ECONOMIC REFORMS

Prepared by : Eco Deptt. DPSN

“There is no time to lose. Neither the Government nor the economy can live beyond its means year after
year. The room for maneuver, to live on borrowed money or time, does not exist anymore. We need to
expand the scope and the area for the operation of market forces.”
- Dr. Manmohan Singh ,Minister of Finance
Budget Speech, July 24, 1991

Since independence, India followed the mixed economy framework by combining the
advantages of the market economic system with those of the planned economic system. This
policy resulted in establishment of variety of laws which aimed at controlling & regulating the
economy and ended up hampering the process of growth and development.
Post independence India had adopted a very conservative economy that was practically shut to
the outside world. But as time went by, Indian leaders and economists recognized the need to
move out of conservative framework and merge with the global economy. Thus, in 1991 India
made major policy changes in its economic ideologies.
Statistics bear testimony to the fact that the genesis of the economic crisis in India in 1991, lies
in the large and persistent macroeconomic imbalances that developed over the 1980s. To
combat the economic crisis of 90’s, the Government of India initiated a slew of economic
reforms, which came to be known as New Economic Policy (NEP).

IMMEDIATE CAUSES THAT LED TO THE NEP:

1. Mounting Fiscal Deficit:

Fiscal deficit occurs when government’s total expenditure exceeds its revenue. Due to
persistent rise in fiscal deficit, there has been a corresponding rise in public debt and
interest payment liability.
In the late 1980s, government expenditure began to exceed its revenue by such large
margins that meeting the expenditure through borrowings became unsustainable. Fiscal
deficit in 1990-91 was 8.4% of GDP.
To cope with the deficit, huge loans had to be raised from rest of the world. Accordingly,
the burden of foreign debt service, i.e., repayments of loan installments and payment of
interest increased tremendously.

2. Adverse Balance Of Payments: Balance of payment is a systematic record of all

economic transactions between a country and ROW. Although government granted
diverse kinds of incentives and concessions to the exporters under export promotion
programs, the exports did not rise to the desired extent. It was mainly due to the fact that
in international market, our exports could not compete in price and quality.

3. Fall in foreign exchange reserves: Foreign exchange refers to all currencies other than
the domestic currency of a given country. Foreign exchange reserves, which we generally
maintain to import petrol and other important items, dropped to levels that were not
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 sufficient for even a fortnight. There was also not sufficient foreign exchange to pay the
interest to international lenders. Sufficient attention was not given to boost exports to pay
for the growing imports.

4. Rise in Price: With the pressure of inflation, economic crisis deepened from bad to
worse. Inflation pushed up cost of production and it adversely affected domestic and
foreign demand of our products. Inflation was triggered largely by a rapid increase in
money supply. This, in turn, was due to excessive resort to deficit financing. Deficit
financing refers to borrowing from Reserve Bank of India by the government to cope with
its deficits. Reserve Bank manages loans by printing additional currency.

5. Poor Performance of PSUs (Public Sector Understandings): In 1951, there were just
5 enterprises in public sector in India but in March 2006 their number rose to 239. In the
initial 15 years, their performance was quite satisfactory but thereafter most of these
started recording losses. Because oftheir poor performance, public sector undertakings
degenerated into a liability.
So, public sector income was not very high to meet growing expenditure of the
government.

6. Pressures from international organizations: Since the country was running into deficit,
it approached the International Bank for Reconstruction and Development (IBRD),
popularly known as World Bank and the International Monetary Fund (IMF), and received
$7 billion as loan to manage the crisis. For availing the loan, these international agencies
expected India to liberalize and open up the economy by removing restrictions on the
private sector, reduce the role of the government in many areas and remove trade
restrictions between India and other countries. India agreed to the conditions of World
Bank and IMF and announced the New Economic Policy (NEP).

FEATURES OF THE NEW ECONOMIC POLICY

Tabled in the parliament on the 24th July, 1991, the NEP aimed at Liberalisation,Privatisation
and Globalisation (LPG)of the Indian economy. It wanted to lead the country away from a
regulatory and protective regime to a free, market – oriented, competitive and globalized
environment.
The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards
creating a more competitive environment in the economy and removing the barriers to entry and
growth of firms.
This set of policies can broadly be classified into two groups: the stabilizationmeasures and the
structural reform measures

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 New Economic Policy Measures

______________________________________________________

Structural reform measures

● Long term measures
● Improving the efficiency of the
economy by changing the
structure of institutions,trade
and industry.
● Increasing its international
competitiveness

Stabilization measures
● Short term measures
● Maintaining sufficient
foreignexchange reserves
● Fiscal correction
● Keeping the rising prices under
control

The government initiated a variety of policies which fall under three heads:
● Liberalisation : It refers to the removal or reduction of various types of controls and
regulations which act as stumbling blocks in the growth of the industries.

