(GIST OF YOJANA) Indian Economy- Historical Perspective and the way Forward
Indian Economy- Historical Perspective and the way Forward
The 1990s marked a significant turning point for India’s economy. The country faced macroeconomic imbalances during the late 1980s and early 1990s, prompting the government to introduce structural reforms in 1991. High combined deficits of the central and state governments, elevated inflationary pressures, and an unsustainable current account deficit triggered a balance of payments crisis. In response, India embarked on a path of economic liberalisation and reforms.
Economic liberalisation and reforms from 1990-2014:
- Liberalisation, Privatisation, and Globalisation (LPG) reform: The government implemented policies that dismantled licence raj, encouraged foreign direct investment and promoted privatisation.
- Flexible exchange rate with full convertibility of rupee in the current account and partial convertibility in the capital account.
- New Telecom Policy of 1999: It catalysed the information technology (IT) sector boom in India, generating widespread benefits for other sectors as well.
- The Department of Disinvestment was established to further the disinvestment and privatisation of public sector enterprises.
- Fiscal Responsibility and Budget Management (FRBM) Act: The act was passed to address the fiscal deficit of central and state governments.
- Structural reform in the banking sector: SARFAESI Act 2002 and the deregulation of interest rates were introduced to help banks burdened with bad debts.
These reforms have helped in achieving an average growth rate of over 8% during the 2003-2008 period where the global growth averaged at 4.8%.
New age reforms after 2014:
- Since 2014, the government’s economic policy focus has been to restore India’s growth potential by easing business conditions and significantly enhancing physical and digital infrastructure.
- Simplifying regulatory frameworks: The Insolvency and Bankruptcy Code (IBC) and the Real Estate (Regulation and Development) Act (RERA) were enacted to enhance the ease of doing business.
- Tax reforms: Adoption of Goods and Services Tax (GST), reduction in corporate and income tax rates, abolishment of the retrospective tax, etc. have reduced the tax burden on individuals and businesses.
- Capital expenditure: Capital expenditure of the central government has increased from 2.8 % of GDP in 2013-14 to 3.8% in 2022-23. This has improved connectivity and modernised infrastructure across the country.
- National Infrastructure Pipeline (NIP) was established to fund infrastructure investment projects of around INR 111 lakh crore spread over five years until 2024-25.
- Atmanirbhar Bharat and Make in India initiatives to enhance India’s manufacturing capabilities and promote exports across various industries.
- Production Linked Incentives (PLIs): implemented across various sectors to attract domestic and foreign investments in the manufacturing sector.
- A New Public Sector Enterprise policy was implemented to limit governments’ presence to a few strategic sectors.
- Decriminalising minor economic offences under the companies act 2013 to improve the ease of doing business. 1400 archaic laws have been repealed in the last nine years
- Micro Small and Medium Enterprise (MSME): Emergency Credit Line Guarantee Scheme (ECLGS), revision in the definition of MSMEs, TReDS to address the delayed payments for MSMEs to enhance resilience in the MSME sector.
A robust financial sector, coupled with increased public spending, digitalisation reforms, formalisation of the economy, enhanced financial inclusion, expanded economic opportunities, and substantial upscaling in research and development, will constitute the essential drivers for India’s economic growth in the ‘Kartavya Kaal’.