Q1) Ambitious economic reforms are understandably contentious, inherently challenging, and seldom flawless, yet undeniably essential. In this perspective, analyze the reasons for the success of 1991 economic reforms and discuss the challenges in implementing economic reforms today.

(250 Words/15 Marks)

The 1991 economic reforms refer to the landmark changes in the industrial and external trade policies of the country. Popularly called as “liberalization, privatization and globalization” (LPG) reforms, it aimed to overhaul the Indian economic structure, by a shift towards greater private participation, and a deeper integration with the world economy.

The reasons for the success of LPG reforms can be seen from:

• Contemporary challengessuch as a balance of payment crisis, rising inflation, etc., created a ready appetite across all sectors.
• Strong political leadership guided by astute financial acumen.

E.g., leadership of Narshima Rao.

• A technocrat led initiative

E.g., Manmohan Singh, Sam Pitroda etc.

• Domino effect: Deregulation of industrial sectors dismantled ‘License and Permit Raj’ system and created multiplier impact on the economy.

E.g., development of FMCG industry.

• Focus on digital push laid the foundation of IT Revolution, BPOs centres, resulting in India’s dominance in service sector.

E.g., resolution of global Y2K problems.

• Liberalization measures introduced in 1980sin areas of industrial licensing, technology upgradation, etc perfectly complemented 1991 reforms in financial sector, taxation, foreign exchange, boosted Indian economy.

E.g., devaluation of Indian rupee made exports more competitive; establishment of private sector banks led to ease of credit availability; tax reforms led to better compliance.

Global factors:

• ‘nudge’ from World Bank, IMF to open up the economy.
• Success of market oriented Asian tiger economies and China’s opening to the world by Deng Xiaoping.

 

Holistic growth of the country requires continuous economic reforms; however, there are following challenges in implementing economic reforms in contemporary times:

• Resistance to change and hindrance from vested interests.

E.g., protest against farm laws; some NGOs stalling developmental projects (IB report).

• Economic reforms are perceived as liberal crusade against the welfare state, reinforcing the idea of stigmatized capitalism.

E.g., As per oxfam report, 40% wealth is owned by 1% people.

Global factors:

• A ‘non-functional’ WTO.
• South Asia is economically least integrated region (World Bank Report); devoids itself of vast opportunities.
• Rise in protectionist tendencies across the globe.

E.g., China-USA trade war; deglobalization.

Balancing economic growth with environmental sustainability is a significant challenge.

E.g.,concerns w.r.t. Forest (Conservation) Amendment Act 2023.

Federal discord between Union and states also hinder the possibilities for economic reforms.

E.g., Electrity and land reforms.

Following measures are needed to overcome these challenges:

• Building consensus across political spectrum to implement economic reforms and to not indulge in ‘competitive populism’.

E.g., checking ‘revdi’ culture.

• Creating enabling ecosystem by investing in skilling, building infrastructure to take advantage of 4th Industrial Revolution.

E.g., PM-Gatishakti Masterplan, India Semiconductor Mission,

• National Quantum Mission are good initiatives.
• The economic reforms be designed and implemented in a manner that it promotes inclusive

E.g., supporting MSMEs; Dalit Capitalism.

• Reformed multilateralism: Reforming multilateral institutions of global governance like UN, WTO etc., can give economic reforms a shot in the arms.
• Environmental sustainabilitybe ensured through green policy frameworks and effective implementation of existing laws.

E.g., green growth as a saptrishi in budget 2023.

The 1991 economic reforms helped 415 million people out of poverty between 2005-2021. However, in the light of new challenges and opportunities, it is opportune time to undertake new set of economic reforms and achieve the target of developed nation by 2047