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The process of economic reforms commenced in the world by mid-1980s (in Western Europe and Northern America). Once the idea of the Washington Consensus gained ground, we find similar reforms being followed by different countries cutting across continents. Over the time, experts together with the IMF/WB, started classifying such countries into two categories, viz., one which went for the ‘Gradualist Approach’ and the other which went for the ‘Stop-and-Go Approach’.
India’s reform process which commenced in 1991 has been termed by experts as gradualist (also called incremental)38 in nature with traits of occasional reversals, and without any big ideological U-turns - coalitions of various political parties at the Centre and different political parties ruling the states lacked a general sense of consensus on reforms. It reflects the compulsions of India’s highly pluralist and participative democratic policy-
making process.39 Though such an approach helped the country to avoid socio-political upheavals/instability, it did not allow the desired economic outcome could have accrue from the reforms. The first generation of economic reforms could not bring the expected results due to lack of some other set of reforms for which India goes after almost over a decade—the second generation of economic reforms. Similarly, the economic benefits (whatever accrued) remained non-inclusive, in absence of an active public policy aimed at inclusion (commencing via the third generation of economic reforms). This created a kind of disillusionment about the prospects of reforms and failed the governments to muster enough public support in favour of reforms.
Unlike India, several other countries (such as Brazil, Argentina, South Africa, etc.) also went for the stop-and-go kind of reforms. In such reforms, the governments first decide the sector where reform is needed—then they pin-pointed the prerequisites (which will create a conducive atmosphere for reforms to take place), and finally both set of the reforms are activated simultaneously. In their cases, economic results from reforms were on the expected lines. Though these nations took high risks on the socio-political front, in their case, in medium-term itself, the governments were able to mobilise enough public support in favour of reforms (which encouraged the governments to go for further reforms). Such reforms do not look possible in the case of India—this is why the latest Economic Survey 2016–17 expects an incremental approach to reforms.
Presently, we see the Government of India pushing for ‘transformational reforms’ (as the Union Budget 2017-18 described it). Some of such reforms have been:
(a) Inflation targeting and setting up the Monetary Policy Committee by amending the RBI Act, 1934;
(b) Restarting of the ‘strategic disinvestment’ of the PSUs;
(c) Demonetisation of the high denomination currency notes (aimed at checking corruption, black money, tax evasion, fake currency and terrorism);
(d) Enactment of the new Benami Law (aimed at checking black money);
(e) Bankruptcy Law (aimed at promoting the ‘ease of doing business’); and
(f) Enactment of the Aadhar Act (aimed at rationalising and weeding out corruption in the present subsidy regime); etc.
The latest Economic Survey 2016-17 rightly remarked, “economic reforms are not, or not just, about overcoming vested interests, they are increasingly about shared narratives and vision on problems and solutions”. Naturally enough, the actual course of the reform process will be ultimately decided by the socio-economic space available to the government of the time.
1. There were many developing non-socialist countries which also accepted the economic planning as their development strategy (France should not be counted among them as it was a developed economy by then). These countries were following the ‘mixed economy’ model, but their form was closer to the command economies, i.e., the state economy or the socialist economy.
2. As the strategy was advocated by the IMF, the WB and the US Treasury (i.e., US Ministry of Finance) all located in Washington, it properly came to be known as Washington Consensus.
3. Without changing the broad contours of economic policy, the Government in India had also come, under the influence of this consensus, followed a great many liberal policies (during Rajiv Gandhi’s regime) in the 1980s.
4. Collins Dictionary of Economics, Glasgow, 2006, pp. 417–18.
5. World Bank, The East Asian Miracle: Economic Growth and Public Policy.
(Washington DC: Oxford University Press, 1993).
6. Ibid.
7. As is concluded by Stiglitz and Walsh, p. 800, op. cit.
8. Jeffrey D. Sachs, Ashutosh Varshney and Nirupan Bajpai, India in the Era of Economic Reforms, (New Delhi: Oxford University Press, 199), p. 1.
9. J. Barkley Rosser, Jr. and Marina V. Rosser, Comparative Economics in a Transforming World Economy, 2nd Edition (New Delhi: Prentice Hall of India, 2005), p. 469.
