THE MODEL OF ECONOMIC MANAGEMENT IN INDIA

A PRE-REFORM/POST-REFORM COMPARISON
NOUFAL PALATHINGAL

The first wave of economic reforms, as a part of the New Economic Policy (NEP) 1991 aimed to
impart a new element of dynamism to the growth process of the economy. There has been a
judicious blending of real sector policies designed to step up the momentum of growth with financial
policies that ensure macroeconomic and financial stability. The major trust of the NEP will be “to
increase the efficiency and international competitiveness of industrial production, to utilize foreign
investment and technology to a much greater degree than in the past, to improve the performance
and rationalize the scope of the public sector and to reform and modernize the financial sector so
that it can more efficiently serve the needs of the economy.” The NEP focused its attention to
dismantling the edifice of controls and a large number of stabilisation measures were designed to
restore internal and external confidence.

The SAPs find their origin in the growth of neo-liberalism during the decades of 1980s and the
1990s. The neo-liberalism affirms the role of market in economic decision making and
correspondingly limits the role of the state to rule-setting and contract upholding. This type of
growth aims at establishing a global market-based system. It is often nicknamed as the
“Washington Consensus” as it has the approval of the ‘Brettonwoods Twins’ – IMF and the World
Bank.

Pre-Reform Strategies Post-Reform Strategies

Closed economy
Self-reliance
State-led economic growth
Import substitution
License-dominated regime
Frequent state interventions
Politically administered prices
Not much concern for deficits
Development by inflationary process
PSUs as engines of growth
Dominance of PSUs
Philosophy of natural monopoly
Restrictions on FDI & MNCs
Restrictions on currency movements
State-controlled interest rates
State-controlled credit
Underdeveloped capital market
Huge public sector budgetary resources
High tax rates
Open economy
Integration with world markets
Market-determined economic growth
Export orientation
Delicensing, deregulations & debureaucatisation
Selective and effective state interventions
Market-determined prices at large
Contain all kinds of deficits
Deflationary monetary & fiscal policies
Private investments as growth engine
Withdrawal from the areas of private interest
Minimize the gap between public and private
sectors
Inducement to FDI & MNCs
Liberalisation of restrictions
Deregulation of interest rates
Credit policy reforms
Reforms in capital market
Minimize public sector budgetary resources
Tax reforms

Thus, in the new economic environment, the vocabulary itself has undergone a change. Earlier, the
key words or phrases were control of commanding heights, nationalisation, employment generation,
protection of domestic industry, indigenization of technology and public monopoly. But, today, the
key words or phrases are international competitiveness, efficiency, profitability, technology
upgradation, foreign capital, liberalisation, privatisation, globalization and golden handshake.
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