● Privatizsation : It aims at ensuring larger area and more power in the hands of the private
producers by narrowing down the role of the public sector.

● Globalisation: It referstothe process of rapid integration of the economy with the ROW.

LIBERALISATION

Liberalization reduced administrative interference and market forces are allowed to guide the
future development of the various sectors.

A)INDUSTRIAL SECTOR REFORMS

In India, regulatory mechanisms were enforced in various ways:
a) Industrial licensing under which every entrepreneur had toget permission from

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 government officials to start a firm, close a firm or to decide the amount of goods
that could be produced
b) Private sector was not allowed in many industries
c) Some goods could be produced only in small scale industries
d) Controls on price fixation and distribution of selected industrial products.
Under the new industrial policy, Indian industries werederegulated,delicensed and dereserved.
1. Abolition of Industrial Licensing :
a) It was a step towards liberalizing the industries from government control and
regulations.Industrial licensing was abolished for almost all, except product
categories — alcohol, cigarettes, hazardous chemicals, industrial explosives,
electronics, aerospace and drugs and pharmaceuticals.All other industries were
thrown open to private sector. 80% of industries were taken out of licensing.
b) Removal of restrictions on size of industries for large scale industries. Earlier a
limit was set on large scale industries at Rs. 100 crores (in 1985) under MRTP Act.
This limit was abolished under the new industrial policy 1991. No prior approval will
be required for capacity expansion or diversification of large scale industries.

2.Dereservation of Public Sector: The number of the industries exclusively reserved for
the public sector has been reduced from 17(1956) to 8 (in 1991) to only 3currently. The
only industries which are now reserved for the public sector are defenceequipments,
atomic energy generation and railway transport.

3.Reforms in Small Scale Sector: According to the new policy, investment limit of small
scale industries has been increased to 1 crore and further to 5 crores with a view to
modernize them. Many goods produced by small scale industries have now been
dereserved.

4.Market Determination of Prices: In many industries, the market has been allowed to
determine the prices through the forces of market and not by the directive policy of the
government.

5.New companies Act of 2013has replaced the old companies of 1956, whereby
companies have to spend 2 percent of their profits on Corporate Social Responsibility
(CSR).

B)FINANCIAL SECTORREFORMS

Financial sector includes financial institutions such as commercial banks, investment

banks, stock exchangeoperations and foreign exchange market. In India, financial sector is
regulated and controlled by the RBI (Reserve Bank India).A competitive financial sector is
necessary to promote structural reforms

1. There was a substantial shift role of the RBIfrom ‘a regulator’ to ‘a facilitator’ of the
financial sector. Earlier as a regulator, the RBI would itself fix interest rate structure for
the commercial banks. After liberalization in 1991, RBI as a facilitator would only facilitate
free play of market forces and leave it to commercial banks to decide their interest rate
structure. This increased competitiveness and consumers benefitted immensely.

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 2. Both Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)werereduced to
increase availability of funds with commercial banks to advance more credits.
CRR is the percentage of deposits that a commercial bank has to keep with the central
bank. It was reduced from 25% to 10% within a span of few years.
SLR is the percentage of deposits that a commercial bank has to keep withitself. It was
reduced from 38% to 25% within a span of few years.

3. Bank ratehas been reduced. It lowered the interest rate charged by the commercial banks
thus, encouraging credit. Bank Rate is a rate at which central bank lends to the
commercial banks.

4. Foreign Institutional Investors (FII’s) such as merchant bankers, mutual funds and
pension funds are now allowed to invest in Indian financial markets.

5. There was establishment of private sector banks, Indian as well as foreign. Before 1991
all banks were owned by the government/RBI. Private banks were not permitted. After
1991 many private banks emerged – HDFC, ICICI, ABNAmro etc. This lead to increased
competitiveness, lower interest rates and better quality banking services.

