Economic liberalisation in India
The economic liberalisation in India refers to the series of policy changes aimed at opening up the country's economy to the world, with the objective of making it more market-oriented and consumption-driven.
The liberalisation process was prompted by a balance of payments crisis that had led to a severe recession, dissolution of the Soviet Union leaving the United States as the sole superpower as well as the need to fulfill structural adjustment programs required to receive loans from international financial institutions such as the IMF and World Bank.
Additionally, some critics argue that the policies have contributed to widening income inequality and social disparities, as the benefits of economic growth have not been equally distributed across the population.
Indian economic policy after independence was influenced by the colonial experience (which was exploitative in nature and had begun as a takeover by a British trading company)[4] and by those leaders', particularly prime minister Nehru's exposure to Fabian socialism.
[7] In the 1990s, Coca-Cola re-entered the Indian market and faced competition from domestic cola companies such as Pure Drinks Group and Parle Bisleri.
[10] However, a second poor harvest and subsequent industrial recession helped fuel political backlash against liberalisation, characterised by resentment at foreign involvement in the Indian economy and fear that it might signal a broader shift away from socialist policies.
[13] The New Computer Policy of 1984 was instrumental, as it eased import restrictions on technology, encouraged private investments, and provided incentives for software exports.
The governments loosened restrictions on business creation and import controls while also promoting the growth of the automobile, digitalization, telecommunications and software industries.
[14][page needed] Reforms under lead to an increase in the average GDP growth rate from 2.9 percent in the 1970s to 5.6 per cent, although they failed to fix systemic issues with the Licence Raj.
[13][citation needed] Despite Rajiv Gandhi's dream for more systemic reforms, the Bofors scandal tarnished his government's reputation and impeded his liberalisation efforts.
Communists and socialists, who were the main political opposition to economic liberalisation, had also lost moral courage with the dissolution of the Soviet Union, the rise of East and South-East Asian tigers, and even China's opening up of its economy.
The government was close to default on its external debt[21][22] and foreign exchange reserves had reduced to the point that India could barely finance two weeks' worth of imports.
[23] He selected Amar Nath Verma to be his Principal Secretary and Manmohan Singh to be finance minister and gave them complete support in doing whatever they thought was necessary to solve the crisis.
[27] Critics also derided devaluation, fearing it would worsen runaway inflation that would hit the poorest citizens the hardest while doing nothing to fix the trade deficit.
Reforms in India in the 1990s and 2000s aimed to increase international competitiveness in various sectors, including auto components, telecommunications, software, pharmaceuticals, biotechnology, research and development, and professional services.
These reforms included reducing import tariffs, deregulating markets, and lowering taxes, which led to an increase in foreign investment and high economic growth.
[45] India, however, continues to have a trade deficit, relying on foreign capital to maintain its balance of payments and as such, makes it vulnerable to external shocks.
[62] During the Atal Bihari Vajpayee administration, there were extensive liberal reforms, with the NDA Coalition beginning the privatisation of government-owned businesses, including hotels, VSNL, Maruti Suzuki, and airports.
[65] After coming to power in 2014, the Narendra Modi led government launched several initiatives aimed at promoting economic growth and development.
After 2014, the Indian government under the leadership of Prime Minister Narendra Modi initiated the privatisation of airports in India as part of its policy of economic liberalisation and development.
[75] This is particularly true in sectors like agriculture and manufacturing, where the reforms have not satisfactorily addressed the challenges, resulting in minimal job creation despite high economic growth overall.
Capital-intensive industries often require the importation of machinery and technology, which can lead to increased current account deficit (with its accompanying vulnerabilities) and is considered a leakage of domestic investment and spending.
These capital outflows can influence asset prices and increase market volatility in India, as well as deplete foreign exchange reserves and create liquidity issues.
Additionally, the central bank is forced to raise interest rates in order to arrest some of the capital outflows hence reducing domestic demand and accompanying economic effects.
The long-term effects include a heightened vulnerability to an increase in the import bill and Current Account Deficit, depreciation of the Indian Rupee and an inflationary impact associated with a rise in crude oil prices.
This austerity in revenue expenditure has led to a significant reduction in government spending on welfare, such as health, rural employment, social assistance, child care centers, midday meals, and maternity benefits.
Their analysis revealed that in 17 of the 18 states they investigated, the income generated from state-level taxes diminished after implementation of GST compared to the pre-GST era.
[95] Neoliberal economic policies have markedly shaped India's agricultural crisis, impacting a vast number of people since more than 70% rely on farming for their livelihood.
The WTO urges countries such as India to cut back on agricultural subsidies, which are crucial for sustaining food security and supporting the rural economy.
[99][100] With the withdrawal of state support and the opening up of agricultural markets, many farmers have had to take loans to keep up with the increased costs of farming, leading to a debt trap for many.
