A Critical Analysis of the Structural Adjustments and Economic Reform in India:
Professor in International Economics
Faculty of Economics, Nagasaki University
Nagasaki , Japan
Associate Professor in Management
School of Business Administration, American University,
Abstract: The analysis of the Indian economy, since the structural reform to dismantle the mixed economic planning and to establish market economy, is presented here with clear analysis regarding growth of the macro economy, the real economy and the social impacts in terms of employment. The picture was quite dismal until the short-term portfolio investments from abroad were introduced a few years ago. The recent upsurge of growth is thus the result of these short-term foreign investments.
Indian Economy, Economic Reforms, Structural Adjustments, IMF Conditionality, Unemployment, Agriculture, Balance of Payments
The major argument of the proponents of ‘Economic Reform’ was that the earlier planned development in India from 1951 to 1990 has restricted the growth of the Indian economy (Ahluwalia,M.S, 2002; Bhagwati,1978; Dollar, 1992; Dollar & Kraay, 2001; Edwards, 1992; Srinivasan & Bhagwati, 1999; World Bank, 1996, 2000) . International financial institutions have long argued that a market economy will release the tiger of India caged by the restrictions of the planned regime (Balakishnan, 2000; Sen,1996). The so-called ‘Economic Reform Programme’ has started in 1991 with a lot of expectations, but after twenty years of reforms, Indian economy in 2012 was in a sorry state with declining growth rate, high inflation and capital flights. The recent behaviour of the Indian economy with rising balance of trade deficits brought back the fear of a repetition of the bankruptcy of 1992. The Economic Survey of 2012 presented a dismal picture of the economy of India. Slowdown in growth, particularly in industry and agriculture, persisting inflation and a volatile external environment reflected in a widening current account deficit and fluctuating rupee. India's GDP growth in 2011-12 has been the lowest in nine years. The Indian economy is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. In this analysis, we have presented a critical analysis of the economy looking at its recent history, which has several ups and downs. For the purpose of analysis we divide the whole period into two parts: (a) period of structural adjustments from 1991 to 2001; (b) period of the reformed economy since 2001. The period from 1991 to 2000 can be broadly defined as the period of structural adjustment, where the old structure of planned mixed economy was dismantled gradually and public sector enterprises were privatized in many extents. The period from 2000 to present can be broadly defined as a reformed economy when the balance of payments is yet not fully liberalized and there are still some public sector enterprises left to be privatized. Economic Growth During the Structural Adjustments:
Economic reforms have started in 1991-92. The argument of the proponents was that the previous regime of the planned economic development in India has the result of a very slow growth of the economy, the so-called ‘Hindu’ rate of growth. The ‘Reform process’ was expected to bring in a new phase of rapid economic development by removing the distortions caused by restrictive government policies under the ‘planned’ regime of 1951-90. Let us examine what are the consequences of the ‘Reform Process’ on economic growth. The following table 1 gives us the comparative figures: The overall growth rate of the GDP (Gross Domestic Product) in the ‘planned regime’ has not done that badly during 1980-90 compare with the ‘reformed ‘ regime...
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