6. Foreign investment limit in banks was raised to around 50 percent. Those banks which
fulfill certain conditions have been given freedom to set up new branches without the
approval of the RBI and rationalize their existing branch networks.

C)TAX REFORMS

Tax reforms are concerned with the reforms in government’s taxation and public expenditure
policies which are collectively known as its fiscal policy.

1. Since 1991 there has been reduction in income tax and corporation tax as high rates of
taxations encourage tax evasion .Efforts have also been made to reform indirect taxes.
2.Simplify the tax laws and procedures.
3. Increase the tax base so as to bring all potential tax payers in the tax net.
4. Reduce non-developmental expenditure e.g. defense, law and order etc.
5.GST (Goods and Services Tax)came into effect on 1st July 2017.It is an indirect tax that has
replaced many Central and State taxes like excise duty, VAT and service tax. (Refer GST
notes)

D) FOREIGN EXCHANGE REFORMS

1. In 1991, as an immediate measure to solve the balance of payments crisis, the rupee was
devalued by 20% against foreign currencies.

Note: Devaluation is reduction in the value of domestic currency in terms of foreign currency
by the government. This made our goods cheaper in foreign market and increased inflow of
foreign exchange.

2. It also freed the determination of rupee value in the foreign exchange market from
government control and made it flexibleexchange rate system.

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 3. FERA to FEMA: Foreign Exchange Management Act (FEMA) has replaced Foreign
Exchange Regulatory Act (FERA). Under FEMA, provisions related to foreign exchange
have been made liberal.

E) FOREIGN TRADE POLICY REFORMS

Liberalisation of trade and investment regime was initiated in 1991 to increase international
competitiveness of industrial production and foreign investment.
The trade policy reforms focused on greater openness and was outward oriented. The main
aims of these reforms were:
1. Promoting efficiency of the local industries and the adoption of modern technology.
2. Abolition of import licensing system except in case of hazardous and environmentally
sensitive industries.
3. Removal of quantitative restrictions on imports. Quantitative restrictions onimports of
manufactured consumer goods and agricultural products were also fully removed from
April 2001.
4. Removal of Export dutiesto increase the competitive position of Indian goods in the
international markets.
5. Reduction in tariff rates. Till 1991 custom tariffs were as high as 300%. These were
reduced to 150 % and then to 10% (2008).
6. Strengthening of export promotion structure (SEZ / EPZ) . Special Economic Zones and
Export Processing Zones are areas in which business and trade laws are different from
rest of the country. The goal is to increase foreign investment, job creation, infrastructural
development, promotion of exports of goods and services etc. At present there are 8
functional SEZ located at Santa Cruz, Cochin, Kandla (1 st SEZ set up in Asia in 1965),
Surat, Chennai, Vizag, Falta (West Bengal) and Noida (1985)

PRIVATISATION
Privatization involves private sector in the ownership and operations of the state owned
enterprises. It implies shedding of the ownership or management of a government owned
enterprise. Government companies are converted into private companies in two ways :
(i) partial withdrawal of the government from ownership and management of public
sector companies (disinvestment)
(ii) outright sale of public sector companies.
● The purpose of the sale was mainly to improve financial discipline and facilitate
modernisation.
● It was also envisaged that private capital and managerial capabilities could be effectively
utilised to improve the performance of the PSUs.
● The government envisaged that privatisation could provide strong impetus to the inflow of
FDI.
● The government has also made attempts to improve the efficiency of PSUs by giving them
autonomy in taking managerial decisions. For instance, some PSUs have been granted
special status as maharatnas, navratnasand miniratnas.These were initially privatized
partially through disinvestment, but now they are expected to raise their own finances and
become global players. Market forces are free to determine prices.
In 1997 government identified some high performing PSUs and named thenmNavratnas.
They were provided financial and managerial autonomy to become global giants.
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 Maharatnas – IOCL, SAIL, BHEL, CIL, GAIL, NTPC, ONGC, BPCL
Navratnas – HAL, MTNL, EIL, BEL, HPCL, CCIL, OIL
Miniratnas – BSNL, AAI, IRCTC, ITDC
In 2018 there were 8 Maharatnas, 16 Navratnas and 71 Miniratnas. Government partly
privatized them through disinvestment.
Note: Students should write full forms of the above mentioned PSUs.

