TASK 3

ECONOMIC REFORMS IN INDIAN ECONOMY

FIRST PHASE

With the changes in the nature of markets and institutions, industrial organisation and
structures and social relations of production in various countries of the world, India has also
started to respond to all these changes, particularly to the increasing globalization of
economic processes.

In order to provide greater scope to private sector, this new policy introduced various policy
changes regarding industrial licensing, technology up-gradation, elimination of controls and
restrictions, foreign capital, fiscal policy, rationalizing and simplifying the system of fiscal
and administrative regulation and export-import policy.

In this connection, the government introduced various measures in the following

 Cement
 Sugar
 Asset limit
 Broad-branding
 Drug
 Textile
 Electronics
 Foreign trade
 LTFP

SECOND PHASE

The first phase of economic reforms failed to yield the expected result in most of the fronts.
More particularly, the deficit in the balance of trade account gradually increased and thus the
average deficit in balance of trade during the Sixth Plan which was to the extent of Rs. 5,935
crore, suddenly rose to the tune of Rs. 10,841 crores during the seventeenth plan.

Macro-Economic objectives:

The main macro-economic objectives of economic reforms (2nd phase) in India include:

 Attaining economic growth at the rate of 3 to 3.5 per cent in 1991-92

LATEST MAJOR ECONOMIC REFORMS

India is in a crisis, with the pandemic battering an already weak economy. The
national government has struggled, both in terms of managing the pandemic and in
trying to rescue the economy. The crisis and the urgency it has created has, however,
led to the beginning of a new set of economic reforms. These reforms aim to address
obstacles to growth that have persisted through the three decades since India shifted
its basic stance towards economic policymaking.

The central government passed a series of labour law reforms that are designed to
streamline the regulation of labour. Like the agricultural reform bills, the urgency of
action has led to a lack of prior debate and new laws don’t seem to be entirely well
thought out. The reforms aim to continue to provide needed protections for labour
while increasing flexibility for employers.
Perhaps the most central example of the new set of economic reforms is the
production-linked incentive (PLI) scheme for 10 sectors, ranging across a variety of
products and technologies. The essential idea is to reward growth in sales, and this is
certainly better than policies that encourage firms to stay small, as did the notorious
Small Scale Reservation schemes of the past. The latest PLI policy follows on an
 earlier announcement for some electronics manufactures. Encouraging rapid growth
with simple and direct monetary incentives seems especially attractive as the
economy seeks to recover from the pandemic. But here, too, the government may
need to fill out its policy package in a more careful manner.
In the final analysis, the new set of economic reforms being introduced with urgency
by India’s national government is barely scratching the surface of what needs to be
done for the economy to sustain growth at rates that will once again start lifting
millions out of poverty.

MACRO ECONOMIC FACTORS

 Inflation
It is estimated through different indices and each gives particular data about the costs
of things that it shows.
 Unemployment rate
The level of unemployed workers in the aggregate work force. The aggregate work
force comprises of all employed and jobless individuals inside an economy.
 Exchange Rate
Exchange rate is the cost of a country’s cash as far as money. In this way, exchange
rate has two segments, the country’s own money and foreign currency, and can be
cited either straightforwardly or in a roundabout way.
 Gold
The significance of gold has been expanded in the present world because of the
monetary emergency in the present financial world.
 Foreign Exchange Reserve
The reason behind to keep up this sort of reserves is to manage any unexpected
financial stuns and crises.
 Gross Domestic Product
Gross domestic product is measures that help in estimating the execution of an
economy.
 GDP ANALYSIS

Year 2020 2019 2018

Quarter Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Rate 23.9 23.9 3.10 4.10 4.40 5.20 5.70 5.60 6.20 7.10 8.00

Forecast changes in GDP FY 21 Q1

India's economic growth forecast for the financial year 2020-21 to 1.8 per cent saying private
consumption is likely to contract due to large-scale loss of income in the face of worsening
domestic outbreak of COVID-19.

Analysis of previous year

India's economy expanded by 3.1 per cent in the January-March quarter and dragged the full
year FY20 GDP growth to 4.2 per cent, weakest since the financial crisis hit more than a
decade back. The economy had grown at 6.1 per cent in 2018-19 (FY19).
The Gross Value Added (GVA) for Q4 came in at 3 per cent almost the same as the GDP
growth in Q4 which shows that the tax collections would have been hit in the fourth quarter.
For full year, GVA came in at 3.9 per cent.

India’s Gross Domestic product in October – December 2019 stands at 4.7 percent (Q3 OF
FY20) as per the data declared by National statistical office. The declared GDP number has
recorded. The declared GDP number has recorded a marginal improvement of 0.2 percent as
the GDP number stood at 4.5percent in the last quarter. The numbers announced by the
government are in consonance with the expectations of many that were doing rounds from a
very long time.
GDP at constant (2011-12) prices in Q1 of 2020-21 is estimated at 26.90 lakh crore INR,
showing a contraction of 23.92 percent over the corresponding quarter of previous year. GDP
growth rate was 5.24% in the year-earlier quarter and 3.09% in the preceding one. Growth
rate is decreasing since Q4 of FY18 (8.18%).Since 2012-13, India attained maximum growth
of 9.62 percent in Q2 of 2016-17.

The Q4 of FY16 was other quarter when growth rate was above 9 percent. Quarterly GVA at
Basic Price at Constant (2011-12) Prices for 2020-21 (Q1) is estimated at 25.53 lakh crore,
showing a contraction of 22.81 percent over the corresponding quarter of previous year. GVA
growth rates of Agriculture & allied, Industry, and Services sector are 3.37%, -38.08%, and
-20.64%, respectively. The 'Agriculture, forestry & fishing' is the only sector which
registered positive growth rate of 3.37% percent in Q1 of 2020-21 over Q1 of 2019-20.
Construction sector has seen highest decline of over 50 percent, followed by 'Trade, hotels,
transport, communication and services related to broadcasting' (-47 percent).Nominal GDP
growth, a measure of GDP without adjusting for inflation, declined 22.57%. The previous
lowest nominal growth rate of 5.87% was recorded in FY20 (Q2).

Submitted by:
Anooja Sajeev
Junior Research Analyst
Hedge School of Applied Economics