Economic Reforms in India: A Detailed Analysis of the 1991-92 Reforms and Their Long-Term Impact, Ex PM pass away 92,

 

1. What were the primary reasons for initiating the Indian economic reforms of 1991-1992?

Answer: Economic Reforms' Significance The term "economic reforms" refers to the fundamental adjustments made in 1991 with the intention of liberalizing the economy and accelerating its rate of growth. To restore confidence in the Indian economy both domestically and internationally, the Narasimha Rao government began economic reforms in 1991.

The goal of the changes was to increase private sector participation in the Indian economy's growth strategy. In the areas of technology advancement, industrial licensing, removing barriers to the private sector, foreign investments, and international trade, policy adjustments were suggested. LPG, or liberalization, privatization, and globalization, are the three main components of the economic reforms.

In other words, rather than current or increased regulations or government plans to lessen the perversions created by market failure, "economic reforms" typically refer to deregulation or, occasionally, a reduction in the size of government in order to eliminate deformities caused by the management or presence of administration.

Economic Reforms Are Necessary Inadequate industrial sector performance Unfavorable financial balance Increase in the fiscal deficit A rise in inflation The Gulf Conflict. 

Why did India implement economic reforms? India implemented economic changes for the following reasons: The public sector's subpar performance From 1951 until 1990, the public sector was given a significant role in development policies. Nonetheless, the majority of state enterprises performed poorly. Due to ineffective management, they were suffering significant losses.

Unfavorable BoP or more imports than exports Despite not keeping pace with the expansion of exports, imports increased at a very rapid pace. Even after setting limits and enforcing high taxes, the government was unable to control imports. However, because our products were of worse quality and cost more than those of other countries, we exported very little.

decline in foreign exchange reserves The government's foreign exchange (foreign currency) reserves, which it typically keeps on hand to import gasoline and other necessities, fell to levels that were insufficient for even a fortnight. The government's foreign borrowings could not be paid back. massive government debt The government spent more money on various development projects than it took in from taxes. Consequently, banks and other public and international financial institutions, such as the IMF, provided the government with loans.

The pressure of inflation The overall level of prices for necessities in the economy increased steadily. A new set of policies was needed to manage inflation. Conditions set forth by the World Bank and the IMF The World Bank and IMF agreed to provide India with $7 billion in financial assistance in exchange for the announcement of its New Economic Policy.

2. Explain the key features of industrial policy reforms introduced in 1992.

Answer: The important roles of the governmental, private, joint and cooperative sectors, etc., are outlined in the New Industrial Policy of 1991. The government's vision for the industries, industrial establishments, their operations, advancement, and management is outlined in this policy. The goal of this industrial policy was to bring in a large number of industries with diverse ownership, high productivity, and foreign capital.

Goals of the 1991 New Industrial Policy In order to free the industrial sector from the constraints of the licensing system, which did not allow for the public sector's engagement, the New Industrial Policy of 1991 was put into effect. Additionally, the program aims to boost foreign investment in the industrial development of the nation. The following are the other primary goals of the 1991 New Industrial Policy:relieving the nation of restrictions such as licenses and controls. supporting the small business sector. To the general public's advantage, industries should cultivate a culture of competition. giving the local population and underprivileged areas more incentives. must make sure that industrial development proceeds quickly in order to keep up with the industrialized nations. in order to free the economy from various constraints imposed by the government. to free the private sector and allow it to operate autonomously.to liberalize imports and guarantee an increase in exports. To expand job prospects To open up the economy. 

Reasons for putting this policy into effect A variety of programs, including Industrial Policy Resolutions 1948, 1956, 1973, 1977, and 1980, were implemented with the goal of advancing the nation's industrial development. However, it was imperative to increase foreign investment, liberalize the industrial sector, boost innovation, and foster a competitive culture among India's companies.

Key Elements of the 1991 Localization Policy and New Industrial Policy According to this guideline, prior government approval is needed if an industrialist wants to establish a business in a city with less than a million residents. With the exception of enterprises that do not produce pollution, all industries in cities with a population of one million or more are required to locate their plants 25 kilometers from the city's edge.

Policy of liberalization All sectors are free from the licensing process and system under this regulation, with the exception of 18 industries. The Army & Defense, Forest Conservation, and Manufacturing Industries are among the 18 remarkable industries. International Investment There are provisions in this policy to encourage foreign investment. Foreign firms are allowed to invest up to 51% of their shareholding in Indian companies. The Indian government's action and vision will contribute to a greater influx of foreign investment into Indian markets.

Public Sector Role This policy will serve as the foundation for those public sectors that are on the verge of collapse. Government agencies that are struggling in their field yet have room to grow will be reorganized. Any Central Government Organization, such as the "Board of Industrial and Financial Reconstruction," will keep an eye on the various public sectors that are regularly experiencing financial problems.

