Has the Indian governmental system responded adequately to the demands of Liberalization, Privatization and Globalization started in 1991? What can the government do to be responsive to this important change? (15 Marks)

Mentors Comments:
  • Mention the changes in Indian policy at the time of LPG.
  • Highlight the changes brought about by the Indian government.
  • Mention the limitations 
  • Suggest what can be done to improve the response.

Answer:

The 1991 balance of payment crisis in India came as a blessing in disguise. It led to the adoption of New Economic Policy with the aim to opening up of the economy from tighter control of the government and greater integration with the world economy.

Role of government in Post-LPG Era

  • The government has to act as a regulator and facilitator rather than the controller or provider of goods and services.
  • Regulatory Functions: such as FDI norms, labour laws, environmental regulations, law and order, Ease of Doing Business factors, etc have to be stable, efficient, transparent and accountable.
  • Developmental Functions: Providing quality essential services such as education, health and infrastructure development to create an enabling environment of economic growth.
  • Moving out of activities where the private sector has achieved competency.

Yes, the Indian government has done enough to meet the demands of LPG

  • Liberalisation:
    • Removal of Industrial Licensing and Registration: Industries licensing is necessary only for following industries: (i) Liquor, (ii) Cigarette, (iii) Defence equipment, (iv) Industrial explosives, (v) Drugs, (vi) Hazardous chemicals.
    • Number of industries reserved for the public sector was reduced from 17 to 2 – (a) Railway operations, (b) Atomic energy.
    • Labour laws, environmental laws, compliance rules have all been streamlined to reflect the demands of LPG.
  • Privatisation
    • Sale of shares of PSUs to encourage professional functioning. 
    • Disinvestment in PSU’s
  • Globalization:
    • Reduction in tariffs
    • Long term Trade Policy
    • Convertibility of Indian currency and adoption of floating exchange rate system.
    • Increase in Equity Limit of Foreign Investment

How the Indian Government has failed to meet the demands of LPG

  • Regulatory Failure:
    • Failure of IL&FS, NBFC Crisis, PMC bank failures all are some of the examples showcasing lacune in government regulations.
    • Labour codes still haven’t been passed although being debated for long.
    • Ease of Doing Business ranking has improved to 63rd out of 190 nations but still in contract enforcement(163rd) and registering property(154th) India lacks far behind.
    • Corruption in regulatory agencies such as the Medical Commission of India is evidence of systemic failure in regulation.
    • Pollution control and enforcement of environmental laws is still very poor.
  • Development failure: here the failures of government is very stark
    • Government has failed to provide quality education, health and standard of living. 
    • Poor skill level of the workforce can be attributed to the absence of industry-academia linkage in the Indian education system.
    • Indian infrastructure still lags behind the demands which leads to increased logistical costs and overall delay in passenger transports.
  • Failures in Privatisation
    • In spite of mounting losses in PSUs like Air India, BSNL, BHEL, etc government has failed to disinvest in these PSUs owing to labour unions or failure to attract investors.
  • Failures in Liberalisation
    • India still fears global competition because protection given to domestic industries has not made them globally competitive. Fear of sudden surge of imports was one of the prime reasons of India withdrawing from RCEP.
  • Failures in Globalisation
    • India’s overall share in world goods trade is 1.7 per cent only. So, the expected reward of LPG making India a global manufacturing hub has not materialised.
    • Rising Protectionism and resultant Trade Wars are further expected to make a dent in India’s export growth.

At the same time, the reforms were criticized as being biased towards the rich, reducing employment opportunities in the organized sector, benefitting only a few sectors, especially services and therefore resulting in skewed development. The manufacturing and agricultural sectors did not reap much benefit and this continues even till today.

Hence, for the government to be responsive to this important change, it needs to focus on inclusive growth and development. This can be facilitated by carrying out second-generation reforms which will be much deeper and all-pervasive. The impediments to speedy enforcement of GST tax reforms like Direct Tax Code and land reforms etc. should be removed at the earliest.

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Dipanshu Sharma
Dipanshu Sharma
2 years ago