10. Vijay Joshi and I. M. D. Little, India’s Economic Reforms, 1991–2001, (Oxford: Clarendon Press, 1996), p. 17.
11. The feeling is even shared by the government of the present time. One may refer to the similar open acceptance by India’s Minister of Commerce at the Davos
Summit of the World Economic Forum (2007). In an interview to the CNN-IBN programme, the Cabinet Minister for Panchayat Raj, and the North East (Mani Shankar Aiyar) on 20 May 2007 opined that benefits of higher growth are going to the selected ‘classes’ and not to the ‘masses’.
12. The Seventh and the Eight Plans have many such suggestions to give to the governments of the time, especially the latter Plan called for the same nature of the reform process, very clearly.
13. Ministry of Finance, Economic Survey 1991–92:
Part II Sectoral Developments & New Industrial Policy, 1991, GoI, New Delhi.
14. Andrew Heywood, Politics, (New York: Palgrave, 2002), p. 43.
15. Robert Nisbet, Prejudices: A Philosophical Dictionary, (Massachusetts: Harvard University Press, 1982), p. 211.
16. ‘Economics: Making Sense of the Modern Economy’ The Economist, London, 1999, pp. 225–26.
17. J.K. Galbraith, A History of Economics, (London: Penguin Books,), p. 123, 1780.
18. Andrew Heywood, Politics, p. 100.
19. Stiglitz and Walsh, Economics, pp. 802–3.
20. Collins, Oxford, Penguin, Dictionary of Economics, relevent pages.
21. Samuelson and Nordhaus, Economics, p. 199.
22. New Industrial Policy, 1991 & several documents of GoI since then.
23. Talcott Parsons, The Structure of Social Action, (New York: McGraw Hill, 1937).
24. Samuelson and Nordhaus, Economics, p. 32.
25. Stiglitz and Walsh, Economics, p. 804.
26. Thomas L. Friedman, The World is Flat, (London: Penguin Books, 2006), 9. Stiglitz & Walsh, Economics, p. 804.
27. As quoted in Andrew Heywood, Politics, p. 139.
28. As Friedman shows in his best-seller, The World is Flat, p. 9.
29. As put by the Oxford’s Dictionary of Politics, N. Delhi, 24 pp. 222–25; Andrew Heywood, Politics, p.138.
30. It should be noted here that the whole Euro-America has already started promoting globalisation by the mid-1980s as the WTO deliberations at Uruguay started. The formation of the WTO only gave globalisation an official mandate in 1995, once it started its functions. It means, for India, globalisation was a reality by 1991 itself—one has to move as the dominant forces move.
31. It should be noted here that many economists regard the economic reforms of
the mid-1980s as the First Generation reforms. However, the governments of the time have not said anything like that. It was only in the year 2000–01 that India officially talks about the generations of reform for the first time.
32. Based on the New Industrial Policy, 1991 & several Economic Surveys as well as many announcements by the governments.
33. Based on the Ministry of Finance, Economic Survey 2000–01 (New Delhi: Government of India, 2001); and Union Budget, 2001–02 especially besides other official announcements by the GoI in the coming years.
34. Basically ‘disinvestment’ started in India in its ‘token’ form, which is selling of government’s minority shares in PSUs. While in the Second Generation, the government went for ‘strategic’ kind of disinvestment, which basically involved the transfer of ownership of the PSUs from the state to the private sector—MFI2, BALCO, etc., being the firsts of such disinvestments. Once the UPA Government came to power in May 2004, the latter form of disinvestment was put on hold. We will discuss it in detail in the chapter on Indian Industry.
35. Ministry of Finance, Economic Survery 2000–01.
36. We see it, especially, when the Coalition Government (i.e., the UF Government) goes to amend the constitution so that the Alternative Method of Devolution (AMD) of the tax suggested by the Tenth Finance Commission becomes a law before the recommendations of the Eleventh Finance Commission. It should be noted that the AMD has increased the gross tax devolution to the states by a hefty 5 per cent.
37. The Comptroller and Auditor General, Provisional Report, May 2007.
38. Isher J. Ahluwalia, Industry in Kaushik Basu & Annemie Maertens edited The New Oxford Companion to Economics in India, Oxford University Press, N. Delhi, India, 2012, Vol. 2, pp. 371-375.
39. Montek S. Ahluwalia, Planning in Kaushik Basu & Annemie Maertens edited The New Oxford Companion to Economics in India, Oxford University Press, N. Delhi, India, 2012, Vol. 2, pp. 530-536.