Since the end of cold war and demise of former USSR new concepts have paved in and art of governance of economy has changed considerably. The structural adjustment, reforms, liberalisation, privatisation and globalisation have been initiated not only in India but those are found all over the world in the last decade of the twentieth century. Reforms denote different meaning to different people. But some changes and new directions to economic management are on the world wide agenda to which India cannot be exceptional. IMF or World Bank sponsored reforms have certain conditionalities attached to it. Each country has to accept these conditionalities if such countries aspire to avail either structural adjustment loans or other assistance.The reforms are now pervading various spheres of economic activities. By virtue of signatory to World Trade Organisation (WTO) and other agencies the changes are being imposed irrespective of liking or disliking of developing countries one of the obligatory clauses includeremoval of quantitative restrictions (QR) even if worsen the balance of trade. Similarly under social clause the working environment or conditions under which manufacturing has taken place matters which make livelihood of the unskilled labours very vulnerable. And also erode the so called advantages of cheap labour. These reforms are meant as a prescription under shock therapy (that is to overcome macro-economic problems induced due to internal and external shocks) therefore these are found primarily in the developing countries.
Free trade as a panacea for industrial growth and economic development has been advocated in the international economics but never become reality but through the contemporary changes, as supposed by all, and integration of economies in the global market may eventually lead to free trade by removal of all kinds of barriers to trade, allowing free movements of goods, personnel and services and investment. Reforms and its associated terms like structural adjustment, liberalisation,privatisation and globalisation signify that governments of developing countries need to take discrete policy measures and restrain itself from intervening in the economy.
Government intervention causes distortions in the economy. The present slogan is that government should intervene reluctantly but effectively. Preconditions to initiate reforms are numerous but most of developing countries opt to implement reforms with simultaneous attempts to take care of critical factors or determinants for successful reforms. Reforms have shadowed the previously advocated strategies of development through theories of economic growth and redistribution of gains of growth as well as other concepts of development economics like, poverty eradication, removal of inequality, removal of hunger, stages of growth, growth pole, and balanced growth.
In the process of reforms, structural adjustment and privatisation the attention to social factors is least but is implicitly encased in the advocacy for resourcesdevelopment.Reforms in India were initiated primarily through changes in the six main macroeconomic policies comprising of fiscal policy, trade policy, agriculture policy, industrial policy, financial or monetary policy, and human resources policy. Government's interventions in the economy were viewed as not only costly but also source of corruption in the form of proliferation of licence raj leading to widespread "rent seeking".
Reforms were initiated to get rid off licence raj and some of the noticeable barriers .Limited capacity to mobilise domestic savings needed to finance new investment or capital formation in projects and infrastructure makes case for allowing foreign direct investment but for this suitable policies need to be devised. The areas of reforms in general could be summarised as follows: Macro economic reforms. Market reforms i.e. to remove control over prices and distribution as well allow free movement of goods and services.
Trade reforms: Abolition in phased manner quantitative andqualitative restriction; Adjust tariff rates at modest level; Deregulation & Privatisation, Removal of mechanism aimed at administrative distribution control; Privatisation of public enterprises ie. to ensure change in ownership laws; Removal of entry barriers for private investment. FDI, take over/merger/closer, Labour
Market reforms: Deregulation, hire-and-fire, wage liberalisation; Change in ownership of assets - national treatment to TNCs in all areas; Financial and capital market reforms - permit entry of MNCs. Legal & Institutional reforms and modified framework. Social safety net (which is yet to be initiated in India). It will be wrong to assume that these reforms are cost less or do not impose any cost on economy. Certainly an economy has to bear huge loss in one form or the other if the government has to adopt discrete reforms. As government intervention in the market (in pre-reform era) is not cost less so is drive for economic reforms is not cost less.
(The author is deputy advisor--industries and minerals division -- with the Planning Commission)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
