The Indian Economic Reforms Of The Economy - 1603 Words

The Indian economic reforms of 1991 are a prime example of radical changes in the economic policies of India from a conservative to an orthodox one. Prior to the reforms, the country followed the system of regularising imports and replacing them with domestic products, with the state playing the dominant role in economy. However serious macroeconomic and debt payment crisis forced the government to implement radical policies in the form of the Economic Reforms of 1991. Situation Prior 1991- Prior to the reforms, the Indian economic strategy pursued import-substituting industrialisation1 with the state playing a dominant role in the economy. This was ground-set prior independence and attracted wide support across political spectrum. The†¦show more content†¦Political instability led to a lack of confidence in investors about the government s ability to manage the economy. Foreign exchange reserves dwindled to an all time low of the cost of two weeks worth of import. This prompted the government to immediately take action and reform the basic economic structure. The crisis of 1991 came after 11 years of improved and stable growth performance, lower inflation rates and steady decline in poverty. These reforms tried to consciously fashion the new policy as close to the Washington Consensus as was permissible by the then prevailing economic condition. Steps taken by the Government- The following were the steps taken by the government in the light of the 1991 economic crisis. 1.Problems of Fiscal deficit To handle the problem of fiscal deficit, the following steps were taken †¢ The tax rate for individual and corporate tax was reduced to bring more people under the tax net. †¢ The tax procedure was made more efficient and simplified. †¢ Heavy reductions were implemented in the import duties. 2.Removal and relaxation of government control over industries In order to make the industrial management and provide an impetus for growth and development, the industries were given more freedom in the following ways- †¢ Freedom from licenses and various other restrictions †¢ Foreign technological imports and usage were promoted to ensure technological