Geography Reference
In-Depth Information
9
The Political Economy of India's Second-
Generation Reforms
SUNILA KALE
For four decades, starting with the implementation of the First Five-Year Plan in
1951, India followed a model of centralized economic planning. The
foundational ideas of these planning decades were embodied in 14 pages of text
written in 1944-1945 by Jawaharlal Nehru, while imprisoned in Ahmednagar
Fort for his participation in nationalist campaigning.
1
In 1991, India's political
leaders—descendents of Nehru's own political lineage ensconced in the
Congress Party—announced a radical change of policy course: from that point
onwards, the government would begin the task of disengaging itself from the
economy, leaping off the metaphorical 'commanding heights'.
2
The immediate impetus for adopting market reforms came from the fiscal and
balance of payments crises that beset the country in 1991. As in many other
developing countries that embarked on reforms in the 1980s and 1990s, the initial
tasks of stabilization were carried out with some speed. Several other more
complex tasks like dismantling barriers to trade and foreign capital, and
liberalizing the investment regime were carried out in a gradual manner
throughout the decade. Yet other reforms, such as privatization, eliminating
subsidies, and conducting labour and agrarian reforms, were discussed but not
implemented during the first decade of reforms.
Of all the remaining items on the bold new economic agenda announced in
1991, privatization and the scaling back of the public sector have proven to be
the least successful and most susceptible to political derailing. Since the first
days of reform in 1991, Indian politicians and policymakers have argued that the
successful transition from a planned economy to a market economy would hinge
on effectively minimizing the role of public sector enterprise and privatization.
Despite the periodic professions of continued commitment to undertaking reforms
in these areas, little in the way of concrete action has been seen, especially in
contrast to the wide-sweeping activity in trade, investment, and financial sector
reforms.
Why has India made considerable progress in some areas of reform while
other areas of the economy were left largely untouched during the 1990s? And
second, why, after trying unsuccessfully to implement a privatization program at
