Economic reforms in India: what makes them continue?

Abstract

While the Indian economic reforms initiated in 1991 were mandated by a situation of crisis, their continuance by the successive non-Congress governments is not easily explained. The present study attempts to understand the social-political backdrop of economic realities to explore the economic growth of the Independent India. Developing India was influenced by the thinking of the leaders like Nehru, Savarkar and Ambedkar. Savarkar led to the Hindu/Non-Hindu axis, while Ambedkar led to the Dalt/Non-Dali axis. Income inequality provided with the Rich/Poor axis. These three axes give rise to eight groups, who have immense number share versus power share disparity. Hindu upper class rich has almost 50% of power while just 6% in numbers, while Hindu davit poor has almost negligible power despite having 42% in numbers. A dis balance index (root of square sum of differences in power share and number share) puts India at 0.6 on a scale of 0 (no dis balance) to 1 (complete dis balance). The situation of course does not indicate any state of equilibrium, and an undercurrent of reorganization is imperative. This tussle is defining the authority state can have, because ultimately the state has to have the legitimacy, the moral permission of the multitude. With the sacrificing attitude of Independence struggle dispatched to oblivion, and growing disillusionment with government because of the high degree of corruption, a movement -towards market-based system seemed better. Rich would get richer, but poor at least be slightly less poor. Thus, from an absolutely powerful state, a devolved power structure had to come in place. Looking from a philosophical level, there always has been a scuffle between the individualism and collectivism. Although emerging from within, the humankind is dealing with a problem of balancing these two

Mohan Pandey, Economic Reforms in India, Sep 24, 2001 III aspects. The macro manifestation of this problem is the balance between the state and the market. The question is where does the balance lie. Assuming, Y represents the fraction of maximum utility a 'nation' derives at a certain power share fraction X (state and market are the two parties, and the fraction is the fractional power held by state), the utility function is given as: Y = 4X — An observation of the timeline of development of India's economic policies leads us to dividing the 1956-2000 period into the following five phases: 1956-1966, the second and the third five-year plans; 1966-1979, 3 annual and the fourth and the fifth five-year plans; 1979-1990, 1 annual and the sixth and the seventh 5-year plans; 1990-1997, two annual and the seventh five-year plans, and 1997-2000, the continuing eighth plan. Broadly speaking, following key trends are observable: Movement towards devolution of state and movement towards open markets. In all these phase some key change based on the previous phase's learning have been incorporated, to this extent that given social-political situation permitted or demanded. Remarkably, it is observed that the trend is linear. In every phase, average CAGE of NNP has grown by 0.7 percentage points, while that of per capita NNP has grown by 0.8 units. An important corollary of this study is that given the social-political considerations of India, extremely ambitious targets cannot be implemented, whereas, there will definitely be incremental reforms extracting incremental gains. Of course, the frequency of implementation and absorption of such reforms cannot be less than one year given the nature of economy. So to achieve a growth rate of 10% per annul, we will need a quantum of reform every year for six years.