Arguments in Favour of Privatisation

i. Privatisation will introduce efficiency and profitability in Public Sector Undertakings
(PSUs).
ii. It will reduce budgetary deficits which result from expenditure onloss making PSUs.
iii. It will help in reviving sick units which are burden on public sector.
iv. It will help in bringing about globalisation by opening out of an economy and
increasing its competitiveness in international market.
v. It will use modern techniques of production.
vi. It will introduce accountability and responsibility in PSUs.

Arguments AgainstPrivatisation
vii. Privatisation encourages growth of monopoly power in the hands of big business
houses. This results in greater inequalities of income and wealth.
viii. Private enterprises may not show any interest in buying shares of sick PSUs.
ix. Private sector produces with profit motive and has no consideration for social welfare
motive.
x. Private sector is not interested in those projects which take long time to complete and
have low profitability. This includes water supply, salt production, education for poor
etc.
xi. Private sector is not interested in taking up risky projects.

Changing Role of Public Sector

Prior to 1947, there was virtually no “Public Sector” in India. The idea, that economic development
should be promoted by the State managing the industrial concerns, did not take root in India
before 1947.

In the initial stages of development, public sector is indispensible. Thus, after independence there
has been a progressive expansion in the scope of India’s public sector. Public enterprises became
an essential part of India’s economic development and public sector captured “Commanding
Heights” through IPR 1956. Almost all industries were under the public sector.

IPR 1991 led to a decline in the role of public sector as it was realized that public sector has
spread much beyond its desirable limits. The number of industries under it reduced considerably.
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Disinvestment Commission was set up in 1996 to suggest modalities for disinvestment of equities
of PSUs. Therefore, the role of public sector has slowly changed from the dominating one to a
supporting one. Public sector will now support the growth of private sector to raise revenue and
efficiency levels.

Though the public sector is becoming smaller, it should however be said to the credit of PSUs that
they entered the fields from the stage of near financial vacuum and many of them operated in low
profitability areas. Public Sector also helped in bringing up the basic infrastructure for industries.
However, its main problems have been excessive manpower, low technology, financial constraints
and responsibility without autonomy. All this led to decline in the efficiency of public sector.

The declining role of public sector indicates a shift in emphasis from direct to indirect State
intervention. It will now perform a regulatory role, making rules and providing guidelines to the
private sector. Thus, public sector will never cease to exist.

GLOBALISATION
Globalisation turns the world into one whole, i.e. it creates a borderless world with high level of
interdependence and integration.
The term Globalisation has four parameters:
1. Reductionoftradebarriersto permitfreeflowofgoodsandservices
across national frontiers.

NOTE: Refer to Foreign Trade Policy Reforms

2. Creation of an environment in which free flow of capitalcan take place. Transfer of wealth
across national boundaries is made possible by large organisational network and new electronic
technologies.
a) Foreign investments limit in banks increased to 50%. Foreign institutional investments (FIIs)
like mutual funds, merchant bankers can now invest in India (Barkley’s. Morgan Stanley etc.).
Foreign investment allowed in insurance sector (TATA-AIG, Bajaj Allianz etc.)
b) Automatic permission for FDI upto 51% foreign equity in high technology and investment
priorities industries. This limit was further raised to 74% and then 100%.
c) Foreign Investment Promotion Board (FIPB) was set up to increase FDI and FII.

3. Creation of an environment to allow free flow of technologyamong the nation states. Earlier
foreign investment had to seek government’s approval for every project under FERA. Since 1991,
foreigners can invest up to 100% of the total capital. This has attracted new technology to India.

4. Creation of an environment in which free movement of labourcan take place in different

countries of the world.
Case in Favour of Globalisation:
1. Rise in foreign capital as new firms get attracted.
2. Quality improvement due to increase in competition.
3. Rise in employment as new firms need more human labour.
4. Rise in banking and foreign sector efficiency
5. Acceleration in human development due to increase in income levels which lead to
increase in living standard.
Case AgainstGlobalisation

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 1. Small business is adversely affected due to tough competition.
2. Increase in inequalities of income and wealth.
3. Environmental issues: Growing Industrialisation, mass consumption and the increased
energy needs are partly responsible for environmental degradation..

Outsourcing:

This is one of the important outcomes of the globalisation process.

