THE 1991 ECONOMIC REFORM STORY
"Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to new, when an age ends, and when the soul of a nation, long suppressed, finds utterance...” The clock struck 12 and finally India and Pakistan attained freedom from the British Raj. It was the 15th of August 1947 and India was already in the midst of grappling widespread poverty, agricultural as well as an industrial crisis. A planning commission was established in 1950 and the then PrimeMinister Jawaharlal Nehru introduced the First Five year plan to the parliament in 1951. The five year plans were a formal model of planning that aided the Indian government to make effective and balanced utilisation of resources.Effective implementation of the Plan led to India registering 3.6% GDP growth per year, in the early years of independence, outperforming even the Plan’s target of 2.1% of GDP growth per year.
The second five year plan, also famoulsy called the Mahalanobis Model. This plan laid emphasis on government led industrialization. Thus paving the way for License Raj in India. In this sytsem the government had a stronghold over all aspects right from deciding which company will produce what to setting prices for the commodities produced. Life under the License Raj was marked by scarcity of resources. The choices that consumers had in their day to day lives were very limited. For example cars were available only in one colour and only two to three brands of scooters subsisted in the market to choose. Banks were nationalized in 1969 and the Restrictive Trade Practices Act of 1970 was passed giving more strenght to the License Raj. One thing that stood out in the License Raj was that the licenses itself were made a commodity available in short supply. If a company wanted to expand its production they had to acquire a license which was not easily available. Hence a “market” for licenses had evolved, putting a price on the licenses. Competition that is the race for licenses started where every company wanted to acquire a license before their competitors. Many a times people acquired licenses not to produce more but to stop their competitiors from expanding. The License Raj created a ‘scarcity economy’ leading to a Balance of Payment crisis in 1970.
Then came the year 1966 which is called as a stepping stone to the 1991 economic reforms. India had launched it’s first expirement with all inclusive economic liberalisation. It was an amalgamtion of whim, existing state of affairs and sub standard economics. There was rapid inflation caused by incresing budget deficit accompanied by the Sino-Indian war and drought that coerced the Indian government to borrow from the Interntional Monetary Fund (IMF) and the World Bank. The rupee was devalued, there was pressure from aid donors, exports were cheapened and former system of tariffs and exports subsidies was abolished. However a second poor harvest and an inventual industrial recession fueled the political backlash against liberalisation. Consequently, trade restrictions were reinstated and a Foreign Investment Board was formed to scrutinise companies investing in India.
While the economies of India’s East and Southeast neighbhours were blooming, India was lagging behind. That is when the governments of Indira Gandhi and subsequently Rajiv Gandhi pursued Liberalisation. The government unlatched it’s restrictions on business creation and import controls while promoting the maturation of telecommunication and software services at the same time. This resulted in the GDP increasing from 2.9% in 1970’s to 5.6% in 1980. All of this culminated and acted as a springboard for the 1991 economic reforms.
As the saying goes- there is nothing like a crisis that concentrates the mind. 1991; It was the year that saw India finally shed the shackles of an isolated, socialist economy and embarce a progresive and open market system.
It was launched under the leadership of then Prime Minister PV Narsimah Rao and finance minister Manmohan Singh. The reforms were a mixture of macroeconomic ballast and structural adaptation. As the economy had already inflated, stabilisation was neccesary to reinstate balance of payments equilibrium. Simuntaneoulsy, changing the make-up of the institutions was equally important in the longterm. As quoted by the ministry of finance,“…to bring about rapid and sustained improvement in the quality of the people of India. Central to this goal is the rapid growth in incomes and productive employment… The only durable solution to the curse of poverty is sustained growth of incomes and employment… Such growth requires investment: in farms, in roads, in irrigation, in industry, in power and, above all, in people. And this investment must be productive. Successful and sustained development depends on continuing increases in the productivity of our capital, our land and our labour.
These reforms did bring about a change in the Indian economic market and put India on the map.
Comments
Post a Comment