Reforms in Indian Economy

Categories: India

The License Raj In 1947, India had already developed all the institutions of a modern market Economy. Right after Independence, Extensive government control began . Firms in the formal economy became completely dependent on government approvals for the most basic business decisions. Regulations in one area interacted with those in another to give teeth to the regulatory system.

Thus, the reforms needed were not just a matter of freeing prices and trade, but were a task of undoing a complex system of controls that moved the economy faraway from allocational efficiency, created numerous rents and vested interests, and was grounded in numerous pieces of legislation and institutions.

Prior to the reforms started in July 1991, India had one of the world’s most controlled investment regimes, a severely license restricted trade regime with very high import tariffs, regulated agriculture, tightly regulated labor and capital deployment.

Reform in the 1980s Unlike 1966, Indian engagement with the IMF succeeded in 1981 and a number of reforms were implemented during the 1980s.

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Relaxation of controls over capacity utilization, imports of capital goods and spare parts, Efficiency gains, liberalization of the trucking industry. By the end of the decade, the central government fiscal deficit increased rapidly, to 8. 5 percent of GDP at its peak in 1986-87, a level never reached since and the debt to GDP ratio reached levels from which it has not yet recovered. Indian Reforms, 1991-2001

A new Government came to power on June 21, 1991 and its most important short-term priority was to avoid defaulting on India’s external obligations.

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The outcome of these ten years of reform is that India has opened to the world economy. Except for restrictions on foreign investment in retail, India now has a competitive foreign investment regime. The financial sector has likewise seen the introduction of numerous reforms. Banks’ discretion over the allocation of funds has increased, and incentives for the efficient use of funds improved. the exchange rate of the rupee and the liberalization of capital flows have also reformed gradually.

As a result of all the measures taken over the decade, India now has a much less regulated economy in terms of Agriculture; telecommunication, fdi outflows International trade has become an increasingly important part of the economy, and in many respects the globalization of India’s economy is accelerating. The agenda of 2002 included overcoming severe structural impediments preventing faster growth, in addition to the fiscal deficit like difficulties encountered in the reform of India’s power sector; the fiscal relations between the central and state governments.

As opposed to most reforms in the world, India was able to introduce major policy changes without large fluctuations in income or consumption. It maintained almost continuous improvements in living standards throughout the decade. Inflation has declined to its lowest level in decades, and the real exchange rate has been reasonably stable. Social indicators like illiteracy and infant mortality have continued to improve. Conclusion On the whole, India should be regarded as a successful, yet gradual reformer. Gradualism has yielded two enormous benefits to India.

First, the avoidance of premature liberalization of the capital account prevented India being exposed to contagion in the Asian crisis. Second, the Hindu rate of reform has allowed time for the Indian democratic polity to buy into the reform program. Will reforms continue in the future? Political dynamics of the country impact the implememtation of reforms massively, hence they are bound to remain vulnerable to the varied pressures of India’s complex political scene. But it is reasonable to hope that reforms will continue, although with stops and starts and varied support from parties in power and opposistion, at a reasonable rate.

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Reforms in Indian Economy. (2018, Aug 26). Retrieved from

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