❖ In outsourcing, a company hires regular service from external sources, mostly from other
countries, which was previously provided internally or from within the country (like legal
advice, computer service, advertisement, security — each provided by respective
departments of the company).
❖ Outsourcing has intensified particularly because of the growth of Information Technology (IT).
Many of the services such as voice-based business processes (popularly known as BPO or
call centers), record keeping, accountancy, banking services, music recording, film editing,
book transcription, clinical advice or even teaching are being outsourced by companies in
developed countries to India.
❖ The low wage rates and availability of skilled manpower in India have made it a
destination for global outsourcing in the post-reform period. Genpact, HCL BPO, Wipro BPO
is some top most companies offering BPO services in India.

World Trade Organisation (WTO):

❖ The WTO was founded in 1995 as the successor organisation to the General agreement on
Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade
organisation to administer all multilateral trade agreementsby providing equal opportunities to
all countries in the international market for trading purposes.
❖ The WTO agreements cover trade in goods as well as services to facilitate international trade
(bilateraland multilateral) through removal of tariff as well as non-tariff barriersand providing
greater market access to all member countries.
❖ The purpose of WTO is to enlarge production and trade of services, to ensure optimum
utilization of world resources and to protect the environment.

❖ As an important member of WTO, India has been in the forefront of framing fair global rules,
regulations and safeguards and advocating the interests of the developing world. India has
kept its commitments towards liberalization oftrade, made in the WTO, by removing
quantitative restrictions on imports and reducing tariff rates.
❖ Debate on Trade Practices:Developing countries feel cheated as they are forced to open up
their markets for developed countries but are not allowed access to the markets of developed
countries.Developing countries are, therefore, asking the developed country governments,
“We have reduced trade barriers as per WTO rules. But you have ignored the rules of WTO
and have continued to pay your farmers vast sums of money. You have asked our
governments to stop supporting our farmers, but you are doing so yourselves. Is this free and
fair trade?”

The process of globalization, which is an outcome of liberalization and privatization policies, has

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produced positive as well as negative results .Some believe that globalization should be seen as
an opportunity in terms of greater access to global markets, high technology and increased
possibility of large industries of developing countries to become important players in the
international arena. While others believe that market-driven globalization has widened the
economic disparities among nations and people.

Global Footprint: Due to globalization many Indian companies have expanded their wings to
many other countries. For eg.:
● ONGC Videsh, subsidiary of ONGC, serves customers worldwide.
● TATA Steel is one of the top ten global steel companies and has operations in 26
countries
● HCL Technologies has offices in 31 countries

Indian Economy during Reforms: An Assesssement

The reform process shows a mixed outcome so far: overcoming the liquidity crisis, the
economy has broadly got back to the growth charted in 1980s, with a modest yet statistically
significant slower growth of the secondary sector. The investment – GDP ratio has improved,
however, with unfavorable compositional changes. It has been able to achieve fiscal
correction by reducing its public investment and expenditure. Thus, there are certain
achievements as well as failures of New Economic Policy.

Achievements of New Economic Policy

1. Growth of GDP:
● During 1981-82 to 1990-91, overall average growth rate of GDP was 5.6 per
cent per annum, which increases to 6.1 per cent during 1992-93 to 2002-03.
● During 2003-08, average growth rate of GDP again increases and reaches at
8.7 per cent. This period was considered as the golden period in India’s growth
history as Indian economy was about to touch the two digit level of growth rate .

● The year of 2008-09 was the year of global financial crisis , when the growth
rate of GDP declined and came to less than 7%. The slowdownwas mainly due
to domestic structural and external factors. After it,theeconomy rebounded
strongly andtheoverall growth rate during 2008-09 to 2012-13was 7.2 %.
● The Twelfth Plan (2012-2017) resulted in the GDP growth rate of about 8%. And
in 2018 Indian Economy is estimated to have grown by 7.3%.
● After the 1991, economic liberalization, India achieved 6-7% average GDP
growth rate. Since 2014 with the exception of 2017 India is considered to be the
fastest growing economy in the world.
● During this reform period, the growth of agriculture and industrial sectors has
declined whereas the growth of service sector has gone up. This indicates that
the growth is mainly driven by the growth in the service sector.

