India's Tryst with Economic Reforms Since Independence

Transformative changes have taken place, representing a watershed reform moment to drive India’s growth and prosperity, and usher in a New India, writes S. K. Khanna.

India 2020 is witnessing a tremendous transformation since Independence, following a slew of political, socio-economic and financial reforms, and joining the league of the most vibrant democratic emerging and developing economies, and commanding recognition and respect worldwide. Despite the swift and massive shock of global headwinds, the Covid-19 pandemic and the continued slowdown spell, the Global Economic Prospects (GEP) report has given a deeply optimistic outlook for the future. Be sure, this momentum is not only retained but further accelerated.

Independence-era Reforms
At the time of Independence, the state of Indian economy was so poor that the country was the poorest country in terms of capital income. To get out of this rut, the focus was on mixed economy as per Industrial Policy resolution of 1948, envisaging a big role for public sector entities with state intervention and regulations to protect local industries. The Planning Commission was set up in 1950 to draw 5-year plans to oversee the entire range of planning, resource allocation, implementation and appraisal of plans.

Five-Year Plans
The first Five-Year Plan launched in 1951 focused on agriculture and irrigation to boost the farm sector. The second in 1956 laid the foundation for economic modernization. Power and steel were identified as the key segments needing government support. Bhakra-Nangal Dam was constructed along with setting up of steel plants at Rourkela, Bhillai and Durgapur. The Indian Institutes of Technology and the Atomic Energy Commission were other important projects launched

Post-Independence Reforms
During the post-Independence era, as per the felt needs of the country, India moved away from the concept of mixed and statist model of economy. Important economic reforms took place gradually thereafter. War with China in 1962 exposed India’s economic weaknesses and related fault lines. A larger role of the private sector was encouraged. Important developments such as the Green Revolution brought in the era of high–yield variety seeds of wheat; Operation Flood, and the IITs during the 70s and 80s sowed the seeds for the nation’s economic growth. The first demonetisation during this time took place to contain black money. Opening up of the economy and economic liberalization in 1990-91, including abolition of industrial licensing, ushering of telecommunication and Information Technology, were the watershed developments guiding the economy with several reforms that liberalized the economy up from 1998 onwards.

This period onwards witnessed the worst type of policy paralysis and the laidback approach to economic matters which pushed economic and political developments onto a slower lane. Reforms were the casualty. The opposition parties watched these developments helplessly and started slipping towards political obsolescence, giving space and opportunity to the new regime. The policy was reversed following the new regime in 2014.

The New Regime
It was a cakewalk for the new regime replacing the existing one. Back in 2014, the people of the country overwhelmingly voted for the new regime. The Planning Commission was replaced with Niti Ayyog to serve as the government’s think tank and evolve reform strategies with year-wise plans, in consultation with the states.

Decade of demands such as OROP, One Nation One tax, and better MSP for farmers were fulfilled. It was the start of a new phase of radical reforms in the country. In 2019, the people again voted for continuity of the new government to serve the country, despite some backlash due to demonetization and introduction of GST However, the government’s robust mandate empowered it to adopt and enact progressive reforms proactively, improving ease of doing business and easing the quality of life, promoting community feeling, security and social bonding.

Momentous Decisions
The first anniversary of the new regime was commemorated highlighting its achievements and announcing momentous legislative decisions to empower the people to deal with their socio- economic and political problems, including giving a clarion call for self-reliance as rooted in our work culture and ethos. These were the highpoints of the commemoration.

‘Make in India’ campaign was launched, proposing measures to motivate foreign and domestic players to set up their manufacturing facilities in the country to make India a manufacturing hub. Foreign investment in construction was eased to enable overseas companies to participate in the infrastructure development of the country.

The concept of Five Ss was extended to its pragmatic foreign policy with India creating a rightful space for itself in the comity of nations, focusing on five Ss: Samman (respect), Samvad (dialogue), Sehyog (cooperation), and Shanti (peace). The government is all set to be elected to two terms on the UN Security Council.

Taming of Parallel Economy
The past years have witnessed formalization of the economy as well as taming of the parallel economy, including a ban on Rs 500 and 1,000 bank notes amounting to 85 percent of the currency in circulation, introduction of GST and IBC, number of start-ups experimenting with ideas in digital payments, and online retail. Indian start-ups continue to see strong growth and capital inflows, liberalizing sector after sector. While the old economic companies and sectors saw sluggish demand, newer sectors such as mobility, the sharing economy, niche consumer brands, and internet businesses grew at faster pace

The quick pace of important structural reforms created a new ecosystem in India’s economic history, bringing ease of doing business, removing tax barriers across states, and creating a single common market, making India ‘one country, one market’.

Lead Reforms
Lead reforms like GST, Bankruptcy Code, and Real Estate Regulations brought discipline into the construction business, faster recovery of stressed assets, and quicker resolution of issues. Budgets from the years 2014 - 20 elaborated typical reform measures; a fresh thrust to infrastructure development, digital economy, private sector investments, fiscal discipline, structural reforms, provision of credit growth / financing by capital market, commitment to improve financial system, promoting private investment cycle, and prudent borrowings.

The latest reform measures have been very significant and more progressive, giving credit support to Micro, Small, and Medium Enterprises (MSMESs), allowing marketing freedom to farmers, liberalization of commercial mining activities, a policy of drawing back the scale of public sector enterprises, opening up defence and space sectors for private sector participation, and slashing corporate tax rates to make India an attractive manufacturing destination.

On the agenda are two important reforms: Decriminalization of minor offences and introduction of UBI—periodic cash transfer to every citizen.

Optimism on Quick Economic Revival
Though the economy has taken a big hit due to COVID-19, nevertheless our economic revival would be faster than the emerging economies due to our strong techno- economic and managerial fundamentals, with cost effective labour and highest working population in Asia. The World Bank expects a modest recovery early next year and states that some of the emerging economies like India could fair better than others. Ongoing reforms if implemented in the right spirit could keep India ahead of its peers, states global rating agency S&P. What is required is a steady flow of reforms and their effective implementation.

Conclusion
Over the period, from farms to factories and factories to homes and hearths, the impact of reforms has been path breaking, leapfrogging the economy to notch up 6th position from 11th in the global rating of 2019. India is aspiring to become a $5 trillion economy in the next five years.

Now, whether this happens in 2024 or beyond would not matter as long as India stays at No. 3 in the world. Front load spending on infrastructure development would be the right approach to hasten the pace and achieve the goal of $5 trillion mark. Circumstances may delay, but time will not!