Major Economic Reforms in India

Economic Reforms of 1991 can broadly be classified into two groups: stabilisation measures and structural reform measures.

Stabilisation Measures

A key element in the stabilisation measures was the effort to restore fiscal discipline. In this regard following measures were adopted:

(i) Devaluation of the rupee,

(ii) Increase in interest rates,

(iii) Reduction in fiscal deficits,

(iv) Exchange rate adjustments,

(v) Partial convertibility of the rupee on the current account,

(vi) A rapid build-up of foreign exchange reserves.

Structural Reform Measures

Major structural reform measures initiated in 1991 are as follows:

1. Industrial Policy Reforms
Objectives. New Industrial Policy was announced on 24th July, 1991. The main objectives of this policy are as under:
(i) To build on the past industrial achievements,
(ii) To maintain sustained growth in productivity and gainful employment,
(iii) To further encourage growth of entrepreneurship and upgrade technology in order to attain international competitiveness,
(iv) To correct the distortions or weaknesses of the industrial sector,
(v) To encourage all industries belonging to public, private and cooperative sectors to grow and improve on their performance.

Main Industrial Reforms

The process of reforms has been continuous. The main reforms are as under
(i) Reduction in Industrial Licensing. Industrial licensing has abolished for all items except a short list of 7 industries related to sec strategic and environmental concerns.
(ii) Removal of Investment Controls on Large Business Monopolies and Restrictive Trade Practice Act (MRTP Act) has been amended to eliminate the need for prior approval by large companies for capacity expansion or diversification.
(iii) De-reservation of Industries for Public Sector Areas reserved for the public sector are narrowed down (to only 4) and greater participation by private sector is permitted.
(iv) Reforms in Regulations Concerning Foreign Investment and Foreign Technology. A number of important steps are taken and concessions are given to facilitate the inflow of foreign direct investment and foreign technology in the Indian industrial sector.
(v) Other Measures.

(a) Government clearance for the location of projects is dispensed with except in the case of cities with a population of more than one million.
(b) The investment ceiling on plant and machinery for small undertakings has been enhanced

Trade Policy Reforms

New initiatives were taken in trade policy to create an environment which would provide a stimulus to export while at the same time reducing the degree of regulation and licensing control on foreign trade. In this regard many barriers to imports have been removed and import duties are curtailed

Public Sector Reforms

To increase the efficiency and accountability of the public sector, its units had been given greater autonomy in their operation and a scheme of disinvestment was initiated.

Economic Liberalisation and Reforms in India

Pre-reform Scenario

Since the early days of independence, we were accustomed to a highly protected economy. The main instruments of our protected economic policy were:

(i) Trade and exchange controls,

(ii) Selective access to foreign investment,

(iii) Discretionary control on industrial investment and capacity expansion,

(iv) Dominance of public sector in industrial activity, and

(v) Public ownership and regulation of the financial sector.

In this way, we protected our economic enterprises, our investment, our currency, our commodity and capital markets, and our trade. The consequences were recurrent fiscal deficits, heavy external/internal debt burden, low capital formation, self perpetuating subsidies, low inflows of technologies, low competitiveness and low productivity levels. The Indian economic scenario in 1991 was very much depressing as the economy was on the brink of collapse. Inflation was out of control, exports were declining, foreign exchange reserves had declined to no more than two weeks’ imports and industry was virtually crippled. The sum total picture which had emerged, after the four decades of planning, was of a stagnant and sick India.

Objectives and Thrust of Economic Reforms

In response to the emerging crisis, the government took a series of corrective measures starting in July 1991. This is termed as New Economic Policy (NEP) or the policy of Economic Liberalisation and Reforms. The main objectives of this policy are as follows
(i) To reduce the domestic inflation rate;
(ii) To improve the balance of payment situation
(iii) To improve efficiency and productivity; and
(iv) To put the economy back on the path of growth with justice.

Thus, the basic objective of the economic reforms is to transform the country into a strong, stable, attractive, efficient, competitive and vibrant economy.

The broad thrust of these economic reforms was in the following directions:

(i) Increasing the role of the private sector,
(ii) Redirecting scarce public sector resources to areas where the private sector is unlikely to enter, and
(iii) Opening up of the economy to trade and investment and thus integrating it with the global economy.

