INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT
|INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT|
The reform process has completed one- and-a-half decades since its introduction. Let us now look at the performance of the Indian economy during this period. In economics, the growth of an economy is measured by the Gross Domestic Product. The post–1991 India witnessed a rapid growth in GDP on a continual basis for two decades. The growth of GDP increased from 5.6 per cent during 1980–91 to 8.2 per cent during 2007–12. During the reform period, the growth of agriculture has declined. While the industrial sector reported fluctuation, the growth of the service sector has gone up. This indicates that this growth is mainly driven by growth in the service sector. During 2012-15, there has been a setback in the growth rates of different sectors witnessed post–1991. While agriculture recorded a high growth rate during 2013–14, this sector witnessed negative growth in the subsequent year. While the service sector continued to witness a high level of growth — higher than the overall GDP growth in 2014–15, this sector witnessed the highest-ever growth rate of 10.3 per cent. The industrial sector witnessed a steep decline during 2012–13, it began to show a continuous positive growth.
The opening of the economy has led to a rapid increase in foreign direct investment and foreign exchange reserves. The foreign investment,which includes foreign direct investment (FDI) and foreign institutional investment (FII), has increased from about US $100 million in 1990-91 to US $ 36 billion in 2016-17. There has been an increase in the foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 321 billion in 2014-15. India is one of the largest foreign exchange reserve holders in the world.
India is seen as a successful exporter of auto parts, engineering goods, IT software and textiles in the reform period. Rising prices have also been kept under control.
On the other hand, the reform process has been widely criticised for not being able to address someof the basic problems facing our economy especially in areas of employment, agriculture, industry, infrastructure development and fiscal management.
Growth and Employment:
Though the GDP growth rate has increased in the reform period, scholars point out that the reform-led growth has not generated sufficient employment opportunities in the country. You will study the link between different aspects of employment and growth in the next unit.
Reforms in Agriculture:
Reforms have not been able to benefit agriculture, where the growth rate has been decelerating.
Public investment in agriculture sector especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension (which played a crucial role in the Green Revolution), has fallen in the reform period. Further, the removal of fertiliser subsidy has led to increase in the cost of production, which has severely affected the small and marginal farmers. This sector has been experiencing a number of policy changes such as reduction in import duties on agricultural products, removal of minimum support price and lifting of quantitative restrictions on agricultural products; these have adversely affected Indian farmers as they now have to face increased international competition.
Moreover, because of export- oriented policy strategies in agriculture, there has been a shift from production for the domestic market towards production for the export market focusing on cash crops in lieu of production of food grains. This puts pressure on prices of food grains.
Reforms in Industry:
Industrial growth has also recorded a slowdown. This is because of decreasing demand of industrial products due to various reasons such as cheaper imports, inadequate investment in infrastructure etc. In a globalised world, developing countries are compelled to open up their economies to greater flow of goods and capital from developed countries and rendering their industries vulnerable to imported goods. Cheaper imports have, thus, replaced the demand for domestic goods. Domestic manufacturers are facing competition from imports. The infrastructure facilities, including power supply, have remained inadequate due to lack of investment. Globalisation is, thus, often seen as creating conditions for the free movement of goods and services from foreign countries that adversely affect the local industries and employment opportunities in developing countries.
Moreover, a developing country like India still does not have the access to developed countries’ markets because of high non-tariff barriers. For example, although all quota restrictions on exports of textiles and clothing have been removed in India, USA has not removed their quota restriction on import of textiles from India and China.
Every year, the government fixes a target for disinvestment of PSEs. For instance, in 1991-92, it was targeted to mobilise Rs 2500 crore through disinvestment. The government was able to mobilise ` 3,040 crore more than the target. In 2017–18, the target was about`1,00,000 crore, whereas, the achievement was about ` 1,00,057 crore. Critics point out that the assets of PSEs have been undervalued and sold to the private sector. This means that there has been a substantial loss to the government. Moreover, the proceeds from disinvestment were used to offset the shortage of government revenues rather than using it for the development of PSEs and building social infrastructure in the country. Do you think selling a part of the properties of government companies is the best way to improve their efficiency?
Reforms and Fiscal Policies:
Economic reforms have placed limits on the growth of public expenditure, especially in social sectors. The tax reductions in the reform period, aimed at yielding larger revenue and curb tax evasion, have not resulted in increase in tax revenue for the government. Also, the reform policies, involving tariff reduction, have curtailed the scope for raising revenue through custom duties. In order to attract foreign investment, tax incentives were provided to foreign investors which further reduced the scope for raising tax revenues. This has a negative impact on developmental and welfare expenditures.