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Why did India launch a program of economic reforms in 1991? How successful these reforms have been?

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Introduction

Essay 2: Comparative Growth in Asia and Africa: Why did India launch a program of economic reforms in 1991? How successful these reforms have been? Introduction: In the literature several minor and major areas are covered by the reform program. However, according to Jagdish Bhagwati (1993, chapter 2, p.46) "the main elements of India's policy framework that stifled efficiency and growth until the 1970s and during the 1980s are the following three major groups: 1. Extensive bureaucratic controls over production, investment, and trade; 2. Inwards-looking trade and foreign investment policies; 3. A substantial public sector, going well beyond the conventional confines of public utilises and infrastructure". The author states that the first two groups affected the private sector's efficiency negatively and the last group with the inefficient functioning of public sector weakened the public sector's contribution to economy. And these groups led to low productivity and therefore low economic growth for India. I will elaborate on each of the group in second part of the essay, which will discuss the reasons for economic reforms in India during 1947 - 1991. The third part of the essay will discuss the success and failure of the reforms implemented and based on these reasons and implementation of reforms I will give conclusion whether the reforms have created an impact and supported the economic growth. ...read more.

Middle

Under banking system reforms included measures for liberlisation, measures designed to increase financial soundness and measures for increase competition. Also India's' stock market was accelerated by a stock market scam in 1992 serious weakness of in the regulatory mechanism. Therefore for eliminating approval of reserve bank of India for loans, strengthening banking supervision, for liberlisation and openness, and for dematerialisation of shares and stock market to regulate effectively reform were renewed (Study pack, Economic reforms in India since 1991, p. 336). Another important reform in financial sector was the withdrawal of the special privilege enjoyed by the Unit Trust of India, a dominant mutual fund investment vehicle. As far as he insurance sector reform is concerned, it renewed because government wanted to change it from being a public sector monopoly to private insurance company reducing government role and allowing private insurance companies to enter the market with equity up to 20%. This was expected to stimulate long term savings and depth to capital market (Study pack, Economic reform in India since 1991, p. 336 & 337). Privatisation: India adopted reform policies to achieve high economic growth and another policy they adopted beside trade liberlisation was to encourage privatisation. Indian economy targeted to achieve larger private sector by restructuring the role of government. This reduced government's intervention and allowed market forces to operate. ...read more.

Conclusion

According to Montek S. Ahluwalia "disinvestment receipts were consistently below the budget expectation, average realistaion in first five years was less than 0.25 percent of GDP compared with an average of 1.7 percent in 17 countries". Therefore government realised that a great deal of preliminary work is required before privatisation can be successfully implemented (Study pack, Economic reform in India since 1991, p. 338). Finally the development in social sector was worth noting as it continued to improve during the reforms. The literacy rate increased from 52% in1991 to 65% in 2001, and this increase has been high in low literacy states such as Bihar, Madhya Pradesh and Uttar Pradesh (Study pack, Economic reforms in India since 1991, p. 339). Conclusion: Undoubtedly prior to reforms India was at a critical turning point. The reforms were put into place mainly in the microeconomic framework, requiring the structural reforms that would free the economy and improve its functioning. Those reforms that worked did improve the efficiency of the system however some of them such as failure of fiscal front and privatisation needs to be reviewed. And some were put into to place only recently therefore their benefits for them are still to be felt. After revision once these reforms are put into to place it is possible for India to exceed well beyond 6 percent growth rate per year and achieve the government's target of 8 percent growth rate per year. ...read more.

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