2. Increase in India’s competitiveness in International market

● The opening up of the economy has led to the rapid increase in foreign direct
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 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 $ 467billion in 2012-13. In 2018, India’s FDI was the highest
ever amounting to US $ 38 billion.
● There has been an increase in the foreign exchange reserves from about US $ 6
billion in 1990-91 to about US $ 405 billion in 2018. India is one of the largest
foreign exchange reserve holders in the world.
● India has become a successful exporter of auto parts, engineering goods, IT
software and textiles in the reform period.

3. Check on Inflation
● New economic policy has also succeeded in keeping the price level down by
increasing the flow of goods and services.
● The average inflation rate in 1990 was 8.92% due to heavy government
expenditures which leads to deficit financing.The inflation rate in 2018 was
2.44%

4. Reduction in Fiscal Deficit

With the introduction of economic reforms, fiscal deficit has come down. In 1991, fiscal
deficit was 8.4% GDP. It was brought down to 3.53 per cent of GDP in 2017-18.

Failures of New Economic Policy

1. Neglect of Agriculture
● Economic reforms have by passed the agricultural sector which continues to remain
a major source of livelihood in the rural areas. There was a deceleration in the
growth rate of agriculture.
● Lack of Public Investment : 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.
● Removal of fertilizer subsidy: This resulted in increase in the cost of production,
which has severely affected the small and marginal farmers.
● Loss of international competitiveness: There were a lot 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 which adversely
affected Indian farmers due to increased international competition.
● Upward Pressure on food prices: Due to 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 food grains. This
puts pressure on prices of food grains.

2. Slowdown in Industry
● Impact of Dereservationpolicy :Reforms in India have also adversely affected our
industries especially small scale industries. Due to dereservation policy along with
removal of quantitative controls our SSI units have to compete with multinationals.
MNCs are establishing their franchises in India to utilize cheap labor and local
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 resources which hitherto were utilized by SSI units.
● Decrease in domestic demand:Developing countries are forced to open up their
markets for developed countries which resulted in greater flow of goods and capital
from developed economies and rendering their industries vulnerable to imported
goods. Cheaper imports have, thus, replaced the demand for domestic goods.
● Lack of Infrastructure: The infrastructural facilities, including power supply, have
remained inadequate due to lack of investment.
● High non-tariff barriers in developed countries : Developing countries feel cheated
due to high non- tariff barriers imposed by developed nations. For example: India
has uplifted all quota restrictions on exports of textiles and clothing. But America
has not done the same on the imports of textiles from China and India.

3. Jobless Growth
● Though the GDP growth rate has increased during the reform period, this has not
generated corresponding growth in employment.
● This is called ‘jobless growth’. This is one reason why growth has failed to reduce
poverty.

4. Disinvestment
● Under its policy of disinvestment, the assets of PSUs have been undervalued and
sold to the private sector. This means a substantial loss to the government.
● The proceeds from disinvestments were not used for the development of PSUs and
for building social infrastructure in the country. Rather, it was used to meet deficit in
government revenues.

5. Unbalanced Growth Process

● Economic reforms have resulted in the concentration of growth process in urban
areas. All MNCs are establishing their units in highly developed urban areas
where they find adequate infrastructural facilities. Consequently, rural – urban
gap is widening.
● The growth process does not cover all sectos of of the economy. It is just IT-
based growth process.The growth has been concentrated only in some selected
areas in the service sector such as tele-communication, information technology,
finance, entertainment, travel and hospitality services, real estate and trade.
● The growth of agriculture and industrial sectors has declined whereas the growth
of service sector has gone up.

6. Reduction in the government revenue

● The tax reductions inthe reform period, aimed at yielding larger revenue to curb tax
evasion, have not resulted increase in tax revenue for the government.
● The reform policies involving tariff reduction have curtailed the scope for raising
revenue through custom duties.
● 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.

CONCLUSION

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 Economic Reforms, which began 28 years ago, have transformed India. What used to be a poor,
slow-growing country now is one of the fastest growing economies of the world.
The three-way fast lane of Liberalisation, Privatisation, Globalisation has speeded up the rate of
growth of GDP in India, and increased its international competitiveness, but it has not brought
about human development. Social indicators of education, health and nutrition have improved
much too slowly.
A true challenge before us is to combine “economies of growth” with “economies of equity and
social justice”.
India moved from low-income country to middle-income country, but to become a high-income
country, it needs to liberalise much further, improve governance and raise the quality of its
infrastructure.

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