Generations of Economic Reforms in India

Topics: Bank, Economics, Banking Pages: 5 (999 words) Published: June 26, 2014
Generations of economic reforms-
1st Generation Reforms (1991-2000):
1) Promotion of private sector
De-reservation
De-licensing
Abolition of MRTP limit
Abolition of the compulsion of the phased-production and conversion of loans into shares Simplifying environmental laws

2) Public Sector Reforms
Disinvestment
Corporatisation

3) External Sector reforms
Abolition of quantitative restrictions on imports
Floating currency regime of exchange rate
Full current account convertibility
Reforms in the capital account
Foreign Investment
Liberal foreign exchange management (FEMA instead of FERA)

4) Financial Sector reforms
5) Tax Reforms
Simplifying
Broader Tax net
Modernising
Checking evasion

Result: Change from Command economy to Market driven economy. Didn’t produce the desired results, hence need for 2nd round of reforms were felt. 2nd Generation Reforms (2000-01 onwards):
1) Factor Market Reforms (FMRs)

Background: Before this, under Administered Pricing Mechanism (APM): Petroleum, Sugar, fertilizers, Drugs, etc. A major section of these products were produced by the private sector------hindered profitability.

Considered as the “backbone” for the success of reforms in India. Dismantling of the “Administered Pricing Mechanism (APM)” Petroleum segment: Only Kerosene oil and LPG remained under APM while petrol, diesel, lubricants were deregulated. Income tax paying families won’t get sugar under TPDS.

Fertilizers: Only urea under APM. Many drugs were also phased out. Petroleum sector opened to private investment.
FMRs still continuing.

2) Public Sector Reforms
Greater functional autonomy.
Free leverage to the capital market.
International tie-ups and Greenfield ventures.
Disinvestment (strategic).

3) Reforms in the Government and Public institutions
Also known as Administrative Reforms.
Change in the role of Govt. From ‘Controller’ to ‘facilitator’.

4) Legal sector reforms
Abolishing outdated and contradictory laws.
Reforms in IPC, CrPC, Labour Laws, Company laws.
Enacting suitable legal provisions for new areas like Cyber laws, etc.

5) Reforms in the Critical areas
Reforms in the Infrastructure sector.
Reforms in the agriculture, and agriculture extension.
Reforms in social infrastructure----education and healthcare. Two segments in this type of reforms: a) Factor Market Reforms, b) a broader dimension of reforms viz. corporate farming, R&D in the agriculture sector (till now by the Govt only. But active participation of private sector felt.), irrigation, inclusive education and the health care. Some other areas that were addressed during the 2nd generation reforms: 1) Increase in importance of the states as initiator of reforms and Centre to play a supporting role. 2) Fiscal consolidation in the form of FRBM Act, 2003 and Fiscal Responsibility Acts (FRAs) by the states. 3) Greater tax devolution to the states.

4) More focus on the social sector especially----healthcare and education.

3rd Generation Reforms:
Announced on the margin of launching the tenth plan i.e. 2002-2007. Provision for fully functional Panchayati Raj Institutions (PRIs).

4th Generation Reforms:
Not an official generation of reform in India.
Early 2002: A fully ‘Information Technology enabled’ India. A two way connection between the economic reforms and IT with each one reinforcing the other.

Financial and Banking Sector Reforms
Financial Sector Reforms:
Background: A high level Committee on Financial System (CFS) also known as Narasimham Committee I was set up on Aug 1991 to examine all aspects relating to structure, organisation, functioning, and procedures of the financial system------based on its recommendations, a comprehensive reform of the banking system was introduced in the fiscal 1992-93.

The recommendations were aimed at:
1) Greater operational flexibility.
2) Internal autonomy of PSBs in their decision making.
3) Greater degree of professionalism in...
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