The Future of Indian Economy: Past Reforms and Challenges Ahead

314 Pages·1933·4.54 MB·English

by  Yashwant Sinha

THE
FUTURE
OF
INDIAN
ECONOMY

Published by Rupa Publications India Pvt. Ltd 2017
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Anthology and Introduction Copyright © Yashwant Sinha and Vinay K. Srivastava 2017
Copyright for individual pieces vests with the respective authors.
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ISBN: 978-81-291-4806-3
First impression 2017
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CONTENTS
Foreword
Introduction
The Economic Reforms in India: A Historical Overview
Yashwant Sinha and Vinay K. Srivastava
REVISITING PRE-AND POST-LIBERALIZATION INDIA
1. Are Economic Reforms Accepted in India?
Yashwant Sinha
2. Reforms in Monetary and Banking Sectors: Early Developments
C. Rangarajan
3. Yashwant Sinha and the Economic Crisis of 1990–91
Sanjaya Baru
4. Governance Reforms: A Desideratum for a Robust Economy
Pradeep S. Mehta and Abhishek Kumar
5. Enhancing Living Standards and Promoting Inclusive Growth Through
Economic and Administrative Reforms
Shekhar Dutt
6. From Raj to Panchayati Raj: Inclusive Governance for Empowerment of the
Poor
Mani Shankar Aiyar
FISCAL, BUDGETARY AND CAPITAL MARKET REFORMS
7. Fiscal Policy: Combining Growth with Stability
N.K. Singh
8. India’s Fiscal Landscape: Form, Reform and Future Form
D.K. Srivastava
9. FRBM Act: A Milestone in Institutional Reforms
Subhash Chandra Pandey
10. Twenty-Five Years of Securities Market Reforms: Issues and Challenges
U.K. Sinha
11. Reforming Budgetary and Expenditure Management Systems: An
Alternative Perspective
B.P. Mathur
12. Fiscal Reform and Agriculture
Yoginder K. Alagh
13. Capital Market Reforms in India
S.K. Srivastava
PUBLIC SECTOR ENTERPRISES AND DISINVESTMENT
14. Public Sector Enterprises: Twenty-Five Years of Reforms Vis-À-Vis
Disinvestment
Gopal Krishna Agarwal and Yuthika Agarwal
15. Disinvestment: Government Policy and Growth
Jagdish Prakash and Vinay K. Srivastava
16. Competition in the Provision of Infrastructure: The Experience of the Last
Twenty-Five Years
Rajat Kathuria
17. Indian Power Sector: Post-Liberalization
B.B.L. Madhukar and Kuldeep Indeevar
18. India’s International Trade and its Institutional Framework: An Evolutionary
Perspective Since 1991
Ashish Kumar and Rahul Mazumdar
Acknowledgements
FOREWORD
For the economy of independent India, 1991 was a tumultuous year in which it
experienced an acute macroeconomic crisis. It was also a momentous year that
witnessed radical departures from the past. In recent times, it has been the focus
of much discussion not only in the media, but also among scholars in economics
and politics. This is no surprise. It is twenty-five years since July 1991, when
economic liberalization began life in India. For some, those who lived through
the times as adults, it is etched in memories as a watershed. For most,
particularly those who were young, or at school, or not yet born, it is essentially
a folklore.
In retrospect, there are three propositions about that conjuncture which
deserve recognition and emphasis. First, the story of 1991 began much earlier
although it surfaced in late 1990. The origins of the crisis lie in the cavalier
macro-management of the economy during the second half of the 1980s, when
both the government and the economy lived beyond their means. Second, there
were many actors, in leading or supporting roles, in this drama that unfolded
through three successive governments in a span of two years, from late 1989 to
late 1991, marked by economic crises and political uncertainties. It is indeed
misleading to focus on the events of July 1991 without reference to
developments in the preceding twelve months. Third, it was the largely ignored
political process, driven by economic compulsions of the time, which made
liberalization possible. Two short-lived governments that inherited an economic
crisis made tough decisions instead of postponing the day of reckoning. During
the political interregnum, when there was no elected government that could
make policy decisions, the governmental system and its institutions did
everything possible to avert default. A minority government that had not yet won
a vote of confidence in Parliament acted promptly and decisively. This does
highlight the resilience of the political process. Democracy was stable even if
governments were not.
In my view, any government that came to power in mid-1991 would have
done almost the same. The blueprints existed. There was little choice. Even so,
the outcome was possible only because there was an elected government after
months of political uncertainty, and a Prime Minister, P.V. Narasimha Rao, who
was most decisive in a crisis situation and quietly persuasive in political
management. There were dissenting voices, rather than consensus, both in the
Congress party and in the Opposition. But there was a consciousness among
politicians across parties, which did not necessarily mean an understanding,
about the crisis in the economy. The political system was somewhat tired of
conflict and no one was willing to bring down a minority government to force
yet another election on people. There were two supportive factors. For one,
emerging concerns about efficiency and productivity had led to rethinking about
policies, through the late 1980s, so that the manifesto of every political party for
the 1991 elections, across the ideological spectrum, had talked about the need to
restructure the economy. For another, the collapse of communism and the break
up of the erstwhile USSR had replaced competing ideologies with a dominant
one in which markets and capitalism were seen as the way forward.
It is clear enough that both macroeconomic adjustment and structural
reforms were driven by economic problems confronting the government in mid-
1991. The immediate short-term compulsions were managing the critical balance
of payments situation, manifest in the external debt crisis, and controlling
inflation to restrain inflationary expectations. The medium-term needs were
finding a sustainable solution to the fiscal crisis, through fiscal adjustment, and
returning the economy to a path of sustained growth, through structural reforms
that would increase the productivity of investment and make the economy more
efficient in its use of resources. The economic priorities of the people (reducing
poverty, creating employment, reviving agriculture, building infrastructure) and
long-run national development objectives (education, health, technological
capabilities) were not part of either the conception or the design of economic
liberalization at the time.
For an economy in crisis, a return to prudent macro-management of the
economy was both necessary and desirable. The fiscal adjustment was sorely
needed. The exchange rate adjustment was necessary to stem destabilizing
expectations, dampen imports and stimulate exports. Even the sale and pledge of
gold was an important symbolic gesture that helped restore confidence in
international capital markets. There was no default on international payments
obligations. The economy in crisis was stabilized.