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Jean Dreze asserts that the New Economic Policy (NEP) in India has seen a much narrower scope of reforms than often claimed. While international trade liberalization is notable, its limited role in the Indian economy implies that minor changes in tariffs or exchange rates will not trigger rapid takeoff. Additionally, bureaucratic controls were not as pervasive before reforms as sometimes suggested.
Unlike China in the 1970s, India had not achieved foundational goals such as land reforms, universal literacy, rural infrastructure, and social security prior to market reforms. These shortfalls undermine the potential impact of liberalization on economic development.
India lacks a minimum rural safety net comparable to China’s post-1978 land rights distribution. Survey data show that land and wealth inequality in India is more severe. With a Gini coefficient in schooling of 0.56 compared to China’s 0.37, India’s educational disparity hinders adaptability to market-driven changes.
Economic growth post-reforms has not been inclusive. Aspirations among organized labor groups often exceed productivity gains, creating inflationary pressures that ultimately burden the unorganized and poorer segments of society.
The contrast between urban consumerism and rural stagnation highlights post-reform disparities. Amit Bhaduri terms the State's land acquisition for corporations as 'developmental terrorism', indicating that corporate-driven growth undermines public welfare.
The poor are excluded from new sectors due to lack of prior protection and preparation. Consequently, reforms lack mass support, making pro-reform political platforms less viable in a democratic setting.
The reform agenda has largely centered on fiscal policy, trade, and corporate investment, while neglecting social service delivery reforms. Sectors such as healthcare, education, drinking water, and child nutrition remain underperforming. In fact, India's health sector is said to lag behind some African nations.
As highlighted by Shome and Mukhopadhyay, reforms have stalled after initial tax rationalization. Short-term macroeconomic fixes have replaced deeper structural reform, with India’s history of policy inertia and compromise reinforcing this trend.
Even after two decades, dirigisme persists. According to the World Bank, bureaucratic red tape impedes business operations. Policymakers remain beholden to resistant bureaucrats, rendering the reform process sluggish and fragmented.
The excitement around high growth rates masks deeper failures. India must learn from countries like South Korea that broke their poverty traps through:
India’s reform model must address structural inequities and administrative inefficiencies to become truly inclusive and sustainable.
Unlike the crisis-driven first-generation reforms, the second-generation reforms focus on consensus-building to address persistent obstacles in India's development journey. The key agenda points for these reforms include:
Major fiscal reforms involve reducing revenue and fiscal deficits to limit public and foreign debt, enhancing governance transparency, promoting privatisation of non-strategic public sector enterprises, and lowering real interest rates in the economy.
Encouraging private sector participation, attracting foreign investments, and improving product quality in local markets aim to boost efficiency and competitiveness.
Reforms seek to enhance flexibility in labour markets, amend laws on bankruptcy and corporate control, support the self-employed workforce, innovate social safety nets, and expand educational facilities to build human capital.
Technology adoption, especially in banking computerisation, has been significant. Further goals include technology diffusion in rural banks and cooperative sectors, strengthening small and medium enterprises (SMEs), and strategic planning toward fuller capital account convertibility.
Addressing issues like farmer suicides and monsoon dependence, reforms focus on creating comprehensive safety nets, expanding rural credit, debt waivers, risk mitigation strategies, fixing market support prices, improving agricultural marketing, and addressing WTO-related concerns.
While reforms have been incremental and piecemeal, important strides include:
Fiscal Responsibility and Management Acts reducing fiscal deficits from 10% to 6%, and states turning surpluses.
Import duties reduced to ASEAN levels fostering competition.
Bank reforms liberalising interest rates, reducing non-performing loans, and aligning with Basel II norms.
Agricultural marketing reforms diminishing intermediaries, enabling corporate direct buying.
Telecom sector revolution with lowest tariffs worldwide and rapid subscriber growth; rural penetration encouraged.
Electricity reforms enabling open access and ultra-mega power projects bringing cheaper power.
Railways achieving surpluses, container traffic privatisation, and plans for dedicated freight corridors.
Bharat Nirman enhancing rural infrastructure.
States adopting VAT and movement toward a universal Goods and Services Tax (GST).
Computerisation of tax administration increasing revenue collection.
Reduction of fiscal discrimination against mill-made textiles and pruning of items reserved for small-scale industries.
These reforms form a systemic and coordinated package, recognising that isolated sector reforms offer limited gains without complementary changes elsewhere. The pace is often described as “homeopathic” — slow but addressing fundamental economic issues.
However, there is a warning that the government should avoid falling victim to MAFA (Maintain, Adjust, Fix, Abandon) tendencies that slow down decisive action.
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