Q.7 “The economic reforms of 1991 were a response to a crisis, but they also laid the foundation for long-term growth. Discuss.” “1991 के आर्थिक सुधार एक संकट की प्रतिक्रिया थे, लेकिन उन्होंने दीर्घकालिक विकास की नींव भी रखी।” चर्चा कीजिए।
Ans: The economic reforms of 1991, initiated under the New Economic Policy (NEP), were a response to India’s severe balance of payments crisis with foreign exchange reserves plummeting to levels insufficient to cover even a fortnight’s worth of imports.
However, they also laid the foundation for long-term economic growth by liberalizing the economy, integrating it with global markets, and fostering private sector participation.
- Liberalization of the Economy:
- Deregulation: The reforms dismantled the License Raj, reducing bureaucratic control over industries and encouraging private investment. Example: The abolition of industrial licensing for most sectors allowed companies like Reliance and Tata to expand rapidly.
- Trade Liberalization: Import restrictions were eased, and tariffs were reduced to promote global trade. Example: The reduction in customs duties boosted sectors like IT and pharmaceuticals, making India a global hub for generic drugs.
- Privatization and Disinvestment: The government reduced its role in business by privatizing public sector enterprises and encouraging private sector participation. Example: The privatization of VSNL and Hindustan Zinc improved efficiency and profitability.
- Globalization and FDI: The reforms opened India to foreign direct investment (FDI), integrating the economy with global markets. Example: The entry of multinational corporations like Coca-Cola and Pepsi revolutionized the consumer goods market.
- Fiscal and Monetary Reforms: The government introduced measures to control fiscal deficits and stabilize the economy. Example: The FRBM Act (2003) was a follow-up to ensure fiscal discipline.
- Financial Sector Reforms: The banking and financial sectors were modernized to support economic growth. Example: The establishment of SEBI (1992) regulated capital markets, boosting investor confidence.
- Impact on Agriculture and Services: While agriculture saw limited direct reforms, the services sector, especially IT, grew exponentially. Example: Companies like Infosys and TCS became global leaders in IT services.
- Long-Term Growth and Challenges: The reforms laid the foundation for India’s emergence as one of the fastest-growing economies. Example: India’s GDP growth rate averaged 6-7% post-reforms, compared to the Hindu rate of growth of 3-4% earlier.
The 1991 economic reforms were a turning point in India’s economic history, transforming it from a closed, regulated economy to an open, market-driven one. While they addressed the immediate crisis, their true legacy lies in laying the foundation for sustained economic growth and global integration.
| Source : Indian Express Article : Link |
| Keywords: Liberalization, Privatization, Globalization , FDI , Fiscal Discipline , License Raj, Balance of Payments |
| Extra Info : The various objectives of economic planning in India are drawn keeping in view its socio-economic problems. Accordingly the objectives as follows: 1. Economic growth 2. Increase in employment 3. Reduction in inequality of income 4. Reduction in poverty 5. Modernization of the economy 6. Ensuring social justice and equality. |