Mention three benefits of economic reforms in India .
Answers
Explanation:
The economic reforms in India had two components: macroeconomic stabilisation and structural reform. Structural reforms were on industrial sector, trade regime, foreign investment, foreign technology, the public sector and the financial sector.
Macroeconomic Stabilisation:
In the short-run following liberalisation, the contraction in demand led to a sharp slowdown in growth. But the current account deficit was reduced to manageable proportions within three years. It took a little longer for the rate of inflation to drop below double-digit levels. The focus of structural reforms was on the industrial sector, the trade regime, foreign investment, foreign technology, the public sector and the financial sector.
Trade policy slashed import tariffs and eliminated export subsidies.
Public sector reform sought to reduce the activities of the public sector, facilitate the closure of loss-making units and ease the burden on the exchequer on account of the public sector.
Financial sector reform sought to improve the profitability of government-owned commercial banks and the functioning of the domestic capital market, assuming that the discipline of market forces alone will achieve both objectives.
Structural Reforms:
While it is the manufacturing sector that the reforms had focused on, directly in terms of the restructuring of the trade and industrial policy, and indirectly via the financial sector reforms, it is services that have grown the fastest.
If a qualitative assessment of the growth that has taken place in India since market liberalisation is made we find that in Automobiles the growth is fastest and India is to become a global manufacturing hub.
A further development, though not confined to manufacturing, is that of India becoming a preferred international location for research and development, some of it for global manufacturing giants, but even more prominently for information technology firms from IBM to Microsoft.
The development of cheap international communication networks, including the internet, has made it possible to leverage the globally competitive skill base built in India.
The mobile phone revolution has swept the country and transformed the opportunities for both business and interpersonal communication.
A similar transformation is also to be seen in air travel with direct benefit in the form of reduced cost and greater choice.
It may safely be assumed though that, except for telecommunications, this improvement in the quality of services is largely confined to the services consumed by the social strata extending from the middle classes and above.
The reduction in the tax rate, the expansion of higher education especially the new Indian Institutes of Technology and Indian Institutes of Management and even the farm-loan waivers indicate the areas of priority.
The Governments have targeted the poor via the Mahatma Gandhi National Rural Employment Guarantee Act.
Fiscal Federalism:
Following liberalisation expenditure compression has been made by the Centre for all Indian States through the last three finance commissions regardless of the specific macro-economic context. The taxes as well as the fiscal deficit were kept within limits. It claimed that the fiscal deficit would lead to higher inflation and would crowd out private investments.
The goal of fiscal federalism in India to create a common market follows from the Maastricht Treaty that led the basis of the formation of the European Common Market. This was an attempt to create a political and economic union of sovereign nation states in Europe, an experiment that is now in crisis due to inherent contradictions.
It is only in the “developing” economies of Asia and Africa that the economic rationale for the VAT/GST regime has been based on the “efficiency” argument. Efficiency under stringent assumptions of full-employment are simply not possible to be assumed within the social structures of India’s economy (Patnaik 2016) and has been reduced to “ease of business” in the design of GST in India.
The argument had been that India’s indirect tax regime is complex, distorted, and has cascading effects due to which there was no significance in buoyancy of tax collection.More than a decade after its implementation, there is not a single study in India which has till date found a significant, unambiguous and clear structural break in tax buoyancy after the introduction of VAT.
Poor performance of the public sector
Public sector was given a role important in development policies during 1951-1990.
However the performance of the majority of public enterprises was disappointing.
They were incurring huge losses because of inefficient management.
Adverse BoP Or Imports exceeded exports
Imports grew at a very high rate without matching the growth of exports.
Government could not restrict imports even after imposing heavy tariffs and fixing quotas.
On the other hand, Exports was very less due to the low quality and high prices of our goods as compared to foreign goods.
Fall in foreign exchange reserves
Foreign exchange (foreign currencies) reserves, which government generally maintains to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight.
The government was not able to repay its borrowings from abroad.
Huge debts on government
Government expenditure on various developmental works was more than its revenue from taxation etc.
As a result, the government borrowed money from banks, public and international financial institutions like IMF etc.
Inflationary pressure
There was a consistent rise in the general price level of essential goods in the economy.
To control inflation, a new set of policies were required.
Terms and conditions of world bank and IMF
India received financial help of $7 billion from the World Bank and IMF on an agreement to announce its New Economic Policy.