b) Structural Reform Measures

It was strongly believed that the stabilization that will be achieved by the package in the short term will not be sustainable if India’s economy doesn’t undergo structural reforms. Structural reform was a medium- and long-term programme, which dealt with sectoral adjustments and the problems on the supply side of the economy by bringing in dynamism and competitiveness to the economy. These included liberalized trade and investment policies with emphasis on exports, industrial deregulation, disinvestment and public sector reforms, and reform of the capital markets and the financial sector.

Crisis management measures included use of gold to acquire foreign currency to meet payment obligations, devaluation of the rupee, compression of imports and seeking finances from multilateral financial institutions and bilateral donors. In this way, an attempt was made to achieve a progressive economy by removing the internal controls and further to equip it to take advantage of the opportunities provided by the worldwide globalization process. Accordingly, a new trade policy and a new industrial policy were introduced. In the face of these changes, the Eighth, Ninth and Tenth Plans were launched.

6.1. Redefining the Role of the State

The adoption of the NEP based on liberalization and privatization has given rise to a debate on the nature of the link between state and market. The NEP does not imply a retreat of the state. It is based on a few propositions.

First, the state and the market are not substitutes for one another but they complement each other. Second, these two actors provide mutual checks and balances in such a way that one can correct the failures of the other. Third, through proper intervention the state has to make the market people-friendly because governments are accountable to people, while markets are not. It calls for a reorientation in the role of the state that tended to take too many responsibilities in the past. It underlines a change in the nature of the state from a producer, investor and regulator to a facilitating agency.

The state has to maintain general law and order and provide an appropriate policy framework in the areas where the private sector can play a large role. The state needs to formulate policies to bring about improved transparency and greater accountability, which form the basic pillars of good governance.

The new development strategy urges the state to play an important role in creating economic and social infrastructure that is unlikely to attract private investment, such as rural infrastructure and the development of roads and railways. It also justifies state intervention in those areas where the markets either do not exist or where market activity can lead to undesirable outcomes – providing public goods such as healthcare, education, and safe drinking water, and generating measures for eradication of poverty, creation of employment opportunities, empowerment of the disadvantaged and elimination of regional imbalances.