Mixed Economy Key Concepts

India Transformed: 25 Years of Economic Reforms

• India's economy is about five times bigger in real terms than in 1991
• The economic changes prompted changes in other aspects of life
• Shifted foreign policy with the collapse of the Soviet Union
• Shifted to a globalizing world and nuclear capability was acquired
• Contributors designed and implemented reforms
• Business leaders grasped opportunities
• Analysts observed the landscape

Road to Industrial Policy Reforms

• The text focuses on the 1991 industrial policy reforms
• The reforms constituted a break from the 'command-and-control' Indian economic policy
• Associated with the overall process from 1990 to 2015
• Focus on the industrial policy reform of 1991
• This was symbolic of the mindset change that has contributed to India's new economic trajectory
• The early 1980s really started the detail account of process change

The 1991 Reforms

• Prime Minister Narasimha Rao provided the political leadership
• Finance Minister Manmohan Singh had the intellectual and technocratic heft
• Principal Secretary Amar Nath Verma had indispensable bureaucratic power
• Singh provided the intellectual leadership on the economic reforms
• Rao's management skills and sagacity were essential to the reform project

Additional Info

• Reform could not have been done without the IMF and World Bank
• There was political instability in the country
• The new government came to power on 21 June 1991
• Inflation was well into double digits
• Foreign exchange reserves had hit rock bottom

The Reforms in 1991

• Were carried out in one shot on 24 July 1991
• Most other reforms had to be done over a period of time
• 1980: consultant for urban development in the Planning Commission
• 1979: Professor Raj Krishna, as a member of the Morarji Desai government's Planning Commission, invited the author to the Planning Commission
• There was very little work done on urbanization at this time in the country
• Late 1980: the author obtained leave from the World Bank
• The government had changed and Professor Raj Krishna had returned to academia
• People returning to India from abroad were viewed with suspicion

After returning to World Bank

• Assigned four task forces on housing and urban development
• The author was the member secretary of the tasks forces
• There were not enough policy instruments at the central level to be effective
• There was too little interest to retain the focus
• After returning to the World Bank in late 1983, the author spent a year finishing work on the ‘City Study
• Appointed as a senior country economist for World Bank in the Philippines division in early 1985
• Rajiv Gandhi appointed Dr Manmohan Singh as the deputy chairman of the Planning Commission
• The author got call to return to join the Planning Commission
• The author returned to India at the end of 1986

Additional Facts

• 1987 Dr Manmohan Singh was appointed to the South Commission in Geneva left
• 1988 came the opportunity to become economic adviser in the Ministry of Industry
• India had been known for a complex command-and-control economic systems
• It was also known as Licence Permit Raj
• The 'Licence Permit Raj', the central government required approval at almost every step
• Need to obtain a ‘Letter of Intent' (LoI) to get approval from the Ministry of Industry
• The LoI usually included a requirement for a phased manufacturing program
• The aim was at progressive indigenization of the manufacturing process

Inherited Powers

• controls inherited from the Second World War when the Defence of India Act was promulgated in 1939
• instruments of economic were the Defence of India powers from Second World War
• 1945 Statement of Industrial Policy led to Industrial Policy Resolution (1948)
• Monopolies and Restrictive Trade Practices Act (MRTP) 1969
• foreign direct investment (FDI) up to limit of 40% in the industries
• In 1990, there were as many as 836 items were reserved for the production of small-scale enterprises
• The list was clothing, shoes, toys, hand tools, dinnerware, cutlery and stationery

Industry

• Mid 1990's India had fewer than 10 million manufacturing sector workers
• China was over 100 million

Important Facts

• A ban on location of industries from 20 to 30 largest cities in 1977
• The desire is to run a command system in the private sector
• 6% per annum was industrial growth in the 1950–90 period
• Government examined the industrial licensing system in the 1960s
• 1980's was the kind of thinking that dominated the Indian industrial regulatory environment

Impetus for Industrial Policy Reforms

• The beginning of the 1980's Indira Gandhi came to power as prime minister
• M. Narasimham, Abid Hussain and Arjun Sengupta all on overall deregulation, trade reform and public enterprise reform
• Vijay Kelkar and were modernizing civil servant technocrats
• Late 1984 Rajiv Gandhi came into power and deregulation became positive

The Road to the Ministry of Industry

• Towards the end of the period the author came to the Ministry of Industry as economic advisor 1988
• Later came T.N. Seshan as Cabinet secretary
• 1990-1996, he was the chief election commissioner
• V.P. Singh government came to power early 1989
• Ajit Singh was appointed new industry minister

The Agenda of Industrial Reforms

• The lightning rod was the annual World Economic Forum summit at Davos 1990
• Ajit Singh was leader at Davos
• Ajit Singh and inexplicably nominated Arif Mohammad Khan also went
• Anil Kumar worked in the UN ESCAP

The After Reform

• Anil Kumar continued working on industrial reform
• The Office of the Economic Adviser helped the ministry
• The cabinet consisted of motley group leaders with different backgrounds and ideologies
• The New Industrial Policy of 1990 was diluted

Failures

• Chandra Shekhar's rebellion
• V.P. Singh brought down on 10 November 1990
• Prime Minister Chandra Shekhar portfolio: a first in Indian government history
• The crisis continued and was paralized

Facts After the Reforms

• P.V. Narasimha Rao became the prime minister
• Amar Nath Verma was selected as his principal secretary
• By Mid March 1991 administrations collapsed
• Dr Manmohan Singh is the finance minister.
• Congress leader in the PMO
• They got elected and the outgoing regime
• Chandra Shekhar is chosen to retain the industry portfolio

Industrial Facts

• July India put new Industrial policy
• The new Industry policy was announced to change a specified list
• Investment could be high priority industries technology
• The government welcome foreign investment in industrial growth

Economic Review

• The industrial review was to outline by Minister Manhohan Singh
• 1991 was the first budget
• Macro stabilization was economic policy and first priority
• He needed sector of action

Policy

• Finance minister Manmohan singh 1991 landmark budget
• 1990's relationship from ministry
• The RBH finance policy was followed

Economic Challenges

• The New Industrial Policy' that has indeed lasted over the last twenty five years
• 24 July 1991. The New Industrial Policy
• In 1991's reforms were significant in many ways
• Financial issues were hard ship on businesses.

Financial Growth

• Financial growth was not all for success
• India’s economic growth slowed with financial problems
• People had to focus on the social side for wealth
• There was better human development

Additional Points

• The most promising is faster growth
• Industry made much faster than the other rates
• Farmers did not need help with costs but a social help.
• 1990 saw the world grow into prosperity
• It was a time before global crisis

Additional Information

• Labor also had security with the help of labor workers
• Labor laws are a key topic for change The World Bank also did action with other ministries
• Bajaj said they did work with them too

Explore government regulations, economic consequences of delaying policy changes and addressing income inequality through fiscal policies in a mixed economy. Understand 'moral hazard' in government interventions and the factors causing delays in policy reformation.