Impact of Technological and Institutional Reforms in Agriculture

When the census of India 2001 came out with its population totals it had also dwelt on indices on growth of population, GDP and foodgrains production from 1951 to 2001. The impact of reforms in agriculture was very much visible from these indices. Despite an absolute increase of whopping 180.6 million people during the decade 1991-2001, both the GDP and foodgrains production indices had shown substantial increase. In comparative terms India added the estimated population of Brazil, the fifth most populous country in the worlds yet it continued to be self-reliant in foodgrains production.

Contribution of Agriculture to National Economy

The share of agriculture in Gross Domestic Product (GDP) has declined from 52% in 1950s to 26 per cent in 2001. This decline is not an account of decline in agricultural produce but overall industrialisation of the country The growth rate of agriculture is around 3.3 per cent for the last decade. The contribution of – agriculture to national economy is chiefly four fold — (i) employment (ii) to provide foodgrains to growing population (iii) to contribute to export trade and (iv) to provide raw materials to industries. In the first case, agriculture continues to provide employment to about 64 per cent of the labour force. In the second case, despite the whooping rise in population per capita net availability of foodgrains has gone up from 395 grams per day in 1950s to 467 grams per day in 1999-2000. The total foodgrains production (rice, wheat coarse cereals and pulses) has risen from 168 million (1680 lakh) tonnes in 1991-92 to about 200 (2000 lakh) million tonnes in 2000-01.

Technological and Institutional Reforms in Agriculture

In the earlier chapter attention has been drawn towards the significant role played by social and economic factors in determining the type and method of agriculture as well as farm produce in any given area. Methods of farming with modem tools, machines and mechanical devices represent
great technological advances in developed countries. Technological advances by themselves do little to enhance production and productivity unless accompanied by reforms. Reforms mean to make the farmers and workers more responsive to these technological advances. Otherwise it
will make application of science and technology very difficult. For example, India has the world’s highest cattle population. It accounts for about 15 per cent of world’s cattle. Until very recently India produced negligible amounts of milk and meat. India did not lack in scientific and technical know-how to make the best use of this cattle wealth. Simply
there did not exist proper support services to take the technical know-how to farmers and organise them into a productive force. It was only when a cooperative society in Gujarat took the lead, followed by Punjab and some other states that milk production increased substantially. Without institutional reforms specially in a country like India where almost 50 per cent of population continues to be illiterate, science and technology can do little to achieve practical results. Some of the major steps taken towards technological and institutional reforms in agriculture since independence include the following:


