Wednesday, May 18, 2011

The reform process has helped to accelerate the growth but the benefits of the growth have not percolated to poor

“The reform process has helped to accelerate the growth but the benefits of the growth have not percolated to poor and weaker sections of the society”.
What measures would you suggest to modify reforms so as to achieve the objective of growth with social justice?

Ans: Need for economic reforms or the new economic policy was felt mainly because of the following reasons:
1. Fall in Foreign Reserves: In 1990-91 India’s foreign exchange reserves fell to such a low level that the same were not enough to pay for as import bill for even 10 days. Foreign exchange reserves that were Rs. 8’151 core in 1986-87, decline sharply to Rs. 6’252 core in 1989-90. The situation grew so acute that Chandrasekhar government had to mortgage country’s gold to discharge its foreign debt servicing obligation.
2. Rise in Prices: In India prices continued to rise rapidly. Average annual rate of inflation increased from 6.7 percent to 16.7 percent . Prior to 1991 despite good monsoon for three consecutive years, prices of food grains rose substantially.
3. Mounting Adverse Balance of Payments(BOP): Deficit of balance of payments had been rising continuously since 1980-91. For instance, in 1980-81, balance of payments on current account was adverse to the tune of Rs 2’214 core and its rose in 1990-91 to Rs. 17,367 core. To meet this deficit large amount of foreign loans had to be obtained
4. Increase in Fiscal Deficit: Prior to 1991 , fiscal deficit of the govt. had been mounting year after year on account of continuous increase in its non-development expenditure. Fiscal deficit means difference between the total expenditure and total receipts minus loans. In 1981-82, it was 5.4 % of gross domestic product.
5. Poor performance of public sector undertaking(PSPs): In 1951 there were just 5 enterprises in public sector in India but in 2001 their number rose to 232. Several thousand cores of public funds were invested therein.


1. the economy was opened to other countries to encourage more exports. To facilitate the import of foreign capital and technology and other allied imports, reduction in import duties and other barriers were brought about.
2. Chronically sick public sector enterprises were referred to the Broad for industrial and Financial Reconstruction for the formulation of revival/ rehabilitation schemes.
3. Areas hitherto reserved for the public sector were opened to private sector. The govt intended to transfer the loss making units to the private sector, but it failed because there were no takers for them.
4. By permitting the private sector to set up industrial units without taking a license, the govt removed certain shackles which were holding back or delaying the process of private investment.
5. To improve the performance of public sector enterprises , greater autonomy was given to PSU managements and the Broads of public sector companies were made more professional.

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