian with an almost non-existent industrial base. The objective of the planned development strategy was to attain rapid industrialization and in pursuit, priority was accorded to developing the capital goods sector. Large public sector investments went into the development of heavy industries like iron and steel and capital goods machinery and the private sector was restricted from entering this sector. Heavy regulatory controls were administered to restrict the private sector and the market forces from entering into areas that could interfere with the envisioned trajectory of growth. Gradually, trade restrictions and industrial regulations became so intensive that the economy was virtually isolated from the international market and featured a very low degree of competition in the markets (Minhas, 1991).
In stark contrast, the reforms package mainly rested on policies that sought to privatize, liberalize and globalize the economy. They implied a move on to a path of market-oriented growth, with almost all sectors being gradually opened up to domestic private and foreign private investors. The reforms encompassed all the important sectors of the economy and marked a distinct breakaway from the previous policy regime in that import substituting as the strategic backbone of all policy frameworks, nurtured since the initial stages of planning, was replaced by a market-oriented strategy that sought to attain export-led growth. ...Download file to see next pages Read More