Employee Involvement in Management This policy is favorable to workers since it includes clauses that enable them to take part in the industrial unit's management discussion. To manage ill units, this has been done. International Technology By drawing in foreign technology, this program has had a beneficial effect on foreign imports and investment. Currently, importing any foreign technology machine valued at up to one crore rupees does not require this kind of prior authorization. Indian businesses can now contract and negotiate on their own terms without the Indian government's previous consent.

Liberalization's primary characteristics are: independent of the government and subject to private ownership. Private entrepreneurs have access to capital markets. lowering the licensing policy's traffic. Better opportunity for completion. To compete with international businesses, open gates. expanded the reach of trade and business. chance to buy foreign currency at market value.

In conclusion, The country's industrial development was the goal of the industry policies that existed before these new ones were implemented. However, a number of restrictions that previously hindered the growth of the nation's industries are discouraged by this new strategy. The 1991 New Industrial Policy opened up avenues for both domestic and foreign competition and significantly boosted foreign investment in the nation's economy.

3. What were the long-term impacts of the 1992 economic reforms on India's growth and development?

Answer: India's 1991 economic reforms marked a significant departure from the socialistic approach the nation had adopted in earlier decades as well as from the dysfunctional development plan. By reducing poverty and enhancing living conditions, the reform initiatives profoundly altered lives. The 1991 economic reforms are seen as a blessing for Kerala, a state that was having a difficult time finding funding for infrastructure projects. This study aims to establish a causal relationship between infrastructure development, economic growth, and foreign direct investment (FDI) in the state before and after the reforms.

Using econometric analysis on time-series data from 1970 to 2020, the paper investigates this problem. Using a multivariate approach, it examines the overall effects of infrastructure finance on economic growth and infrastructure development, with the state as the unit of analysis. The study's findings show a moderately positive correlation between changes in FDI and economic growth and infrastructural development. The results could serve as a resource for future studies on how investments affect economic growth.

Effects of Reforms After 1992 In 1993–94, 36 percent of people lived in poverty; in 1999–00, that number dropped to 26.1%. Both the urban and rural poverty ratios decreased. Reforms led to a rise in air travel and the growth of the civil aviation industry. In 1991, the government implemented the Open Skies Policy, which permitted private companies to enter the aviation industry, with the goal of fostering competition. Private companies now operate in both the domestic and international aviation markets, demonstrating the policy's effects.

Foreign technology was more easily accessible as a result of the reforms that opened the borders to foreign goods. Cell phone technology is an excellent illustration of this. Following 1991, the automobile industry likewise experienced growth, easy access to automobiles, heightened competition, and a decline in car prices.

As India gained recognition in international markets, the number of foreign visitors also rose. In a variety of industries, including software, pharmaceuticals, biotechnology, telecommunications, auto parts, research and development, and professional services rendered by scientists, technologists, physicians, nurses, educators, management specialists, and others, reforms resulted in noticeable gains in global competitiveness. The telecommunications industry had a huge expansion. This industry has actually benefited greatly from economic reforms. Previously severely constrained by government monopolies and regulations, the industry today boasts a number of rival service providers. The 1994 National Telecom Policy served as the foundation for the telecom policy, which opened up all industries to private participation.

The majority of the economic reforms were implemented in the formal sector; no reforms were implemented in the agricultural, urban, or forest-dependent sectors. As a result, people experienced unequal growth and unequal access to economic freedom. In the organized manufacturing sector, which is governed by strict labor laws, economic liberalization has resulted in growth with relatively little new employment. Market-based economic changes also frequently result in a widening gap between states with more developed infrastructure and those with less developed infrastructure, as well as between the rich and the poor.

Health and education are examples of social sectors that have been overlooked. Despite being crucial, these sectors received little attention, which is evident in the appallingly low levels of health and education indicators that exist today. Although economic reforms have sped up growth, they haven't produced enough jobs. For instance, both the rural unemployment rate and the All-India (urban plus rural) unemployment rate increased to 7.21% in 1999-2000 after falling to 5.61 percent in 1993-94.

Latest Development of Indian Economy

In Q1 2024-25, the nominal GDP, or GDP at current prices, is projected to reach Rs. 77.31 lakh crores (US$ 928.9 billion), growing at a pace of 9.7% as opposed to 8.5% in Q1 2023-24. The nominal GDP is expected to expand by 9.6% in 2023–2024, compared to 14.2% in 2022–2023.

Compared to ₹82.77 lakh crore in H1 2023-24, the real GDP, or GDP at constant prices, is projected to reach ₹87.74 lakh crore in April-September of 2024-25 (H1 2024-25), representing a growth rate of 6.0%.