The Need for Economic Reforms in the 1990s
India has undertaken a bold programme of market oriented economic reforms to integrate her national economy with that of the international mainstream. She tailored her economic policies towards the expansion of mutually beneficial economic cooperation with countries in East and South-east Asia. Moreover, she is also keen in developing new dynamic links of trade, investment and technology flows with these countries.
The fundamental objective of economic reforms is to bring about rapid and sustained improvement in the quality of her citizens’ life (Government of India, 1994). Central to this goal is a rapid increase in income and productive employment. With hundreds of millions of Indians still trapped in abject poverty, the only durable solution to the curse of poverty is sustained growth of incomes and employment in agriculture, industry and services.
The poor looks doomed, not by the lack of talent or drive, but by circumstance of birth. India’s have-nots are treated virtually as are-nots. Successful and sustained development depends on the continued increases in the productivity of capital, land and labour. Hnece, the obstacle that lies ahead is to change traditional ways of thinking and working efficiency. Tough decisions, which may hurt powerful vested interests are needed; otherwise, reforms of broad policies will not work.
Early Years of Reform
The reforms took place after the government assumed office in June 1991. The country was at a point of unprecedented economic crisis and socio-political turmoil. It was the first time that India was faced with the prospect of defaulting on her international commitments (Government of India, 1994). With the denial of foreign funds and downgrading of her credit rating from Moody’s, the country had to resort to borrowing against their gold reserves from the International Monetary Fund (IMF).
The Indian government took immediate and swift action to restore international confidence in the economy and to redress the imbalances that had emerged in external and domestic financial conditions. Numerous reforms in the micro as well as macro economy were prescribed but emphasis was on the financial sector.
The government started off the reform with a check on the extent of inflation and the rate of growth of money supply. The exchange rate was then readjusted downwards to a level that could be sustained in the light of the country’s balance of payments situation and the state of the domestic economy. Emergency funding was mobilized from both multi-lateral and bilateral sources to relieve the pressure of immediate debt servicing on the balance of payments and to build up foreign exchange reserves.