(1) Abolition of Zamindari : Zamindari and Jasinian which promoted absentee landlordism and led to exploitation of tenants and rural indebtedness was abolished in 1954. It was done after the Agrarian Reforms Committee went into — all aspects of this and recommended its
abolition in 1949. Since agriculture is a state subject all states made legislations to abolish Zamindari system. Consequently the tenants became the owners of the land.
(2) Landholding ceiling : The wealthy landlords even after abolition
continued to own large plots of land most of which remained unproductive. The Government later brought forward the Land Ceiling Act under which even cultivators were not allowed to own land beyond certain limits. These limits varied from state to state.
(3) Consolidation of landholdings: The landholding pattern has led to fragmentation of landholdings. After independence the state governments took steps to consolidate small and uneconomic units into larger viable holdings at one place. This helped introduce mechanization, irrigation and even improve farming practices. Consolidation of holdings also occurred by promoting cooperative movement. Nearly 60 million hectares of land have been consolidated so far.
(4) Credit Reforms : One of the chief causes of backwardness of Indian agriculture has been rural indebtedness. The peasants were exploited by the landlords and moneylenders for centuries. Realizing that credit is critical component of any agricultural reform the government has taken several steps to ensure flow of funds for agricultural development while at the same time discouraging farmers from misusing the funds. Some important measures taken include the following:
(i) Rural development has been delinked from agricultural development. This is to help agricultural develop its own base.
(ii) Need for credit for agricultural purposes has been brought under institutional programmes and schemes. Besides concessional lending by banks and cooperative credit societies, financial assistance is provided to farmers for specific projects like mechanization purchase of tractors, implements, seeds, fertilizers and schemes aimed at raising farm productivity.
(iii) Support price for agricultural produce under several schemes as well as purchase agencies like Food Corporation of India.
(iv) Investment Promotion Schemes (IPS) have also been put into operation so that funds are not directed towards non-productive purposes.
(v) Capital formation or creation of capital assets in the form of agricultural implements, power and irrigation is now being given greater consideration. The subsidies on foods and fertilizers and mere provision of support prices have created certain imbalances. Subsidies specially discourage investments. These also result in inefficient use oi agricultural resources. Therefore, attention is instead to be focused on cheaper credit and creations of marketing and storage facilities. The World Trade Organisation (WTO) linked reforms are also likely to have greater impact on attracting private investment in agriculture and making cheaper credit available to farmers.
(5) Protection of Plant Varieties : The Plant Varieties Protection and Farmers Rights is a World Trade Organisation (WTO) linked institutional reform. The legislation presently under consideration of the Central Government has far reaching consequences for Indian agriculture. The World Trade Organisation founded in 1995 absorbed the General Agreement on Tariffs and Trade (GATE). It also covers trade in agricultural goods. It treats innovative farmers on same lines as authors of books or creators of inventions. WTO therefore, helps member nations in recognizing Farmers Rights. India is also a member of WTO. It has ratified the Trade Related Intellectual Property Right (TRIPS); Agreement of the WTO. The Department of Agriculture and Cooperation has therefore drawn up a legislation which is under the consideration of Joint Parliamentary Committee of the Parliament. Once; this legislation comes in to force, which it is bound to, Indian farmers while enjoying Intellectual Property Rights will have to compete in to international market. It is on,this account that many farmers especially landlords are opposed to WTO agreements. They can also export farm products. The Indian farmers will also contribute to World Food Reserve as well as the National Food Security Programme. This will ensure trading in agricultural food crops like other commodities and farmers can expect better prices. It is also bound to promote agricultural research and make agriculture more productive. Like other businesses Indian farmers can also seek technology of crop production from other countries and enter into technology partnership agreements. it may be mentioned that when a top international consultant was assigned the task of demonstrating use of fertilizers to Indian farmers he ended up learning making organic manure from Indian farmers. While the scientist received his fee from the government he got free of cost know how for organic manure from Indian farmers and back home he got the patent for a particular brand c organic manure registered in his name. The W.T.O. agreement is expected to end this sort of exploitation of Indian farmers.


a) Irrigation Development: Under the five year plans extension of irrigation facilities has received great emphasis. Therefore, involvement of farmers is very essential. The potential created of all forms of irrigation has risen from 12.90 million hectares in 1951 to about 60 million in 1999-2000 and potential utilized has also shown corresponding increase from 12.90 to about 55 million hectares suggesting more than 95% utilization. For the first time sprinkler arid drip irrigation has also been promoted through cultivation of oilseeds and horticultural development. This step has been taken to conserve water.

b) Certified and Quality Seeds Distribution: Seed is critical and basic input for attaining agricultural production and productivity The Government of India has taken several steps for distribution of quality and certified seeds to farmers. The seeds are also standardized from time to time. Some of the seeds called High Yielding Varieties (HYV) have been included under technology mission for distribution among farmers. The target for distribution of such seeds was fixed at 110 lakh quintals during 2001-02. Panchayats Cooperative Societies, Central and State Seeds Corporations are actively engaged in this work. Certain legislative measures have also been undertaken in this respect.

c) Other Agricultural Inputs : These technology inputs include fertilizers, manures, insecticides and pesticides. Indian farmers have not yet established a sound soil-fertilizer-insecticide relationship with respect to crops. Even in small countries like Netherlands where family farms are extensively cultivated soil tests are periodically carried and agricultural inputs are used in required quantities. Most Indian farmers take for granted that the soils need nitrogen and phosphate fertilizers. Though they are key inputs for increasing agricultural production, not all soils always need just nitrogen and phosphate fertilizers. The consumption of chemical fertilizers has risen to about 17 million tonnes in 2001. The government had so far been supplying fertilizers to farmers at subsidized prices as well as under price control measures. In 2001 some of the fertilizers were allowed to be sold in open market. The Government of India has also formulated a ‘Balanced and Integrated use of Fertilisers’ Policy. It has also started orientation courses in certain selected districts and conduct training for fertilizer dealer.