Policy paradigms in India: From planning to markets

1. Policy paradigms in India: From planning to markets

2. History of Planning in India • Five year Plans since 1951 • 12th FYP currently underway • Changes in policy paradigm since Sixth FYP (1980-1985) • Economic instability 1989-1991 • Adoption of open market policies in 1991 after forex crisis • Eighth plan (1992-1997) marks the beginning of rabid neo-liberalism • Exclusionary growth

3. IMF StabilisationProgramme • Adopted in 1991 Advocates for • Reduced fiscal deficit • Reduced role of state • Reduce BOP deficit, devaluation of ‘Rupee’

4. Structural Adjustment Programmes (SAP) Follows from IMF’s stabilization policies which essentially reduces economic growth • Major emphasis on reduced role of state • Increased Import liberalization • Export oriented growth, outward oriented policies • Deregulation of labour market, commodity market, capital and credit markets • Tax sops to private players domestically

5. Contours of neo-liberalism • Linked intrinsically to the SAP • SAP paved way for Neo-liberal policy making • Reduce state controls on capacity creation, production and prices • Allow international players in domestic market • Liberalise financial sector • Lastly state intervention in cases of market failures

6. New Industrial policy • De-licencing and de-reservation of industries • Opening to FDIs (foreign direct investment) • Dilution of FERA and building FIPB to facilitate foreign investment in domestic industries • Abolition of MRTP Act to increase diversification and increased participation of several players

7. Trade Liberalisation • Increased import liberalisation • Reduced tariffs from 300 pc in late eighties early nineties to 40 pc by late nineties and still continues. • Tariffs on inputs reduced, tariffs on end products (consumer goods) also reduced • Overall impact of wiping away petty producers and small industries • Export oriented industrialisation • Attracting FDIs • Labour intensive processes of production • Exploitation of labour, informal employment and flexibility of labour

8. Financial Liberalisation • Banking reforms • De-nationalization of banks and creating space for foreing banks in national banks’ equity • Increasing credit creating capacity of banks • Reduce Non-Performing assets (NPAs) • Banks to operate on profit motive • Interlinking with the stock market, intrinsically speculative in nature • Deregulating credit market, provide credit only to profit-making enterprises • Deregulating capital market, providing more access to FIIs and current demand for complete capital account convertibility (which is free flow of cross-border FIIs and FDIs)

9. Agrarian Reforms • No specific package but affected by multiple factors of financial and trade liberalisation • Reduced public expenditure in agriculture • Reduced subsidies, particularly fertilizer subsidy • Declines in public expenditure in energy and infrastructure affecting public provisioning for irrigation and transport directly • Liberalisation of export market and global volatile prices of outputs affecting producers • Increased input cost due to removal of restrictions on internal trade • Reduced priority sector lending due to financial sector liberalisation

10. Impact • Industrial stagnation • Service sector emergence • Growth led by service sector • Exclusionary growth • Crisis in agriculture • Crisis of employment • Increased marginalisation of SCs/STs, minorities and women and children • Emerging challenges of food security, education and health attainments • INCREASED INEQUALITY

11. Current issues • Labour market flexibility • FDI in retail