Economy-The Generations of Economic Reforms

With the aim of accelerating economic growth and eradicating poverty the Reform Process in India was initiated and three generations of Economic Reforms as a way forward to 1991 reform have been announced till date, although some experts have suggested the fourth generation too.

First Generation Reforms (1991 - 2000)

  • Reform undertaken from 1991 to 2000 were called by the government as the reforms of the First Generation.
  • With the first generation of reforms, the Govt shifted towards an open economy with greater reliance upon the Market forces and these reforms had far-reaching impacts on the economy since they unlocked India's enormous growth potential.

The important features of the first generation of Reform were

Public Sector Reforms

  • To make the public-sector undertakings profitable and efficient, disinvestment was done.

Promotion to Private Sector

  • Dereservation and de-licensing of the industries, the abolition of the MRTP limit.

External Sector Reforms

  • Quantitative Restrictions on Imports were abolished and Full Convertibility of Rupee in the Current Account.

Financial Sector Reforms

  • Narasimham committee suggested reform in financial Sector and various reforms were taken in the Banking, Insurance, Capital Market, Mutual Funds.

Tax Reforms

  • Chelliah Committee suggested for broadening the tax base and Govt Policy initiative focussed upon checking Tax Evasion, Simplifying, Modernising the Tax Structure.

Industrial Policy Reform

  • Govt announced a new Industrial Policy that sought to deregulate the industry, Abolished Industrial Licensing, MRTP Act was repealed, Encouraged Disinvestment.

Second Generation Reforms (2000 - 01 onwards)

  • Reforms of the 1990 s were not effective enough, so another set of reforms were required.
  • These reforms which included Labour Law Flexibility, Pension Reforms based on employee contribution, Liberalised FDI (i.e. FDI in Retail) were not only deeper and delicate but required higher political willpower from the governments.
  • The 2nd generation of reform was difficult to implement in the sense that they were directly affected with the life of people like Manpower rationalization in banks and PSUs through VRS faced resistance, interest cut in a small saving scheme meant less return for the middle-class population.
  • After the 2nd Generation of Reform, there was a significant change in Central Govt's policies, which favoured greater financial leverage for the states.
  • The Social Sectors like health and Education got much focus in the 2nd Generation Reform.

The features of 2nd Generation reforms are:

Public Sector Reforms

  • Focussed on areas like Greater functional autonomy, freer leverage to the capital market, international tie-ups and greenfield ventures, disinvestment etc.

Factor Market Reforms

  • It consists of dismantling of the Administered Price Mechanism (APM) (Under this govt predetermined prices on the basis of a derived formula).
  • Petroleum sector opened for private investment.
  • Factor market reform is not complete in India with 2nd Generation Reform and they are still running on.

Reforms in Government and Public Institutions

  • Reform in Govt institutions aims for converting the role of Government from the regulator to facilitator.

Fiscal Reform

  • They include Broadening the Income-Tax Base, streamlining the Excise and Customs duty Structure and to establish a credible framework for fiscal discipline.

Legal Sector Reforms

  • Reforms in the Indian Penal Code (IPC) and Code of Criminal Procedure (CrPC), Labour Laws, Company Laws and enacting suitable legal provisions for new areas like Cyber Law, etc.

Third Generation Reforms

  • Both first and Second Generation of Reform has downsides thus, the third generation of reform were announced around the Launch of 10th Five Year Plan and they commit to the cause of a fully functional Panchayati Raj Institution (PRIs), so that the benefits of economic reforms, can reach to the grassroots; and has an objective to make the reform process more inclusive.
  • This Generation of Reform focusses on creating World Class Infrastructure and creating, encouraging and nurturing the spirit of entrepreneurship.

Fourth Generation Reforms

  • The 4th generation of reform is not an official proclamation.
  • In early 2002, some experts coined this generation of reforms which aims for a full information technology-enabled India.

Related Topics

Planning Commission and National Development Council -
Summary of All FYPs

NITI Ayog- Function, Structure


Economic Reforms

The Generation of Economic Reforms

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