Economic Reforms

>> September 6, 2010

Economic reform means to change and adjustments in internal economic structure according to the external economic changes. Following are main economic reforms :

1. First phase economic reforms

There were many changes in international markets, organisations and production areas. India started to accept all these changes. First phase of economic reforms was started in 1985 when Rajiv Gandhi was the prime minister of India. He announced new economic policy for increasing productivity, new technology import and effective use of human resources.

2. Second phase of economic reforms

In 1991-92, govt. of narsimaharav started second phase of economic reforms for reducing fiscal deficit which was 10891 crores of rupees. Govt had to take loan of Rs. 5 billion dollars from IMF. For effective use of resources, govt. started to get foreign investment.

Before the process of reform began in 1991, the government attempted to close the Indian economy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffs and import licensing prevented foreign goods reaching the market. India also operated a system of central planning for the economy, in which firms required licenses to invest and develop. The labyrinthine bureaucracy often led to absurd restrictions—up to 80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide what was produced, how much, at what price and what sources of capital were used. The government also prevented firms from laying off workers or closing factories. The central pillar of the policy was import substitution, the belief that India needed to rely on internal markets for development, not international trade—a belief generated by a mixture of socialism and the experience of colonial exploitation. Planning and the state, rather than markets, would determine how much investment was needed in which sectors.


3. Third phase of Economic Reforms

The Vajpayee administration continued with privatization, reduction of taxes, a sound fiscal policy aimed at reducing deficits and debts and increased initiatives for public works.


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