1.Write about post independence development strategy. 2.What is economic reforms?
■ POST INDEPENDENCE DEVELOPMENT STRATEGY:
After independence ,the broad objectives that guided India development strategy were:
- Achievement of high rate of economic growth which leads to the sustained improvement in standard of living the population.
- Reduction in inequalities and many more specially and accelerated effort to remove poverty at a pace faster than would be achieved solely through the normal growth processes.
- Especially in key area of the economy their is a development of a mixed economy with a strong public sector.
- There is a achievement of a high order of self Reliance.
- Promotion of Balanced regional development, with the narrowing of economic differences across regions.
- Social and economic objective were to be pursued in the framework of a constitutional democracy.
Various strategies adopted were as follows: 1.Mixed economy: - Mixed economy means an economy that contains both privately owned and state owned Enterprises on that combines elements of capitalism or socialism,or a mix of market economy and planned economic characteristics.] In such a system, markets are subject to varying degrees of regulatory control and governments wield indirect macroeconomic influence through fiscal and monetary policies with a view to counteracting capitalism’s history of boom/bust cycles, unemployment and income disparities. In this framework, varying degrees of public utilities and essential services are provided by government, with state activity often limited to providing public goods and universal civic requirements. This includes healthcare, physical infrastructure and management of public lands.This contrasts with laissez-faire capitalism, where state activity is limited to providing public goods and services as well as the infrastructure and legal framework to protect property rights and enforce contracts. The public sector was allotted activities like mining Steel power roads private sector was allotted to establish Industries mainly in consumer good ,subject to control and regulation in the form of law.
2.modernization through industrialization:
The india’s development strategy was focused by modernization through industrialization. Emphasis was given on state-led industrialization,with all industries and sectors like steel ,mining, machine tools,chemicals ,telecommunications, power plants, etc. As well as trade and finance were reserved for the public sector. The second five year plan adopted the strategy of machine for producing machines ‘ and strongly emphasized on technology and capital intensive heavy industries to achieve rapid industrial growth which in turn is the pre condition for overall economic development.
3.Restrictive policy towards international trade and finance:
The policymakers favoured a restrictive policy regime ,with strong restrictions on international trade and finance. It is mainly because the negative perceptions towards international openness,which were after india’s experience during the colonial rule.
4.Agriculture sector:
In 1965. The strategy of Green revolution was initiated. Emphasis was given in building institutional and physical infrastructure, such as irrigation and dams, rural roads and Markets, Cooperative credit, price support and extension programs for education and training of farmers,etc.to improve agricultural productivity.
Similarly as,land reforms was also initiated for improving productivity as well as achieving distributional equity.
5.Social justice:
As per the Directive Principles of State Policy it laid down in the constitution, achievement of justice social, economic and political were proclaimed as a national commitment .the five year plans were an inherent part of State policy where social Justice figured as the most important objective.
6. Import substitutions:
Import substitutions is generally referred to the policy that eliminates the import and allows for the production in the domestic market.the objective of this policy brings about changes in structural in the economy by substituting the articles imported by domestic production.
The first seven plans,trade in India was characterized by an inward looking trade strategy.
Technically,this strategy was called import substitutions. This policy was aimed at replacing or substituting imports with domestic production.
The policy of protection was based on the notion that industries if developing countries were not in a position to complete against the goods produced by more developed economies.
■ FOREIGN INVESTMENT POLICY INSTRUMENTS:
Foreign investment involves capital flows from one country to another, granting the foreign investors extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment or an equity stake large enough to enable the foreign investor to influence business strategy.
After independence, new foreign investment has been rigidly controlled in line with established development thinking. investment was mostly restricted to industries where it was felt that the acquisition of foreign Technology was important, or where the promise of exports were convincing.india has followed an inward looking controlled development strategy after independence, where the state has played the dominant role. It has emphasized on state-led industrialization, substitutions, a large public sector and imports control on private sector. The entire system involved a set of restrictive policies like industrial licensing, exchange control, import licensing, capital controls, price control,etc.
■ ECONOMIC REFORMS:
Economic reform is an action taken by the government for targeting the economic policy instrument design to effect change in the behaviours of public and or private economic agents with a view towards either boosting their sustainable and non inflationary demand address to the national economic or increasing their productive investment to achieve National economic growth and Employment creation targets.
In India, the first attempt of economic reform was made in 1966 which was reversed in 1967, and a stronger version of socialism was adopted.the second major Attempt was made in 1985 by prime minister Rajiv Gandhi which was came to a halt in 1987.
This section attempts to present a consolidated account of reform measures undertaken so far, and indicate where India was before reform and where it is now. India began toundertake bold economic reforms in June 1991, prompted mainly by the balance of payments crisis and partly by the necessity to use domestic resources more efficiently. The balance of payments crisis was aggravated by an unmanageable fiscal imbalance. The response to the crisis was to put in place a set of policies aimed at stabilisation and structural reforms. While stabilisation policies were meant to put the house in order to correct the fiscal and balance of payments imbalances, the structural reforms were aimed at preventing the recurrence of such crises.
The 1991 economic reform was crisis driven:
- Balance of payment crisis:
Forex reserves came down to 1.1 b $ ,while current accounts deficit increased to 5.5 b $. - External debt increased to as high as 22.8 percent of GDP.
- internal debt amounted to 53 percent of GDP
- massive NRI deposit outflow which took place leading to loss of investor confidence.
The root cause of crisis was the large and growing fiscal imbalance due to mounting Government expenditures in the form of subsidies and unbridled consumption expenditure under policy of populism causing high inflation.
Subsidies grew at faster rate. Meanwhile, the Gulf War in 1990 hampered the petrol product import from Iraq which forced government to buy petroleum from other countries at Higher cost. and the same time India witnessed political instability due to implementation of Mandal Commission report giving reservation to obcs in government jobs.
■ MEASURED UNDERTAKEN:
The post crisis adjustment programme featured macroeconomic stabilization and structural reforms.
- Macroeconomic stabilization:
Macroeconomic stabilization is a condition in which a complex framework for monetary and fiscal institutions and policies is established to reduce volatility and encourage welfare-enhancing growth. india pledged 20 tonnes of gold to union bank of Switzerland and 47 tonnes to bank of England;taken loans from multilateral financial institutions and donor countries reduction in fertilizer and sugar subsidy.
Policy adopted for macroeconomic stabilization:
1.reduction in fiscal deficit.
2.revenue generatio by broadening tax base,rationalizing tax rates and non-tax source .
3.reduction in non-plan expenditure.
4.low and stable inflation by controlled money supply, faster growth, freezing fuel prices,etc.
5.balance of payment adjustments by improved invisible accounts and more export earnings.
6.resources mobilizations from public services.
- Structural reforms:
Objectives of the structural reforms were: - Improve resource utilisation by opening economy and reducing government intervention .
2.shift resources from non- trade goods to trade good sector and from government sector to private sector. - rely more on price mechanism instead of governmental control .
4.wind down public sector units.
The policy adopted was called as
