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Indian Economic Policy

Notes world economy. Therefore, the emphasis in economic reforms was shifted to export-led growth
strategy, instead of depending on import-substitution strategy of growth. In this way, economic
reforms constitute three fundamental policy changes, namely, Liberalisation, Privatisation and
Globalisation (LPG) model of development in India.
• The process of integrating the various economies of the world without creating any hindrances
in the flow of goods and services, technology, capital and even labour or human capital is
called gloalisation. Globalisation has many meanings depending on the context and on the
person who is talking about. Though the precise definition of globalisation is still unavailable a
few definitions are worth viewing, Guy Brainbant : says that the process of globalisation not
only includes opening up of world trade, development of advanced means of communication,
internationalisation of financial markets, growing importance of MNCs, population migrations
and more generally increased mobility of persons, goods, capital, data and ideas but also
infections, diseases and pollution. The term globalisation refers to the integration of economies
of the world through uninhibited trade and financial flows, as also through mutual exchange
of technology and knowledge.
• In order to understand the worth of economic policies in India, we should understand its need
in India. This would help us to develop a perspective about economic policies and plans of the
Government. It may be noted that market system is not perfect, however, and in some situations,
our economic well-being can be raised by regulating it or even by side-stepping it altogether.
Thus, failure of market is the most important reason that we make economic policy.
• The economic policy in a developing country like India aims to accelerate the process of economic
development. This ensures swift economic development. The concept of economic development
is distinct from the concept of economic growth.
• People of different inclination and interest are involved in the process of formulation of economic
policy in India. First, legislatures as political institutions are mainly responsible for policy-
making. In the India, the political decision-making is supreme. The Government constitutes a
committee or a task-force to generate policy options, makes ‘necessary political changes’ in
those recommendations, and, then, announces its decision at appropriate forums either in the
form of an executive order or a legislative resolution.
• The reform process, say the advocates of reform, has the potential of accelerating economic
growth. However, if we compare the annual average growth rate during the pre-reform period
(1980-81 to 1990-91) which was of the order of 5.6% per annum, then the post-reform 12-year
period (1990-91 to 2002-03) also suggests an average growth rate of 5.5%. Thus, the claim of the
advocates of reforms is not borne out by facts. It means the reform process has yet to establish
its distinct superiority over the pre-reform period in the country.
• Among the reforms, industrial licensing was abolished in all but 15 industries. As a result, the
reform process was able to dismantle the system of industrial licensing in order to accelerate
industrial production growth. However, we don’t see any sharp acceleration of industrial
production. The main reason for decrease in the growth of Index of Industrial Production (IIP)
was a sharp decline in electricity generation from 9.0% during the pre-reform period to 5.7% in
the post-reform period.
• Economic reforms should step up investment in education and health infrastructure for the progress
of human development. There are examples of Kerala and Tamil Nadu which have achieved
higher levels of human development even with relatively lower levels of economic development,
yet, by and large, better levels of per capita NSDP are associated with higher levels of human
development in terms of education and health. It may be noted that most of the backward states
have poor record in health indicators like infant mortality, birth and death rates.
10.5 Key-Words

1. Hyperinflation : It is the most extreme inflation phenomenon, with yearly price
increases of three-digits percentage points and an explosive
acceleration.

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