INDIA - ECONOMIC REFORMS POST LPG

APPRAISAL OF LPG POLICIES (ECONOMIC REFORMS)

Liberalization, Privatization and Globalization created mixed reactions

Arguments in favor of Economic reforms

Increase in rate of economic growth – the growth of GDP increased during the reform period

Foreign exchange reserves increased along with inflow of foreign investments

Inflation was under control

The role of the private sector increased. The abolition of the licensing system and removal of restrictions on entry of the private sector earlier reserved for the public sector have enlarged the area of operation of the private sector.

CRITICISM OF ECONOMIC REFORMS

Neglect of agriculture – public investment in agricultural sector especially in infrastructure which includes irrigation, power, roads, market linkages and research were reduced in the reform period.

Removal of the fertilizer subsidy increased the cost of production which adversely affected the small and marginal farmers.

After the commencement of WTO a number of policy changes were made like reduction in import duties on agricultural products, removal of minimum support price and lifting of quantitative restriction on agricultural products.

Due to export oriented policy strategies in agriculture the production shifted from good grains to cash corps for the export market. It led to the rise in prices of food grains.

Growing unemployment – in the public sector, on the plea of overstaffing and redundancy and in the private sector on the plea of modernization and technical upgradation, workers were gradually being retrenched or forced to accept voluntary retirement.

Low level of industrial growth

Cheaper imported goods replaced the demand for domestic goods and domestic manufacturers started facing competition from imports.

Lack of infrastructure facilities including power supply due to lack of investment

Non tariff barrier by developed countries – all quota restrictions on exports of textiles and clothing have been removed from India, but some developed countries like USA have nor removed their quota restrictions on import of textiles from India.

Ineffective disinvestment policy – under this policy, there has been a substantial loss to the government as assets of the public sector undertakings have been undervalued and sold to the private sector. Moreover, the proceeds from disinvestment were used to compensate the shortage of government revenues rather than using it for the development of PSUs.

Ineffective tax policy – the tax reduction in the reform period was done to generate large revenue and to curb tax evasion. But it did not result in increase in tax revenue for the government.

Spread of consumerism – the new policy has been encouraging a dangerous trend of consumerism by encouraging the production of luxurious items of superior consumption.

Unbalanced growth – growth has been concentrated only in some select areas in the services sector such as telecommunications, information technology, finance, entertainment, travel and hospitality services, real estate and trade rather than vital sectors such as agriculture and industry, which provide livelihood to millions of people in the country.